What is Jumia Technologies?

Tagged the ‘Amazon of Africa’ Jumia is a Nigeria-based e-commerce company. With over 40m listed products, the firm sells to an enormous African market of over 1.2bn consumers. The firm’s business model consists of four parts: JumiaPay, Jumia Marketplace, Jumia Travel, and Jumia Food. Having such an extensive portfolio of products is one of the things I like about it.

The African e-commerce market has seen an explosion in growth during the last five years as more and more countries are expanding internet capabilities. Analysts have projected e-commerce could be worth $75bn in leading African economies by 2025. Jumia seems to be harnessing this momentum, reporting a 50% rise in transactions during the first six months of 2020. Its stock price is likely to directly benefit from the increasing e-commerce presence in Africa. 

Still no profit

One problem that has haunted Jumia since its 2019 IPO is its losses. In its 2021 Q1 results, the firm announced operating losses of $41m. These are largely reflective of its ongoing infrastructure building to keep up with a growing consumer base. This gives the firm a temporary excuse for excessive losses. However, as a nine-year-old company, I would hope this investment would lead to some profits in the next few years.

In addition to this, there are still problems with the lack of internet infrastructure in much of sub-Saharan Africa. The International Telecommunication Union estimates that just 28.2% of individuals use the internet there. This could severely curtail Jumia’s capabilities as well as its stock price.

Future prospects for Jumia Stock

Alphabet‘s Google is one big-hitter that’s looking to capitalise on Africa’s extensive population growth. Through its Loon and Taara projects, the business is developing super-fast internet speeds through invisible light beams transmitted at high altitudes. Google has picked Africa as a target for this project and operations are already kicking off in Kenya. Facebook has announced a similar project to connect 23 countries in Africa and the Middle East to Europe via a 37,000km long undersea cable.

Projects like these will massively increase Jumia’s reach, and will no doubt add millions of new customers to the internet-based business plan.

Jumia: a buy now?

I like the current price of Jumia stock. Though it has taken a drastic tumble from its February highs, I believe this marks a good value buy opportunity. While there are certainly some short-term profitability hurdles that need to be overcome, I own Jumia shares as I believe it’s in a position to capitalise on the rapidly growing African market.

The post Does Jumia stock have long-term potential? appeared first on The Twelfth Magpie.

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Dylan Hood owns shares of Jumia Technologies. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Facebook and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One such company is Vivo Energy (LSE: VVO), which is the licensee of the Shell service station brand in 15 African countries that together boast 277m consumers. The company currently runs 1,800 service stations stretching from Botswana to Morocco that are experiencing rapid urbanisation, vehicle usage and economic development.

By running stations for a trusted brand name, Vivo is well-placed to benefit from these trends. Indeed, in the first half of the financial year, it recorded a 4% uplift in the volume of petrol it sold to consumers. But petrol and associated vehicle products like lubricants and car washes aren’t the only driver of growth as Vivo is placing a great emphasis on Western-style retail sales and restaurants at its service stations.

The shift towards these profitable retail operations helped boost gross profits 6% during the period to $312m with adjusted EBITDA increasing 8% $204m. And with net debt at just 1 times full-year EBITDA, the group’s balance sheet is in good shape. Together, solid cash flow being generated from operations as well as access to debt funding provide a solid base for Vivo Energy to continue expanding operations in current countries and beginning them in other ones.

However, despite Vivo’s solid growth prospects the company’s exposure to a wide variety of developing markets, any would-be investors should do extra due diligence before considering investing.

More wealth equals better health? 

This is also true of another fast-growing African business I’ve got my eye on, Integrated Diagnostics Holdings (LSE: IDHC). As its name suggests, IDHC runs 383 medical diagnostic testing branches in Egypt, Jordan, Sudan and, recently, Nigeria.

Just like Vivo, IDHC is taking advantage of rising populations, incomes and health problems to sell its services to increasingly wealthy customers. In the first quarter of its financial year, the group’s revenue rose 29% year-on-year to EGP446m with net profit up 24% to EGP110m.

As these results show, the company is not only growing quickly but is also profitable. Indeed, for the full year, management is guiding for 20% revenue growth and EBITDA margins in excess of 40% at its operations outside of Nigeria, which have just begun and are currently lossmaking.

Although its 12 Nigerian locations are not profitable at the moment, the long-term potential for IDHC in Africa’s most populous country is understandably impressive. And as Nigeria beefs up, the company is still growing steadily in its home markets with new branches opened in each of its three core markets in Q1 and a solid increase in the revenue per test it received during the period.

IDHC has pretty solid growth prospects, but UK investors should be extra cautious considering the currency woes that have hit the company’s USD and GBP results stemming from Egypt’s turbulent political and economic environment. 

The post Forget other emerging markets. Why these African stocks have enormous growth potential appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Spirits maker Diageo’s (LSE: DGE) plan is twofold. First, the company is pushing for increased sales of Guinness and local beer brands to build links with distributors and consumers alike. The hope is it will be easier in the future to sell the higher margin spirits Diageo is famous for, such as Smirnoff and Johnnie Walker.

Results for the first six months of fiscal 2016 illustrated that parts of this plan are working. Organic volume movement rose 7% and organic net sales were up 3%, although foreign exchange movements meant an actual fall in real-terms sales.

While operating margins in Africa still lag those posted in developed markets, this is to be expected as the company invests heavily in marketing and focuses primarily on lower-margin beer sales. Looking forward, the emphasis Diageo has placed on Africa is remarkable and it now accounts for 13% of revenue, a figure that should continue to grow in the years to come as developed Western markets offer little room for growth.

Core market

Consumer goods giant PZ Cussons (LSE: PZC) is no stranger to Africa, having been founded in Sierra Leone well over a century ago. While the company long ago expanded into Asia and Europe, Africa still provides the majority of revenue and Nigeria alone accounts for roughly 25% of group profits.

However, trading in Nigeria has been poor recently due to high inflation and subsequent currency devaluation. Still, on a constant currency basis, Africa revenue rose a full 17.9% over the past half-year period. Given the company’s market-leadership in Nigeria, Africa’s largest economy, and growing operations in Ghana and Kenya, PZ Cussons is well-placed to benefit in the coming decades from the growing middle classes in these countries.

Exploiting spending power

Ex-Barclays CEO Bob Diamond is obviously more bullish on Africa than his former company, which recently announced plans to divest its African holdings in the coming years. Diamond, after being ousted from Barclays, turned his attention to his new company, Atlas Mara (LSE: ATMA), which invests in banks across Sub-Saharan Africa. Atlas Mara’s stakes in seven separate banks are intended to take advantage of growing spending power among consumers who will require greater access to financial institutions.

Although the company slipped into the red in Q1, it posted an $11.3m net profit in full-year 2015 and expects to exceed this target in 2016. If the bank can do better than larger rivals such as Standard Chartered in avoiding non-performing loans, particularly those related to the commodities sector, this should be a reasonable target thanks to strong performances from Nigerian and Rwandan subsidiaries. The need for banking services is certainly growing across Sub-Saharan Africa, and if mobile banking doesn’t obviate the need for traditional banks, Atlas Mara is well-placed to take advantage of this.

The post Why Diageo plc, PZ Cussons plc and Atlas Mara Ltd are betting big on Africa appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of PZ Cussons. The Motley Fool UK has recommended Barclays and Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.