Forthcoming attractions

Why the JSE may become a sexier place to invest.

For aggressive and professional investors, yield is the Holy Grail, to be sought after at any cost. There are two primary ways of obtaining superior yields; leveraging up, or investing in super-high-growth assets.

The first strategy was one of the factors in the subprime crisis; the second was a factor in the flood of foreign direct investment (FDI) into fast-growing China. For better or for worse, between exchange controls and the volatile currency, South African investors didn't have easy access to either.

In South Africa, economic growth has been a relatively moderate 4-5%, slowing down recently and projected to average just 3% next year. Under this growth ceiling, it's getting tougher to find good outperformance opportunities (although they do exist).

That's why the JSE's nascent Africa Board is such an interesting idea. The Africa Board - an exchange-within-an-exchange that plans to feature top companies from around the continent (excluding South Africa) - will effectively be a subsection of the JSE's main board.

It will have virtually identical listing requirements, but significantly lower listing fees. Listing will cost just R30 000 for a company with a market capitalisation less than R50m, and a maximum of R101 449, compared to a R1,5m maximum for the Main Board. Companies listing on the Africa Board will remain listed in their home countries, but will have improved access to South Africa's deeper capital markets.

The idea, according to the head of the Africa Board Maureen Dlamini, is to give high-quality African companies access to South African investors, and to give domestic and foreign investors easy access to the growth story of Africa.

Currently, there are many investment funds around the world who are interested in investing in Africa, but whose mandates specify that they can only invest in bourses that are members of the World Federation of Exchanges. Few African exchanges are members, only the stock exchanges of South Africa, Egypt and Mauritius qualify. This means that many foreign investors can't invest in assets in rapidly growing economies on the continent.

The Africa Board will bridge this gap by making top African companies accessible through the JSE's proven trading, clearing, settlement and surveillance systems. By focusing only on companies that meet the Main Board's listing requirements - including the use of IFRS accounting, the appointment of a JSE-approved sponsor, and three years' profit history - the Africa Board will offer only quality companies.

The board will soon be getting its first listing. Innovative Nambian financial services firm Trustco is set to list in early February next year, transferring about 75% of its scrip to South Africa.

The company has a record of developing pioneering financial products for low-income markets. For example, it has introduced the novel concept of free life insurance through pay-as-you-go cellphones. Essentially, for every Namibian dollar a user loads on to her phone, she gets life insurance to the value of N$10. So if she loads, say, N$150 a month, she would have N$1 500 in life insurance that her family could use to cover funeral costs and so on. The cover is effective for 30 days after it is "purchased", and is renewed whenever more airtime is loaded onto the phone.

Trustco MD Quinton van Rooyen says that the product encourages people to load airtime regularly, and has applications for any regular billing system. For example, municipalities that struggle to get people to pay their rates and taxes on time could use the insurance product as an incentive to get people to pay.

The group offers other products, including student loans, legal and medical insurance, and property development services. It has grown from a market cap of N$5m and an annual profit of N$1m in 2003 to a market cap of N$500m and an annual profit of N$77m in 2008.

Trustco management has ambitions to raise the value of the company to N$5bn within the next five years, through acquisitions, organic growth in Namibia and expansion into the rest of Africa. That kind of growth is precisely what the Africa Board will try to capture, and investors in South Africa should keep a weather eye open.

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