Monday, 29 May 2017

Acacia Mining (LON:ACA) - A distressed Gold mining opportunity

Acacia mining is a Tanzanian gold mining company which is controlled by Barrick Gold the Canadian gold major. Acacia was spun off from Barrick in 2010 as African Barrick Gold changing their name in 2014 to Acacia mining. 

The stock hit a 52 week low this week plummeting 34% to as low as 250p per share on news that a continued dispute with the Tanzanian government remains unresolved. The dispute relates to 277 containers of ore concentrates containing gold and byproducts for export. The government claims Acacia is underreporting the mineral content of the ore by a factor of 10. The company state the content is accurate and inline with historical norms during the life of the mines. 

Acacia reports that if the government "were correct it would imply that the company "is the world's third largest gold producer" and "produces more gold from just three mines than companies like AngloGold Ashanti produce from 19 mines, Goldcorp from 11 mines, and Kinross from their 9 mines"

So it is a shakedown. The government apparently want to build a smelter in Tanzania presumably for local employment and taxation purposes - hence the findings of the committee restricting exports of the concentrates. The most likely outcome is some revised 'royalties' and a resumption of production down the line. 

These concentrates are around 30% of revenues for Acacia as they also produce Dore which is not under restriction. However in just a week they lost more than this % of market cap with the stock down 46% since March 3rd when the export ban began. They lose $1m a day from this export ban. Note that they could be forced to stop production completely in two of their three mines if the dispute continues due to physical limits at the port for storage and lack of clarity on the future. 

Which means Tanzanian workers laid off - so this could get unpopular. 

Such disputes highlight the geographical concentration risk of Acacia. All their production is in Tanzania (with some exploration elsewhere). The government has a variety of disputes with Acacia related to taxes principally as one would expect with any major resource exercise in a small frontier nation. Of particular concern is this:

Acacia Mining Annual Report 2016

What about nationalisation? Well mining is a bit unlike oil in this respect as it tends to have a bit more ongoing capital intensity and more chance of being loss making for periods of time. With global gold miners struggling for profitability due to rising costs across the industry, and falling ore grades, countries have better value capture from imposing set royalties on price and volumes (they save special price dependent 'windfall' taxes on profits for the good times....).

All in sustaining cash cost is decent enough and falling. It is toward the lower end of the industry;

Acacia Mining Annual Report 2016

The reserves are also pretty good with 27.5m Oz of reserves and resources. If we divide this by the share capital we get 0.06 oz of gold per share. Now with $1,200 oz gold and an with an AISC of $958 we can derive a broad profit based value of $14.52 a share  ((1,200-958)/0.06) or £11.16 (@ £:$ 1.30). Now this is a bit of a basic calculation but it shows some of the value on offer as that £11.16 / £2.86 (closing 29th May) is 3.9x the current value. But of course if the mines get shut down or appropriated then it doesn't matter what your value is and clearly this doesn't take into account the time value of money.

So it is really a bit of a punt but it seems cheap with clear and present risk. I do generally have a favourable and prudent macro view on gold and the whole mining sector has been in a bearish cycle for many years now;

Google Finance: GDX & GDXJ vs GLD and S&P 500

I want more exposure to gold miners generally so have also bought some shares in Goldcorp (NYSE:GG) which is one of the global majors and almost all its mines are in less risky locations across the Americas. More on that later.

So I have been a new buyer of Acacia this week around the lows taking this holding to around 2.5% of the portfolio and I have a similar amount in Goldcorp. I would like to have had more in depth research on Acacia but frankly I saw the dip as event driven and with a precursory read of the annual report I felt it was worth a modest investment. Much like my recent foray into Brazil sometimes an opportunity can appear which seems rather time limited.

Disclaimer: I am long LON:ACA and NYSE:GG  as mentioned in this article at present. These are opinions only, not investment advice. If in doubt read my disclaimer.

Monday, 22 May 2017

Portfolio Strategy: US Long Bonds may be attractive on a relative basis

I have considered previously in my piece on Gold the elevated price of US stocks in general and I continue to hold cash in USD as I await better opportunities in general. So the question to be asked is should I hold that cash in US bonds rather than simply cash on account to generate some income in the meantime?

My answer is Yes and No. 

I believe the income element at around 2-3% on the longer dated bonds is not as attractive as the scope for further price appreciation of the long bonds in the future (i.e a drop in yields) and therefore the potential for capital gains.

Here is a quick consideration to be made for Benjamin Graham's metric regarding when investors should prefer stocks to bonds - when stocks yield more than 2x the AAA bond.

Current 10 year UST yield;   2.25%
Current CAPE S&P Yield;     3.45%
Current Trailing S&P Yield; 3.97%

Therefore at present the CAPE yield trades at 1.53x and the trailing at 1.76x. Both less than the 2x margin of safety. Now the UST is not AAA anymore and we have some very strange super low interest rates. But even so these metrics suggest bonds are preferable.

So as a guideline it would be prudent to consider the Bond market as more attractive today than Stocks in the US. Graham generally said defensive investors should avoid ever having less than 25% of their portfolio in bonds. But we must note that both the 2x metric and 25% may hardly be 'functional' by historical standards due the the central banking bubble.

The other angle is the macro thesis;


The US baby boomer generation is huge and they are retiring. In some sense the current lofty value of the S&P may be one last bubble to drive up their 401k values ahead of retirement where people want a fixed income. That means Bonds. From a structural demographic perspective the flows from equities into bonds in the next 10 years in the US will be a major headwind for the equity market. This creates demand for bonds - including government bonds.

Why not buy corporate bonds? 

I see a poor risk reward. Especially in High Yield bonds. The search for yield has driven up prices to extremely high levels (yields sub 6%) at a time when recoveries from default are extremely low and the US credit growth cycle is turning over - signalling recession. Which means demand for 'safe havens' which in relative terms for US investors means treasuries.

But isn't the US going bust? 

USD Debt/GDP - Trading Economics

US Debt to GDP is very high. They arent a AAA borrower anymore. But I think the US is turning Japanese. They have a captive audience in global trade due to the nature of the current account deficit in the US (a prerequisite for the world's reserve currency). They also have a huge demographic retiring at the same time in need of USD fixed income.

But the Fed is hiking rates - wont this drive up yields?

The Fed is hiking into weakness. And the market knows it - yields are not moving materially higher. I think even the Fed knows this but they are playing catch up to arm the arsenal for rate cuts ahead of the next recession. They are too far behind the curve now but they are trying to sneak in some rises without blowing up the S&P and destroying the wealth effect (which would compound  a recession.) 

USD 10Y Rate - Trading Economics

Therefore my argument is rate hikes tail off, and rates head back down again - lower for longer. So I expect to see long dated USTs rise in value - maybe not to the JGB level of 2bps yields - but yields down over the medium to long term as the Fed will be forced to do a U turn in the face of deteriorating US GDP.

So if that macro plays out I expect USTs to be a better option than USD.

What to buy?

I think TLT (NASDAQ:TLT). This ETF captures the longest end of the curve (20+ years) so has the greatest price sensitivity to changes in rates and rate expectations. 

So I will look to park some of my USD cash into TLT as I continue to look for good stock opportunities. I reiterate this is not a hunt for the ~3% yield on offer - I think the capital value will rise.

Tactically I might look for a sentiment based selloff in the long bonds following the Fed meeting notes. But these things can go either way - sometimes second guessing other market participants is a really stupid idea. i.e waiting for a dip to buy. We shall see.

Disclaimer: I have no interest in TLT as mentioned in this article at present but i may do in the future. These are opinions only, not investment advice. Construct your own portfolios with due care and attention.  If in doubt read my disclaimer.

Friday, 19 May 2017

Brazil - An Emerging opportunity for long run value

Brazil sold off yesterday in a big way. 

The MSCI was down ~15% due to a combination of BRL taking the greatest dive since 2003 and the Bovespa selling off by around the same amount. Now prior to that point Brazil was looking fairly cheap against a number of more 'promising' emerging markets like India. So now to my mind it looks really cheap.

Why the sell off? Corruption. Brazil is so corrupt the current corruption scandal threatening Temer is actually related to the previous corruption scandals and alleged payments made to silence some other figures. But everybody knows Brazil is corrupt. It is astonishing how hard the market was hit yesterday in Brazil vs the very minor waves made in the US. The US is ultimately threatened by a much greater kind of corruption which is sheer idiocy - something that the US market does not widely price in.

What we also know is that investors are terrible at pricing politics. The Trump win was a classic example -  a three hour selloff followed by a major rally which was quite unexpected:

ABC News

Or Brexit - where stocks slumped for around a week before regaining new highs later in the year (albeit not in GBP terms). 

Looking regionally the victory of Lula in 2002 saw one massive selloff in all things Brazil right before the best decade the country had experienced for a generation. Another regional example would be the 2011 Peruvian election where Humala the leftist candidate won, the market sold off in panic, and then he did approximately nothing and things recovered.

So from a long term view I see the current price of the Brazilian market as an attractive entry point. I may well eat my words in the coming days but to my mind corruption in Brazil is par for the course. 

So how to invest in Brazilian equities?

Well I have bought the Ishares MSCI Brazil ETF (LON:IBZL) on the basis that:

  • (a) This current dip is a limited time opportunity and I dont have the resources to select individual stocks
  • (b) I do not have local market access so buying ADRs leaves me with a relatively narrow selection of options (although many large caps like Petrobras, Vale and Itau are there).
  • (c) Buying ADRs increases my costs due to FX transactions which are expensive on a retail brokerage platform whereas the ETF is priced in GBP on the UK exchange and so is cheaper to purchase.
  • (d) I get built in diversification benefit which aides point (a) because I haven't done enough research bottom up to pick stocks.
  • (e) The TER on the ETF is 74bps which is not too bad for an emerging market ETF.

So what do we get in this ETF? Well the top holdings are the major banks, Petrobras, Vale and assorted financials. The key sectors of the market are 35% Financials, 15.5% consumer staples, 12.5% materials and 12.2% energy. 

MSCI Brazilian Market by Sector (Date: IShares/MSCI)

So its a generally domestically exposed stock market in a country which derives a lot of its value and foreign exchange from exports. Not unlike Nigeria actually except more developed, with more industrial base and a more diversified basket of exports; Iron ore, Oil, Soya, Sugar Cane, Poultry etc:

By Celinaqi - Own work, CC BY-SA 4.0,

Now if we couple this broad and liquid stock market with a diversified economy and then throw in some pretty decent domestic demographics we have a fairly good top down argument for a long term investment in Brazil.

Population - Brazil

Looking at the market itself after the selloff it trades around 12x P/E which is low even by most EM standards (however note the heavy composition of Financials and Commodities which do trade at lower multiples).  The CAPE for Brazil now must be around 9x P/E which is also cheap and it ranked in the best quartile of international markets even before this 15% drop in price. Ok Russia is cheaper but it has poor demographics, a more 'involved' global risk profile and a market heavily weighted to energy (thus giving me little diversification benefit.) Other EM markets at this price either have narrow markets (Taiwan - Tech) or even worse levels of corruption and debt mis-allocation i.e China (They just hide it better).

The addition of the ETF also adds some further diversification benefit to the portfolio bringing in more commodity exposure and EM domestic growth dynamics and taking risk away from developed markets. I am still Latam heavy but this is the area I used to work in and so I know it better than Asian markets or other EM. That is likely an emotional bias but it also helps if you know what you are looking at especially in EM where one is not comparing apples to apples between countries.

To be honest I just feel Brazil is cheap and I get that excited 'value' feeling about the market. There is always time later for more deep analysis and additions to the portfolio or I can sell the ETF and exchange it for attractive Brazilian stock opportunities down the line. Latam is my bag experientially so I am happy to take some of the SIPP funds and invest a modest proportion of the portfolio in IBZL. If this drops further in the next few days I will top up the position I bought into this morning. 

Disclaimer: I have an interest in IBZL as mentioned in this article at present. These are opinions only, not investment advice. If in doubt read my disclaimer.

Wednesday, 10 May 2017

Portfolio Strategy: Current Allocation and Thoughts on Risk

I am presently in the process of investing the portfolio but am currently running high levels of cash due in part to valuations and in part to wanting to invest the portfolio relatively slowly to smooth out any (remaining) volatility in the market. I want to have cash on hand for opportunities which arise either from generally falling prices or from specific exciting opportunities identified from research going forward.

The current portfolio looks like this;

Amiable Minotaur Portfolio May 2017

As can be seen I still have 73% of the portfolio is cash and gold. My cash is principally GBP but I have purchased some USD and also Gold to diversify that a bit. With the pound still relatively weak now is not the best time to seek opportunities abroad but some diversification seems like a reasonable idea. I can also use the USD cash to settle trades in USD and thus reduce the exorbitant FX rates my broker charges for transfers.

Amiable Minotaur Portfolio Pie Chart May 2017

I intend to take the equity position up to around 40% in the medium term as I find opportunities and/or increase my allocations to the stocks which I already like. 

Within my Equity portfolio the current allocations look like this:

Amiable Minotaur Equity Pie Chart May 2017
I wanted to give a brief comment on each stock position with a qualitative idea in mind of the risk correlation between them.

  • Next: This stock gives me exposure to the UK economy broadly with an element of Tech/internet retail due to around 50% of sales being online through the directory. 
  • Diamond Offshore: This stock gives me exposure to the Oil E&P cycle which is presently depressed. By proxy it also gives me USD exposure and in a sense exposure to global growth and energy demand dynamics.
  • Bed Bath& Beyond: This stock gives me exposure to US retail but is principally 'bricks and mortar' so this is more a value play and again exposure to the USD but this time US domestic.
  • ENEL Generacion Chile: This position is principally a combination of Chilean domestic demand drivers and potential improvement in margins from a normalisation of Chilean hydro - therefore exposure to the El Nino cycle.
  • IG Group: This position is a combination of being 'long' financial volatility, as trading volumes rise during volatile periods, and a regulatory driver from the various enquiries into the industry at the moment.
  • Bladex: This bank gives exposure to intra-Latam trade which is in part driven by USD liquidity dynamics - most of the lending is short term and commercial in nature.
  • Tullow Oil: More E&P exposure but rather than services like DO this is a producer. I expect TLW to be the proxy in the FTSE 350 for oil price sentiment given its high financial leverage and decent liquidity.
  • Guaranty Trust Bank: This is another position with exposure to oil as the value of the local currency and the economy overall is strengthened by oil exports. The other driver is fundamental domestic demand growth from a rapidly growing population.
Taking these factors in aggregate I feel the portfolio is presently most at risk on the Oil side as DO, TLW and GTB are all effectively long oil positions. The second greatest risk is on the retail side as more retail moves online and retail in general may be undergoing a secular decline in favour of 'experiences.' Otherwise I feel the additions of EOCC, IGG and BLX all add excellent diversified drivers for out performance which are generally uncorrelated.

What I want to avoid is having too many 'plays' on the same macro idea - whilst I am bottom up investing one has to consider that owning say Diamond Offshore and Transocean will add little diversification benefit to what I plan to retain as a concentrated portfolio. For this same reason I have sold my position in CMC Markets to retain IG Group as part of my move into this new consolidated portfolio.

A quick point on Gold. I feel this too adds some diversity by acting as a proxy currency which can't be printed. I have taken gold up to ~10% of the portfolio recently on weakness in the price. I consider this 'central bank insurance' for future falls in the stock market.

At present none of my stock positions or gold are singularly more than 20% of the portfolio. As per my manifesto. But I will consider Gold another 'stock' position and do not plan to take it above 20% either.

From a high level sector perspective the current equity allocations look like this;

Amiable Minotaur Sector Pie Chart May 2017
So I generally have a lot of retail, banks and energy stocks - which funnily enough are the more disliked sectors at the moment. I would like to add some healthcare/pharma, agribusiness/materials and technology stocks to the mix thinking top down about a diversified portfolio. 

An additional consideration is geography - at present I am only invested in the UK, Americas and to a limited extent Africa so finding some other Asia/European stocks could add some benefit where the bottom up fundamentals make sense. 

However finding stocks will take some time - needless to say I will be generally focusing on those sectors to find bottom up opportunities within them.

I am bench-marking the portfolio to the FTSE AW index which is heavily weighted towards the US so at present my investments there do have some bearing on my overall benchmark. However I am only really using the benchmark as as performance guide rather than as a strict measure.

Disclaimer:  I have an interest in the shares mentioned in this post at present. These are opinions only, not investment advice. Construct your own portfolios with due care and attention. If in doubt read my disclaimer.

Monday, 8 May 2017

Tech 2.0: The Good, The Bad and The Ugly

The Good:

Google/Alphabet is a brilliant business so my main worry is regulatory trust busting and technological change. This company generates huge piles of cash and has an amazing network effect which gives it a wide moat. Based on my analysis it is simply just a bit overvalued at present. Certainly something I would like to own in future.

Amazon also has a huge network effect –it looks a lot overvalued by traditional metrics but it is a massive disruptor and it can and does make money even when not taking over the world. Not something you want to short – but it takes a real believer to go long at these levels. However I tend to get cautious when everybody sees something as a foregone conclusion – i.e everybody will buy everything at Amazon in future appears to be the consensus now – people used to think this about Walmart.

Facebook – again huge network effect – notice the recurring theme here – it is proving very profitable but probably sowing the seeds of its own destruction now my news feed is awash with viral videos and pictures of friends of friends I have never met with their babies. Still along with its compadre Google this is the company capturing all the advertising market online.

The 10 Years of Tech Returns

The Bad:

Snap – I cant see this making money in any meaningful way but it is as yet unproven – I wouldn’t be long but I wouldn’t be short. It definitely is very popular with the next generation probably because of all those parents on Facebook. Still it could just be another…

Twitter – This is a bad stock but a great platform – I use twitter a lot it’s a great way to connect directly with excellent content and share ideas – but hard to monetize – if they get good at monetizing it the Achilles heel is it will become as annoying as Facebook and probably lose users. I am indifferent to the stock unless it gets near my $6 price target and Jack Dorsey leaves. Or alternatively starts to generate a profit.

The Ugly:

Tesla – they are taking a boring business with low margins – building cars – and turning it into some sort of special ‘cult of Musk’ – all the established auto manufacturers can make better cars (at a profit) and the EV competition will be huge in about – well now as far as I can see. This is a capital burning machine throwing money at every possible futurist fantasy to lay down some excellent electric infrastructure and battery technology for everybody in the future. 

They have no real network effect or sustainable competitive advantage that I can see. Instead they want tonnes of capital to try and create a network effect be it supercharger stations or driver less tech.

Not to be mistaken for an investment.

Netflix – caught between a rock and a hard place. Owning a platform to distribute other people’s content is not very profitable. The underlying business is a great one but it has fewer barriers to entry as switching costs are not high. However spending $6-8 billion in 2017 on original content may well not be a good idea either.

I get nervous when companies try too hard to create content. Content that will be really popular screams to be created…don’t tell me HBO came up with Breaking Bad because they back tested their data and found people really like shows about schoolteachers who make meth in New Mexico….great content is content that needs to be written and not for the sake of it.

I write these blog posts when some idea, stock, trend etc – like tech 2.0 – fires my imagination – not because I need to churn out more ‘content’ as then said content is highly likely to be derivative nonsense (perhaps this whole post is derivative nonsense too).

Either way that is a lot of cash to spend on content and I would be surprised if it makes their existing limited network effect (being the ubiquitousness of 'Netflix & Chill') any better.

So just like tech 1.0 – if you are in the business of spending a lot of cash for no obvious return even in the medium term you are sooner or later going to get in trouble when people wake up and remember capital is not risk free. The survivors of tech 1.0 are now great looking businesses which used their scale and competitive advantages to build a huge network effect with relatively low capital intensity (especially Google). S0 each recessionary capital shake down will eliminate the losers and leave us with a new crop of winners. Long overdue.

Disclaimer: I have modest short positions in (NASDAQ:NFLX) Netflix and (NASDAQ:TLSA) Tesla. These are opinions only, not investment advice. If in doubt read my disclaimer. 

Monday, 1 May 2017

Is Nigeria a value destination or a value trap? Part II - Guaranty Trust Bank (LON:GRTB)

This stock trades on 6x trailing earnings. This is cheap even for a bank. Earnings grew 5% last year principally driven by inflation, in real terms they fell. 

GTB Annual Report 2016
The bank is an integrated retail and commercial bank. 

The primary set up is borrowing short term deposits from retail banking and lending short to medium term to the corporate sector. Around half the deposit base comes from the retail operation but this only accounts for 10% of the loans issued. This kind of business model is generally quite low risk and highly profitable.

The NIM is extremely high (9%+) in Nigeria but seems low outside Nigeria. This suggests GTB has a very good competitive position in Nigeria but that markets outside of Nigeria have relatively more difficult barriers to entry.

The high dividend yield of 8% is attractive by developed standards but is fairly priced given the risk presented by this kind of frontier investment. It is also subject to erosion via inflation and currency depreciation over time if the dividend growth cannot keep up with those forces.

Let us look at the some key risks;


Loans are around 54% of assets and have dropped as a percentage of assets since 2015. Loans to deposits ratio is around 79% (2015;88.7%) so this has also fallen from 2015. This means that lending is able to be financed solely through the deposit base. Note also that cash has risen to 17% of assets (2015; 11%) showing a decent liquidity position.

The longer run liquidity of the bank looks reasonable. The deposit base is principally composed of short term deposits and accounts with very little long term deposits held (i.e time deposits). Therefore 82% of total funds are short term in duration at 0-3 months. 

This is less precarious than it may sound though as lending is also generally short to medium term – although a liquidity gap does exist as 48% of total financial assets have a duration of 0-3 months. Generally the loan book shows durations as follow; 0-3 months – 36%, 3-12 months - 23%, 1-5 years – 36% and 5+ years 5%. 

The key thing to remember though is that whilst the deposit base is not in time deposits of matching durations most of these balances are ‘sticky’ representing savings and current accounts of customers so the overall duration mismatch is not a significant structural problem. 

It is also noteworthy that the longer run loans of one year or more are covered by the banks issued debt securities. These longer run balances are mostly USD as Naira is too inflationary for long term lending. Therefore the bank only requires capital markets for long run lending and can fund its short duration loans and overdrafts from its deposit base.

I think the liquidity risk to Guaranty is thus low.

Credit risk:

Capital adequacy is very respectable at 20% with a low 5x leverage ratio.

The majority (>80%) of other securities (restricted deposits and investment securities) forming the bulk of the other financial assets of the bank are held in Nigerian central bank securities and deposits.

In terms of international risk around 90% of loans are concentrated in Nigeria. The bank has overseas subsidiaries in other areas of Africa where the residual 10% of loans are situation. So the loan base in general is principally a play on domestic Nigerian factors rather than pan regional growth.

More of a concern is that the bank’s corporate loan book exposure to Oil & Gas is around 40%. Given the depressed state of the industry in Nigeria this is a risk to the bank’s loans. The next most significant sector is Manufacturing with 18% of loans being extended here. 

Note that Nigeria is in recession so we should expect asset quality generally to be poor from a cyclical perspective at this time.

Asset quality is not great by developed standards with loan allowances running around 5% of loans. However this has been stable over the past two years and appears to be more a structural hazard to lending than a significant downtrend. NPLs have trended up slightly over the period to 3.66% from 3.21% but again this is actually lower than historically stronger macro years such as 2012 when it was 3.75%.

Asset quality seems reasonable given the recessionary context and frontier market macro.

Currency Risk:

The risk is the mismatch in USD lending with deposits. The bank has a reasonable sized funding gap in USD which is a risk should a substantial further deterioration in the currency occur. The bank has 50% of loans extended in USD and further 71% of all cash is held in USD. The bank however has only 25% of deposits in USD and then its USD issued debt securities. 

GTB Annual Report 2016

The upshot of this is that the bank is overextended in dollar loans compared to its deposit base but it makes up for this in wholesale funding. In a sense this works well in an economy where you expect your currency to depreciate as a weaker Naira means in local currency terms that your asset base grows faster than you deposit base. 

Note they do have dollars to hand – in fact they have surplus cash in dollars meaning a lot of liquidity still available to lend. The risk to the bank is a run on dollar deposits meaning they have to try to secure additional dollars at unfavourable rates or capped volumes due to continued currency controls. 

Generally however the dollar side of the balance sheet means a portion of the value of the bank should be retained or even enhanced by further devaluation.

Currency risk is high but the bank is positioned well to counter this.


The bank has had substantial gain in 'Other Income' from the Naira devaluation due to the composition of the balance sheet. This has rather flattered earnings in 2016 with the PE rising from 6x to ~30x without this - it is highly likely that some of this is non recurring but the gain does offset the effects of the slowdown in Nigeria from the recession. 

Normalizing these gains I expect during 2017 the bank will trade around 10-12x earnings which is fairly valued for a bank.


The way I see it ultimately GTB is a play on Nigeria macro and in turn that relies on higher oil prices. I see short to medium term pressure on oil prices continuing but given the devaluation that has occurred in combination with a slight pick up in reserves I feel the worst may be priced in for Nigeria at this point. 

GTB Annual Report 2016; Limited profitability outside Nigera

Much of my case to own GTB is that it acts like an option. Within its context this is a relatively low risk bank and one of the more established players in Nigeria. This means it is unlikely to go bust in my opinion in the medium term as it has few real structural issues.

Much like Argentine banks in the Kirschner period I feel that GTB can grow quite happily inline with inflation – likely returning little to investors while the currency depreciates – but one is biding time here waiting for the next oil upcycle. Nigerian domestic opportunity is huge but so is the risk. 

Still I feel on balance that taking a small position in GTB is appropriate and I have done so already. Sometimes I find it beneficial to take a starter position and get more interested in the stock from there. There is still a lot to consider but the investment case is a little more top down than I usually like to do but it is because the bottom up is so driven by macro rather than simple structural trends.

Disclaimer:  I have an interest in Guaranty Trust Bank (LON:GRTB) at present. These are opinions only, not investment advice. If in doubt read my disclaimer.