Strategy Note /

Tellimer's top picks: December 2021

  • We present five of our best current calls across economies, sectors, stocks and bonds for December 2021

  • This month's picks: Challenging outlook for e-finance and Paytm, Chile equities remain in our top picks, Buy MTN Nigeria

  • Also: Buy Uganda local debt, Buy Now Pay Later to revolutionise consumer credit in EM

Tellimer's top picks: December 2021
Tellimer Research
30 November 2021
Published by

1. Challenging outlook for e-finance and Paytm IPOs

Despite their transformative potential, EM digital payments shares have been struggling since February. And the prospect of higher interest rates has been an additional headwind more recently, particularly for the most highly rated firms. In this context, we forecast a challenging outlook for two recent high-profile IPOs, Egypt’s e-finance and India's Paytm.

Both are trading at much higher multiples than their peers. e-finance is profitable, but its margins could come under pressure as competition intensifies. Meanwhile, Paytm is unlikely to be profitable any time soon, as it invests to add customers and products to achieve its 'super app' goals.

EM digital payments shares have underperformed global equities since February

Report: EM digital payments: Paytm’s IPO woes reflect a broader sector malaise

2. Chile is the cheapest hard commodity exporter in EM; Buy equities

Fears over the potential for a political shift to the left has been one factor behind the weak performance of Chilean assets this year, with equities (the IPSA index) down 10% ytd and the FX rate down 14%.

This is despite the 24% increase in the commodity price of copper (Chile mines close to 30% of global copper and metals exports account for over 20% of Chile's GDP).

Chile's trailing price/book and price/earnings are on 20% and 50% discounts to respective five-year medians, making it the cheapest hard commodity exporter in the emerging market equities.

Chile the cheapest commodity exporter in EM equities

Report: Chile presidential vote led by rightist candidates

3. Buy MTN Nigeria

In December, MTN Group plans to sell a 14% stake in MTN Nigeria, valued at over US$1bn. Sceptics have questioned MTN Group's intentions, asking if the move represents a gradual exit from the Nigerian market due to a lack of confidence. But MTN Group will retain a majority shareholding, and Nigeria remains one of the most important markets for the group, contributing c40% of its EBITDA. 

MTN Group to retain majority shareholding

In addition, the Central Bank of Nigeria recently granted approval in principle to MTN Nigeria to operate a 'payment service bank', allowing it to access the burgeoning mobile money sector. Our MTNN coverage initiation highlighted how mobile money could provide a considerable boost to the stock – our blue-sky valuation now indicates upside potential of 32%. 

We have a Buy recommendation on MTN Nigeria with a valuation of NGN240 per share.

Report: MTN to sell stake in Nigeria operation: Not a red flag

4. Buy Uganda 5- and 10-year domestic bonds

Uganda has come onto investors' radars over the past year because of its high domestic government yields, and possible lack of other opportunities, while its own domestic market has matured with improving liquidity. 

Although the yield curve has shifted downward from highs earlier in the year, it has reversed some of the decline over the past month. With a 10-year yield of 14.4% versus inflation of 2.2%, Uganda’s real yield is still among the highest in EM and offers an interesting opportunity. 

With the government continuing to resist eurobond issuance in favour of concessional borrowing and non-concessional syndicated loans (with both forms of borrowing subject to ceilings under the IMF programme), the local debt market is a compelling way to get exposure to one of Africa's better macro stories – high growth/low inflation and low debt/IMF-backed fiscal consolidation, offset by high twin deficits and some public financial management concerns. 

We assign a Buy to the 5- and 10-year domestic bonds amid high real rates (the 10-year is >12%) and scope for duration gains.

Domestic government bonds (mid-YTM)

Report: Uganda: Buy domestic debt amid high real yields and a solid macro outlook

5. Buy Now Pay Later to revolutionise consumer credit in EM

The penetration of consumer credit in emerging markets is far lower than in developed markets, but this is set to change with the emergence of innovative Buy Now Pay Later (BNPL) fintechs. There has been a strong shift towards e-commerce and digital payments in recent years, both of which are helping BNPLs thrive. The growth of these firms will power a surge in consumer spending and e-commerce in emerging markets.

Formal credit penetration – Emerging versus Developed Markets

We expect to see more interest from global BNPL giants in emerging markets and partnerships between payments and BNPL companies are likely to continue. Offline/in-store and cross-border segments of BNPL are likely to get traction. And we also expect more IPOs in the sector along, and the emergence of new unicorns.

We highlight five emerging market BNPL companies to look out for in 2022:

  1. Akulaku (Southeast Asia)

  2. Kredivo (Indonesia)

  3. Tabby (UAE)

  4. ZestMoney (India)

  5. ZoodPay (Central Asia and the Middle East)

Report: Buy Now Pay Later to revolutionise consumer credit in emerging markets