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Sanlam's Kokkie Kooyman: my top GEM financials ideas

by Kokkie Kooyman on Dec 21, 2012 at 11:53

Two of the top 10 focus on providing investment services to the growing upper end of the middle class and the deepening and widening of financial markets.

Panin Securitas  provides financial services such as underwriting, brokering and investment management, investment advisory and other related services in an under-penetrated and rapidly growing Indonesian market.

It has grown its net asset value rate of 24.1% since listing in 2001 and whilst its share price increased at a compound rate of 39%!. It has a number of Morningstar 5 star rated funds and the most exciting about this little gem is that the Indonesian investors have only started the journey of investing in equities.

A similar company in Turkey (but much further in its development) is Is Yaterim Menkul  Degerler (Ismen Securities). Ismen has the advantage that it has Is Bank as a parent who can be used to provide better reach via its 100 strong branch network. Similarly to Panin it had grown its net asset value per share at a compound rate of 23% since 2002 with the Turkish market still in an embryonic stage.

Most of the other high growth emerging market smaller cap stocks in the financial services space with good track records to consistently growing their earnings and generating a high return on capital are involved in one way or the other in lending to the unsecured market.

However, each is  unique in their way of servicing their market and or minimizing risks of lending in that market. Above all, they have excellent data systems as administering high volumes of low value transactions is a key to success.

The ones we like most tend to have stuck to an unchanged business model: Tisco in Thailand via second hand vehicles; BFI and Adira via “2-wheeeters or 4-wheelers”, Compartamos in Mexico and not to ignore: World Acceptance Corporation in the USA.

The most interesting  one is Manappuram Finance Ltd, a non-banking finance company in India. Manappuran is effectively a pawn broker but accepts only gold jewellery as collateral.

It lends up to 70% of the scrap value of the jewellery and due to the fact that the gold price has been so strong in rupees over many years, its bad debts have been miniscule. The risk associated with investing in smaller shares was highlighted when a fraud was discovered in two of its branches and the share price more than halved.

It is no surprise that India with 800 million people living below the breadline also provides the most exciting growth potential. No discussion of small cap emerging market financial services companies can be complete without mentioning Shriram Transport Union and its sister company Shriram City Union.

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