US Edition Lonrho
13p +¼p
Questor says BUY
This is the second bite of the cherry with this company. Questor sold the shares earlier this year, banking a 112pc profit. Since then, earnings estimates have risen, but the share price has been dragged lower.
During the last market slump in 2009, emerging markets were hard hit in the flight to safety. Investors sold assets deemed as risky and repatriated the cash. This is exactly the same as what is going on right now.
According to research released by the World Bank last month, global GDP is now expected to increase by 2.8pc in 2011. In 2010, sub-Saharan African economies grew by 4.6pc and the World Bank expects growth of 4.8pc this year, or by 5.8pc excluding South Africa.
Lonrho is a conglomerate operating in five divisions – transportation, agriculture, infrastructure, hotels and support services.
The company has had considerable success over the last few months. It has moved from Aim to the main market and has had notable success in its agricultural, hotel and infrastructure units.
The group has just started supplying Wal-Mart, the world's largest retailer, with seafood from its 51pc-owned Oceanfresh division. Its products are now in 518 stores in the US. The company already acted as a supplier to 435 Costco stores, so the deal has more than doubled the scope of its operations in the country.
The company has also won the 20-year rights to operate the African franchise of the easyHotel chain. The opening schedule will focus on African destinations already served by easyJet, sister company to easyHotels, as well as other large cities across the continent. A total of 50 easyHotels are planned to be opened by the end of 2014.
As Sir Stelios Haji-Ioannou, founder of easyGroup said when the deal was announced: "The economic development of the African market, supported by the significant number of foreign visitors, large-scale urbanisation and the growing disposable income of the one billion people in the domestic market, clearly provides demand for a safe, value-for-money budget hotel chain of consistent, predictable quality." Questor concurs.
The company already owns 63pc of the Luba Freeport in the oil-rich country of Equatorial Guinea, but Africa is becoming an even more significant player in the global oil industry.
Lonrho plans to repeat the success of Luba in other African countries – and in August signed a memorandum of understanding with the government of Ghana to be the sole developer and manager for a new oil logistics port there to service the growing demands of the offshore oil industry. A number of companies such as Tullow Oil have made significant discoveries such as the Jubilee field.
The company also moved into profit last year – with profitability expected to rise sharply in the next few years.
The company has had a September year end, but this
is being moved to December this year. The numbers are expected some time in February.
The earnings multiple for the next year is just eight times analysts' forecasts, falling to 5.1 in 2013. The company is a growth stock and does not pay a dividend.
Obviously, given the market backdrop, the investment must be regarded as speculative. However, it is clear that recent share-price performance does not reflect the operational success of the company. Buy.