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Why this AA-rated frontier markets star is pinning his hopes on multinationals
by Chris Sloley on Jul 18, 2014 at 14:51
Frontier markets are maturing at a steady pace, but investors should continue to opt for the safe option and invest in the subsidiaries of multinational firms.
In his half-year report, Leger, who is the fifth-strongest performer on a three-year basis in the Equity – Emerging Markets Other sector, said his outperformance has been propelled by global companies.
‘Typically we would be willing to pay a higher price earnings multiple for a subsidiary of a multi-national than we would for a similar local company as we believe that the benefits, most of which are softer non-financial in nature, usual translate into better financial returns,’ he said.
While some of Leger’s peers have launched dedicated country funds to tap individual frontier market opportunities, he said he is far more comfortable tying his hopes to subsidiaries of established businesses.
‘The African continent is filled with wonderful businesses that have a majority shareholder in the form of a global recognised company.
‘Whether it’s Nestlé, British American Tobacco, Lafarge, Barclays, Heineken or Vodafone, these African businesses exist across a multitude of industries and geographies,’ he said.
Not without pitfalls
While Leger said these companies, as well as the likes of Standard Bank, Tiger Brands and SABMiller, are currently among his favoured stocks, it is not all plain sailing.
He pointed to the conflict between majority and minority shareholders that can occur when multinational companies are involved. Leger pointed to the example of GlaxoSmithKline, which is held in the fund.
‘Last year, GSK Plc made an offer to minority shareholders to buy half of their holdings at a price that we believed was well below the fair value of the Nigerian subsidiary.
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