Equity Analysis /
Nigeria

Africa Consumers: Power to the poor

    Nirgunan Tiruchelvam
    Nirgunan Tiruchelvam

    Head of Consumers Equity Research

    Eronmosele Aziba
    Eronmosele Aziba

    Equity Research Analyst, Consumers

    Tellimer Research
    8 April 2019
    Published by

    We are bullish on the Africa Consumer sector and identify Nigerian Breweries (NB NL), Nestle Nigeria (NESTLE NL), and East African Breweries (EABL KN) as our top picks. In this report we introduce a proprietary valuation metric, Productive Exposure to the Poor (PEP), that rates companies based on the extent to which their business model targets Africa’s poorer segments. We also focus on Nigeria and provide individual company analysis of the eight Nigerian Consumer names in our coverage.

    The Africa consumer sector has underperformed the Frontier index and Africa index since June 2014. The sector has been under a cloud. Key factors have been the commodity collapse and severe currency depreciation in the principal African markets since 2014. In 2015-18, 12 of the major African countries recorded a slowdown in consumer spending relative to the previous three years. We view this as a temporary pause in the march of African consumer growth.

    The fundamental case for Africa’s consumer growth is robust. It has a young population, high levels of urbanisation and rising incomes. These should present a compelling opportunity in the next five years.

    We differ from the consensus view that it is the African middle classes that are the principal drivers of consumer growth. The rhetoric on the emerging middle class masks the stark reality that nearly 80% of the population in Sub-Saharan Africa live on less than US$4 a day (according to the ILO). African consumer companies would be better served if they targeted the poorer, larger demographic.

    We introduce a proprietary valuation metric [Productive Exposure to the Poor (PEP)] that rates companies based on the extent to which their business model targets Africa’s poorer segments. Nestle Nigeria, East African Breweries and Unilever Nigeria rank high on our PEP metric.