Sonatel: Double Play on Connectivity and Financial Services in West Africa

Fred Steiner and Evans Mugi of BCCM Advisors presented their investment thesis on Sonatel Group (BRVM: SNTS) at Wide-Moat Investing Summit 2021.

Thesis summary:

Sonatel, listed on the BRVM Stock Exchange in Côte d’Ivoire and 42% owned by Orange S.A., offers a unique opportunity to own a piece of the transforming Telecommunications & Financial Services industry in Francophone West Africa. Sonatel is the market leading telco provider in Senegal, Mali, Guinea, and Sierra Leone with over 50% market share and the number two carrier in Bissau.

After several years of investing in network upgrades and expanding coverage coinciding with increasingly affordable smartphones, the company is experiencing rapid data and mobile money subscriber and topline growth.

By leveraging its strong distribution network to digitize cash, Sonatel is positioned to be the leading mobile money platform in its geographies. This transition to the mobile money platform of choice will incentivize Sonatel to externalize the telco’s business model into a two-sided payment network, which enables value capture in adjacent verticals for ecosystem participants and will deepen the company’s moat.

Sonatel trades at 2021 ~2.4x EV/EBITDA and ~5.7x P/E with a mid-teens FCF yield and is a consistent generator of 20%+ rates of returns on capital.

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About the instructors:

Fred Steiner serves as Managing Director and Portfolio Manager at BCCM Advisors. As Portfolio Manager of the Blue Clay Pan-Africa Fund, Fred Steiner is responsible for research, security selection and portfolio construction. Prior to re-joining BCCM Advisors, Fred earned an MBA from the University of Minnesota’s Carlson School of Management where he graduated with distinction and was a Curtis L Carlson Scholarship recipient. During the full- time business school program, Fred worked with a multi-family office, Sawmill Management as a Senior Analyst. Prior to business school, Fred served as an Analyst and Associate at BCCM and worked in various roles at Signature Financial Partners. Fred studied at University of Cape Town in 2008, graduated from Union College in 2009 with a Bachelor’s degree in Economics and Minor in History and is a CFA charterholder. Fred is a Board of Trustees member of African Wildlife Foundation and previously volunteered for Soccer 4 Hope while living in Cape Town, South Africa in 2010.

Evans Mugi serves as the Managing Director of BCCM Advisors Kenya, and supports Fred Steiner in research, security selection and portfolio construction. Prior to joining BCCM Advisors, Evans was the Head of the Investment Team at Nabo Capital (the Public Markets arm of Centum Investment Company Kenya), and was responsible for the firm’s investment activities including capital allocation, risk management and managing a team of associates and analysts. From 2015 until he became the Investment Manager in 2017, Evans was a Portfolio Manager overseeing a diversified portfolio of Equity and Fixed Income Investments made in several markets across Africa. From 2012 to 2015, Evans was an Analyst and later an Associate at Centum Investment Company (Kenya), responsible for researching and executing investments in North and West Africa. Prior to joining Centum, Evans worked in the Research Department of Genghis Capital from 2011 to 2015 as a Fixed Income Analyst and Cross-Asset strategist. Evans is a graduate of the University of Nairobi (2009) and holds the Chartered Alternative Investment Analyst designation.

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