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.

Profits slipping

Although adjusted revenue was up 2.9% compared to a year ago, profit before tax slipped by 6.3% and diluted earnings per share dropped 13%. Net cash inflow from operations plunged 65%, the gross profit margin slipped 3% and the operating margin jolted down 9%.

That looks like a lot of negatives in the figures so I’m not surprised to see the shares down today, which continues a plunge from over 550p during the autumn of 2015 – a decline in excess of 39% at today’s 333p price.

Chief executive Doug Edwards explained that the firm is aiming to convert customers from well-established analogue manufacturing techniques to digital inkjet solutions and drive up revenues to £220m by 2020. Today’s revenue figure of just over £96m suggests the size of the opportunity for Xaar, but the big question is will those revenues, if they occur, generate meaningful profits for the firm? Based on today’s reporting, I don’t think we can take it for granted that they will.

Ploughing capital into R&D

Part of the challenge could be that Xaar seems to invest a lot of capital in research and development (R&D), much of it just to stay ahead of the game in the face of fierce competition. Gross R&D spend was up 12.5% at £22.4m, which is around 1.3 times operating profits. The stakes are high, and if today’s R&D doesn’t hit the mark by generating profitable products, the shares could slip further down.

On the other hand, investment in R&D can really drive good trading when it clicks, but I’d want to see evidence of improvements in the figures and a share price turning up before investing.

Stellar trading

It’s hard to fault Egyptian medical diagnostics firm Integrated Diagnostics Holdings’ (LSE: IDHC) trading figures presented in today’s full-year report. Revenues and gross profit inflated 15% compared to a year ago, net profit rocketed 72% and earnings per share shot up a massive 79%.

On that showing, it seems safe to conclude that trading went well. The directors agree, hiking the dividend by 100%. However, the firm’s location in Egypt caused problems due to a 50% deflation of the Egyptian pound, which led to a net foreign exchange loss of EGP89m.

 Chief Executive Dr Hend El-Sherbini reckons the firm worked hard to reduce costs and increase sales to mitigate the negative effects of currency valuation and inflation. She said: “Our ability to keep the costs of our materials in check reflects both the strength of our supplier relationships and the significant volumes we regularly purchase from them.”

Despite the strength of the firm’s financial results, I feel uneasy about Integrated Diagnostic’s exposure to such volatile currency movements due to its location in the world. The shares seem locked in a wilful downtrend too, falling some 135% since August 2015. Taken together, these reasons are enough to keep me away from the shares.

The post Why I’m avoiding the temptation to buy Xaar plc and Integrated Diagnostic Holdings plc appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

What’s SpaceandPeople (LSE: SAL) all about then? It does promotional space at more than 750 shopping centres, city centres, retail parks and the like — offering things like promotional kiosks and other marketing services. And it’s just released full year results for 2015.

With the termination of one of the firm’s agreements, UK operations fell back a little as expected, and gross revenue dropped from £31.6m in 2014 to £26.5m. But pre-tax profit before exceptionals stayed approximately the same at £1m, and with no non-recurring costs the company reported a basic EPS rise of 82% to 4.26p. The dividend  was lifted 10% to 2.2p per share, to yield 3.5%, and there was net cash of £0.7m on the books.

The shares have been up and down a little all morning, and at the time of writing I’m seeing a 2.5% rise to 61.5p, so what are the prospects for the future? Well, there’s a 54% rise in EPS forecast for the current year, with the dividend expected to grow to yield 4.3%. And that puts the shares on a forward P/E of just 10.

Chairman Charles G Hammond told us “We believe that SpaceandPeople is creating a solid platform for growth and a sustainable future“, and though it’s a very small company with a market cap of only £11.65m and comes with the commensurate risk, I’d be cautiously optimistic.

Egyptian healthcare bargain?

Integrated Diagnostics Holdings (LSE: IDHC) is an altogether bigger company, with a market cap of close to £500m, though that’s a little down from its value at flotation in May 2015. Priced in US dollars, the shares dropped as low as $3.85 in February this year, but since then we’ve seen a 34% recovery to today’s $5.15 — with  no change so far on the day full year results were released.

The Jersey-registered company bills itself as “Egypt’s largest fully integrated private-sector provider of medical diagnostics services“, and saw revenues grow 18% to 1,015 Egyptian Pounds (approximately £80m), with adjusted net profit up 18.4% and earnings per share up 9% — and the firm declared a dividend of six US cents per share for a modest yield of 1.2%.

Should you buy? Well, the combination of an AIM listing, an overseas registration, and operating in Egypt will add risk for sure. But that’s offset by forecasts of 47% EPS growth this year and 25% next, which would drop the P/E to 13 by the end of 2017 — and dividends are predicted to yield 3.7% by then.

Potash potential

Potash is in the news of late with Sirius Minerals‘ York Potash project looking increasingly promising, and today we have interim results from African Potash (LSE: AFPO). It’s another tiddler, with a market cap of £14m, and is registered in Guernsey this time. As I write, the shares are down 14% to just 1.45p, but that still represents a quadrupling over the past 12 months — so how did the results go?

The company realised its first revenue from the fertilizer trade in December, of $59,000, and has a trading agreement in place with the Common Market for Eastern and Southern Africa. But there’s obviously some way to go yet before they see any profit, with a pre-tax loss of $716,000 reported, together with a cash balance as of 31 December of $509,000.

I think it’s fairly obvious that means a fair bit more cash (and the corresponding dilution) will be needed in the coming few years to fund the company’s development — and in January this year we’ve already seen a $1.18m share placing. There’s potential here, but it’s too risky for me.

The post Should You Buy SpaceandPeople Plc, Integrated Diagnostics Holdings PLC And African Potash Ltd After Today’s Results? appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.