<ul>
<li>Apple is launching peer-to-peer payments in iOS 11.</li>
<li>It&#8217;s called Pay Cash and lets users send money to family or friends.</li>
<li>They can even transfer the money right out to a bank account.</li>
<li>This will compete with Square Cash, Venmo and other solutions.</li>
</ul>
<a href="http://www.cnbc.com/todd-haselton/" rel="author">Todd Haselton</a> | <a href="http://twitter.com/@robotodd">@robotodd</a>
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<iframe loading="lazy" src="http://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&amp;byGuid=3000624534&amp;size=530_298" width="530" height="298" allowfullscreen="allowfullscreen"></iframe>
Apple just announced that iOS 11 will support peer-to-peer payments through a new feature called Pay Cash, making it a direct competitor to similar services offered by Square Cash, PayPal, Venmo and even Facebook.
Peer-to-peer payments allow one user to pay another one through their smartphone. You might use it to pay a friend for pizza, for example, or to split a meal at a restaurant. It&#8217;s an industry that&#8217;s been growing in popularity, and one Apple has been rumored to enter.
Pay Cash will allow you to easily send money to family and friends, transfer it to and from your bank, and to even use it for Apple Pay purchases.
It&#8217;ll be a part of iOS 11, which launches later this year, Apple said Monday at the Apple Worldwide Developers Conference.
</div>

Apple launches peer-to-peer payments to take on Square, PayPal and Venmo

ANDREW LAPPING | Allan Gray
Wow, that valuation changed quickly!
A few years ago investors were very excited about investing in Africa outside of South Africa. People spoke of Africa rising, the growing middle class, financial deepening, less reliance on commodities etc. Now the popular refrain is, “How do I get my money out?” The “Get me out” sentiment applies both to corporates that invested in plant and machinery and financial market investors. Andrew Lapping questions this mentality as he discusses where we are finding value in Nigeria.
As you can imagine, the valuations investors put on assets vary widely, depending on whether everyone is desperately trying to buy or rushing for the door. But to what degree do asset prices change? Let’s consider a few Nigerian examples.
<h2>Beta Glass</h2>
Beta Glass is a Nigerian glass bottle business. People generally know how long it takes and what it costs to build a glass bottle facility, so it is a fairly easy asset to value.
In May 2015, private equity company GZI agreed to buy 70% of Beta Glass from its parent company at a price that valued 100% of Beta Glass at US$265m. The deal fell through when GZI could not secure US dollar funding. Move forward to today: the enterprise value for Beta Glass on the Nigerian stock exchange is US$33m. A valuation change from US$265m to US$33m is substantial for an easy-to-value physical asset.
<h2>Nestlé Nigeria</h2>
Nestlé Nigeria (NN) is a very well-run business and the blue chip of the Nigerian stock market. At its peak in December 2013, investors valued NN at 40 times historic earnings on the back of vast growth potential: the Nigerian middle class was growing and Nestlé was only selling a handful of its 50 000 products in Nigeria. As retail formalised, investors anticipated that the company would sell more products to more people at higher prices with lower costs. When a business trades on 40 times earnings, investors are looking at least 10 to 15 years into the future and factors such as recessions and currency fluctuations should make almost no difference to the underlying business value. In December 2013 investors thought NN was worth US$6.2bn. Three years later, after a period when the underlying value should have increased as the business reinvested and grew production, investors think NN is worth US$1.6bn. For us, despite the 75% valuation cut, NN now only looks reasonably valued.
<h2>Focus on financials</h2>
Our area of interest in Nigeria is the financial sector, where the sentiment is truly extreme. The price level and valuation are one measure of sentiment, the very low volumes traded are another, but the best indicator is the incredulous looks on people’s faces when you mention buying Nigerian banks.
Nigeria is a country of 175 million people with a Gross Domestic Product (GDP) supposedly larger than that of South Africa. The potential for Nigerian GDP growth is huge if the Buhari government can get a few things right. The government is focused on reducing corruption, sorting out the electricity supply, growing the non-oil economy and broadening the tax base. Even partial improvements in a few of these areas will have a very positive impact on economic growth.
<h2>Nigerian banks: Out of favour</h2>
Banks are an important part of any economy and tend to do better in good times rather than bad. The Nigerian banking sector is well developed and far more consolidated than only 10 years ago. The quality of lending and oversight is also vastly improved from pre-2008, where the main business of banks was lending money to management to invest in the stock market. Needless to say that ended badly, with a number of banks going bust and most of the remainder being bailed out to some degree.
Investors dislike Nigerian banks for many reasons. It is not currently possible to get money out of Nigeria. Investors are unlikely to put new money into a country when they have no idea if they will be able to get cash out and at what rate. The naira is marked at NGN307/US$, but the expectation is for the currency to weaken sharply if the government allows a free float. It is possible to get small amounts of money in and out of Nigeria at a rate of NGN410/US$ by buying and selling Seplat Petroleum, which is listed in both Nigeria and the UK. Given the recovering oil production, higher oil price and weak domestic demand, I think a fair rate is probably somewhere between the NGN410/US$ and the official NGN307/US$. The naira is already substantially weaker than the NGN163/US$ of October 2014.
A sector-specific reason for the dislike of Nigerian banks is the distrust of the balance sheets. Given the tough economic times and low oil revenues, the Nigerian banks’ non-performing loans (NPLs) seem to be understated. Zenith, the largest Nigerian bank, discloses NPLs of only 3% and took a bad debt charge of 1.5% last year. The most trusted balance sheet belongs to Stanbic IBTC, a subsidiary of Standard Bank, which disclosed NPLs of 6.4% and took a bad debt charge of 5.6% in 2016. Despite this substantial charge Stanbic was comfortably profitable and trades on 7 times historic earnings.
When dollar funding was readily available many banks made the mistake of taking dollar deposits and term lending these dollars to oil companies. As the dollar shortage developed the banks had to pay back the dollar deposits but could not get the dollar term loans back, leading to an acute funding squeeze.
<h2>The investment case for Nigerian banks</h2>
There is clearly a lot not to like, so why do we own Nigerian banks in the <a href="https://www.allangray.co.za/globalassets/documents-repository/fund/factsheet/Allan%20Gray%20Africa%20ex-SA%20Equity%20Fund%20(USD)%20(Class%20A)/Latest/Allan%20Gray%20Africa%20ex-SA%20Equity%20Fund%20(USD)%20(Class%20A)%20Latest.pdf" target="_blank" rel="noopener noreferrer">Allan Gray Africa ex-SA Equity Fund</a>? Clearly we think the businesses will survive. Consider Zenith, our largest position. Zenith’s total loans are only 3.3 times that of its equity. This is a very low ratio by global standards. In South Africa the ratio is closer to 8 times. The low advances to equity ratio means Zenith can take a huge bad debt charge and still have a substantial equity buffer. The large Nigerian banks are also very profitable, which allows for a greater margin of error. In 2016 Zenith could have taken an 8.9% bad debt charge and still broken even. A bad debt charge of that magnitude would bankrupt most developed market banks.
A further positive is that the founders own around 9% of both Zenith and Access Bank, another large Nigerian bank. This level of insider ownership is very unusual in the banking industry. When a person owns 10% of a large business they usually care far more about long-term sustainability than a manager who is just trying to get an annual bonus. The tough times in Nigeria are culling some of the weaker banks leading to a better, more consolidated industry.
Even if the Nigerian economy does not grow much the banks have plenty of growth potential. The Nigerian mortgage and retail lending market is practically non-existent and the vast majority of transactions are still cash rather than electronic. Previously retail lending was difficult as Nigeria did not have a national identity (ID) system. This is changing as a biometric ID system is introduced. According to the World Bank, Nigerian bank loans equate to 23% of GDP, compared to 179% in South Africa and 45% in Kenya.
<blockquote>&#8230;THE NIGERIAN BANKING SECTOR IS WELL DEVELOPED AND FAR MORE CONSOLIDATED THAN ONLY 10 YEARS AGO&#8230;.</blockquote>
Zenith’s return on equity (ROE) has averaged 16.5% over the past 10 years, which includes the recent down cycle and a very difficult 2009. In future Zenith should be able to achieve a similar ROE to that achieved historically. If this is the case, the bank will earn NGN3.63 per share; the current price is NGN14.00. Zenith pays out 50% of its earnings as dividends; this indicates a 13% dividend yield – an attractive prospect.
What investors are willing to pay for a unit of Zenith’s net asset value (NAV) has fallen from 1.4 to 0.6 despite Zenith consistently growing its NAV, as shown in <a href="https://www.allangray.co.za/globalassets/articles/qc/2017/q1/andrew-graph1.png" target="_blank" rel="noopener noreferrer">Graph 1</a>.
<img loading="lazy" decoding="async" class="alignnone size-full wp-image-121427" src="http://cnbc.africa/wp-content/uploads/2017/05/andrew-graph1.png" alt="" width="960" height="425" />
<h2>A reasonability check</h2>
The 10 largest banks in Nigeria have a market capitalisation of US$6.5bn. These 10 banks account for almost the entire sector, so it is possible to buy the Nigerian banking sector for US$6.5bn. Yes, some of these banks may be insolvent, but if they close down the deposits and customers will move to one of the other banks in the top 10. These banks have value for a few reasons: they hold US$50bn in customer deposits; they have significant infrastructure and provide banking services to the largest economy in Africa with a population of 175 million and they generated US$1.5 billion in profits over the past 12 months. To me US$6.5bn seems fairly cheap. In 2008, investors thought these 10 banks were worth US$35bn when they were much smaller, inferior businesses.
For context Capitec, a bank that offers low-cost transactional banking and microloans to the low and middle market segment in South Africa, is valued at US$7.5bn, 15% more than the entire Nigerian banking sector, as shown in <a href="https://www.allangray.co.za/globalassets/articles/qc/2017/q1/andrew-graph2.png" target="_blank" rel="noopener noreferrer">Graph 2</a>. Capitec generated US$240m in profits in the year to August 2016, only 16% of the profits of the top 10 Nigerian banks. Either Capitec is somewhat expensive or Nigerian banks are very cheap. Will Capitec or the sum of the current largest 10 Nigerian banks be worth more in 2027? I know where my money lies.
<img loading="lazy" decoding="async" class="alignnone size-full wp-image-121428" src="http://cnbc.africa/wp-content/uploads/2017/05/andrew-graph2.png" alt="" width="960" height="425" />
Some may argue that all banks in Africa ex-SA deserve to trade on low valuations because the risks are so great. Consider Commercial International Bank (CIB), commonly regarded as the best Egyptian bank. During the Arab Spring in 2011 when risks were high and there was literally blood on the streets, CIB traded on 1.3 times net asset value. Now that investors like Egypt, CIB trades at 4.2 times NAV.
<h2>When is the best time to buy a share?</h2>
The time to buy a share is when earnings are low, those earnings are on a low multiple and the currency the asset is denominated in is weak. These opportunities don’t arise when things are going swimmingly, but rather when the risks seem overwhelming. Fortunately the risks to Nigerian banks are well reflected in the extremely depressed valuations.

Nigeria: Finding opportunities where others fear to tread

Looking at the JSE super sectors, it is extremely interesting how their contributions to the JSE Top 40 Index (Top 40) has changed over time. In part, this reflects the changing fortunes of the sectors in the South African economy, but there are other factors at play here too.
The percentage split between the four super sectors – Financials, Industrials, REITs (property) and Resources – from 1999 to date are shown in Figure 1 below.
Figure 1: JSE Top 40 Super Sector allocation over time
<img loading="lazy" decoding="async" src="/media/19262516/jse_bayhill_fig_1_600x388.jpg" width="600" height="388" alt="JSE_Bay Hill _fig 1"/>﻿
We can see that Industrials went from 31% of the Top 40 Index to a peak of 70% in 2015. The key drivers of this were our large global industrial firms (notably SAB, Naspers, Richemont) as well as investors favouring firms that have offshore exposure.
At the same time, the Resource share weighting in the Top 40 index has shown a completely inverse trend to Industrials, falling from over 50% in the early 2000s to a low of 12% in 2015 and slowly ticking up to reach just over 20% in October 2016. This recent move has been propelled by recovering resource prices as well as the removal of SAB Miller from the index (AB InBev, while listed on the exchange, is not in the index, nor is BAT).
Over this period, Financials’ share of the market has been mostly flat at about 15% of the index after coming off the high of the financial services bubble that burst in the last 1990s. And, of course, Property stocks have slowly risen as the property sector has mushroomed, with some large property stocks making it into the Top 40.
These trends are instructive and speak to the changing nature of our economy and investment markets as well as providing some insight into lost opportunities and offering some future lessons.
Firstly, they indicate that South Africa missed the global commodity super cycle boom, largely as a result of policy uncertainty and a lack of reliable infrastructure, a point that was made by no less than Mineral Resources Minister Mosebenzi Zwane at this year’s Mining Indaba. Investors have shied away from South African commodity companies, opting instead for global competitors. During the global commodities boom – which lasted from 2004 to 2011 – in South Africa, Resources’ contribution to the Top 40 Index actually slipped.
And things have not improved. On the contrary, from having been above 50% at one stage, Resources are now down to a shockingly low 20% of our investable universe, this in a commodity-driven economy. And worse, although commodity prices have risen somewhat recently, further upside seems limited by low global growth.
With investors and company management spooked by corruption and government policy post the 2009 Zuma administration election, they have looked to externalise their business and investment as much as possible. While the listed industrial sector on the JSE ostensibly grew, our economy de-industrialised. In 2006, manufacturing accounted for 16.3% of GDP. Today it accounts for just 12.5%. Increasingly the market no long looks like the actual composition of our economy
And so, while it would appear that the recent fall in industrial stocks and rise of resource counters in the index signal the opposite, I believe the trend to externalise our listed corporate earnings will continue until policy pragmatism and certainty returns. Unfortunately we are not seeing this. A good example is the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill, No 15 of 2013 which empowers the Minister of Mineral Resources to designate “strategic minerals” and then set their selling price to support local manufacturing. Even government understands that BMW would not build any manufacturing plants here if the Minister of Trade and Industry reserved the right at his discretion to set the price of BMW cars, yet this is exactly what policy is doing in one of the most critical sectors of the economy.
Over the past 10 years, the JSE has increasingly become an “externalized” exchange given the local political and economic environment. This can be well seen in the nature of firms listed on the bourse. If we are to achieve the goals of inclusive economic growth, which will also propel the prominence of local business in the market, we need policy pragmatism and stability.
 
This article does not take into account the needs or circumstances of any person or constitute advice of any kind. It is not an offer to sell or an invitation to invest. BayHill Capital Proprietary Limited does not accept any liability whatsoever for any loss arising from reliance on this article.

How the JSE has changed over time

South Africa&#8217;s biggest private education firm Curro Holdings reported a 51 percent surge in half-year profit on Tuesday, helped by acquisitions and growing demand for private education.
Headline earnings, the main profit gauge used in South Africa that strips out some one-off items, increased to 22.0 cents per share in the six months to the end of June from 14.5 cents per share a year earlier.
Founded in 1998, Curro has been growing at a lightning-fast rate as parents frustrated with under-resourced, over-crowded state run schools splash out on private education.
Shares in the company, which have soared 15-fold since going public in 2011, slipped 0.9 percent to 42.29 rand at 0846 GMT.
Curro said in a statement the results were boosted by acquisitions that included Namibia-based Windhoek Gymnasium, which gave the company 1,500 students.
The company, which runs 47 campuses, is constructing nine more that could completed this financial year as part of stated goal to run 80 campuses by 2020
 
(Reporting by Zimasa Mpemnyama; editing by Tiisetso Motsoeneng and David Clarke)﻿

Curro first-half profit jumps 51 pct on acquisitions and demand

Catherine Boyle
Source: <a href="https://www.cnbc.com/id/44030554">Selloff &#8216;Perception Catching Up With Reality&#8217;: CEO</a>
Thursday&#8217;s market sell-off, which saw a dramatic 500 point fall in the Dow, is just a case of market perception catching up with reality, the chief executive of one of Europe&#8217;s biggest insurers told CNBC Friday.
<img loading="lazy" decoding="async" type="image" src="https://image.cnbcfm.com/api/v1/image/38348204-crystal_ball_businessman_200.jpg?v=1354732729&amp;w=1910&amp;h=1000" data-licensor-name="Fredrik Skold | The Image Bank | Getty Images" width="1910" alt="Businessman with crystal ball" height="1000"></img>
Tidjane Thiam, chief executive of Prudential , said: &#8220;Our fundamental view is that the fiscal deficits created by the crisis will take longer to re-absorb than the market had anticpated.
&#8220;What&#8217;s going on is part of perceptions coming more into line with reality.&#8221;
Julian Roberts, chief executive of asset manager Old Mutual , told CNBC Friday: &#8220;There does seem to be a lack of confidence driving things down.
&#8220;Corporates are delivering good profits, but we have also got this big problem over debt, particularly in Europe, the US and the UK.&#8221;
Both CEOs insisted that their companies are strongly capitalized and well-placed to weather future market storms, as traders braced themselves for another sell-off in Europe and the US on Friday following overnight losses across Asia, while the price of oil headed for its biggest weekly drop since early May.
Their companies are expecting much of their future growth to come from emerging markets rather than Europe and the US.
Prudential only has around 53 million pounds ($86 million) worth of exposure to sovereign debt in Greece, Spain, Portugal and Italy combined, and about 300 million pounds exposed to banks, Thiam said.
&#8220;There was a lot of relief after &#8217;09 and we used that to de-risk our balance sheet and are now in a better position,&#8221; he added.
Since taking over at the company three years ago, Thiam has focused on growth in Southeast Asia, and faced criticism from investors after a failed $35.5 billion bid for AIA&#8217;s Asian business.
Old Mutual, which operates a range of financial services in Southern Africa and holds a majority stake in South African bank Nedbank, is particularly focused on Africa.
&#8220;As in all emerging markets, there&#8217;s a huge amount of growth (in Africa)&#8221;, Roberts said. &#8220;A lot of people have come into the world of having money, and are buying more and more goods and consuming more and more things.&#8221;
African growth is being boosted by its mineral wealth and the importance of many of these resources to China, he added.
Old Mutual announced a 15 percent increase in its first-half profit to 845 million pounds Friday, helped by cost cuts and strong growth at Nedbank, which it tried to sell to HSBC late last year.&nbsp; 
Prudential reported a better-than-expected 25 percent rise in half-year profit to 1.06 billion pounds ($1.72 billion) Friday.
Profits were boosted by strong growth in South-East Asian markets. 
The company continued to grow its asset management business, which contributed £259 million, up 34 percent, to profits in the first half of 2011.
It hiked its half-year dividend 20 percent to 7.95 pence per share.
Positive growth continued in South-East Asia, particularly in the target countries of Indonesia, Malaysia, Vietnam, Philippines, Thailand, and more mature markets Hong Kong and Singapore. India was described as &#8220;challenging&#8221;.

Selloff ‘Perception Catching Up With Reality’: CEO

Guillaume Desjardins
Source: <a href="https://www.cnbc.com/id/43322158">Arab World in 10-20 Year Testing Period: Fund Manager</a>
Investors may be wary of putting their money in the Middle East and the Arab peninsula given the political turmoil which has shaken the region in recent months, but it offers investment opportunities worth considering, one fund manager told CNBC.
<img loading="lazy" decoding="async" type="image" src="https://image.cnbcfm.com/api/v1/image/42225521-cairo_exchange_inside_200.jpg?v=1354732729&amp;w=1910&amp;h=1000" data-licensor-name="CNBC" width="1910" alt="Inside the EgyptStock Exchange just before its reopening." height="1000"></img>
“There are two sides of the Arab world,” Shirish Saraf, the Vice Chairman and CEO of Samena Capital, told CNBC in an interview on Wednesday. “You have the economies of the GCC, which we continue to very much believe in, and the markets in the Levant and Egypt and various other things which are currently under political turmoil.” 
“I do believe there is an inflection point across Middle East. The first one was the Second World War, where boundaries were drawn,” Saraf said, “This is the second one, where it’s going to be about educational reforms, political reforms and social reforms.” 
This situation will turn into a “10 to 20 year testing period… that will translate into every country in the Arab World,” said Saraf, who sees this as an opportunity for his fund, especially in the United Emirates and in Saudi Arabia.
Saudi Arabia is a market no one can ignore because of its purchasing power, Saraf explained, but even though “it is the main market in the Arab world… clearly, it will come with a set of challenges,” he said, referring to the lack of political structure.
Investors in his fund, Saraf said, are looking more and more towards India and China because the environment in their region is unstable.
This is why Saraf believes in “cross-border consolidation” and is launching his second &#8220;special situation fund&#8221; dedicated to long term investments in companies which grow across Middle East, India and Asia, targeting $700 million. The fund already has commitments of $350 million, he said.

Financials

Apple launches peer-to-peer payments to take on Square, PayPal and Venmo

Nigeria: Finding opportunities where others fear to tread

How the JSE has changed over time

Curro first-half profit jumps 51 pct on acquisitions and demand

Selloff ‘Perception Catching Up With Reality’: CEO

Arab World in 10-20 Year Testing Period: Fund Manager

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Apple launches peer-to-peer payments to take on Square, PayPal and Venmo

Nigeria: Finding opportunities where others fear to tread

How the JSE has changed over time

Curro first-half profit jumps 51 pct on acquisitions and demand

Selloff ‘Perception Catching Up With Reality’: CEO

Arab World in 10-20 Year Testing Period: Fund Manager

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