Prudential plc And Old Mutual plc Are Two Great Plays On African’s Rapidly Growing Economy

Africa is widely considered to be the world’s next growth market, and with the continents rich mineral wealth it’s easy to see why.

Indeed, the Sub-Saharan African economy is expected to grow by 6% during 2014. A direct result of this growth is the rising personal wealth; for example, around 70% of adults on the continent can now afford a mobile phone contract, up from only 7% a few years ago.

However, despite its illustrious growth prospects, Africa is not known for its economic or political stability, which puts off many investors. Nevertheless, the continents prospects should not be ignored and investors can reduce their risk by putting their cash in an international and diversified company that knows how to navigate Africa.

African national

One company that really knows the African market is Old Mutual (LSE:OML) (NASDAQOTH: ODMTY. US).

Old Mutual was the biggest banking and insurance company in South Africa when it made its move to London back during 1999. The company still has a huge presence on the continent, with its banking arm, Nedbank looking after $80bn in assets, making it one of Africa’s biggest banks. African banks often achieve returns-on-equity, a typical measure of profitability, in excess of 20% to 30%, while banks in the West usually achieve a return on equity closer to 10% to 15%. In additionally, 70% of Old Mutual’s profits still come from South Africa.

Old Mutual’s African heritage means that the company’s management really knows the market. The company already has operations within 15 African countries, with a further $550m set aside for acquisitions to boost its exposure.

prudentialLofty growth targets

Prudential (LSE:PRU) (NYSE: PUK.US) is another insurer attempting to make its mark on the African economy by recently acquiring Ghanaian life insurance company Express Life. Customers of Express Life pay as little as the equivalent of $0.70 a month for its offerings, including health and life insurance, funeral cover and savings products.

This drive into Africa is only part of Prudential’s global growth plans. Indeed, at the beginning of this year Prudential’s management laid out a four year growth plan, which was focused on global expansion. Specifically, the company wants to increase profits by around 15% per annum during the four year period and generate £10bn in cash from operations over the same period; that’s one third of the company’s current market capitalization.

I have every confidence that Prudential can meet these lofty growth targets as this plan builds on a previous four year plan, where Prudential met five out of six self-imposed targets leading to a 126% rise in the share price and £1.8bn dividend payouts.

Foolish summary

So, for investors who want to gain exposure to Africa, the world’s next growth story, Old Mutual and Prudential could be the best way to do it. 

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The financial services industry is a fundamental part of the global economy and developed nations could not live with the services of banks and pension providers like Prudential and Old Mutual. However, the endless streams of numbers and complex formulas used to value companies in the financial sector can be confusing, even for the most competent of investors.

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Rupert does not own any share mentioned within this article.