Hudson: Stock Performance and Investment in Côte d’Ivoire

Interview with Kadi Fadika-Coulibaly, CEO of Hudson

What have been the major trends in 2014 for stock performance? How do you analyse the market at the moment?

The market at the moment is growing strongly. We have seen a 40% increase from 2012 to 2013 in the index. For this year, on top of that 40% we have seen another 12% increase. To this, you have to add the yield of the dividends that are being paid by the companies,which is around 5%. The market capitalisation is now close to 6000 billion CFA.

What are the major factors behind these amazing results?

The main factor is the recovery of Côte d’Ivoire. The country has been out of the crisis for three years now, but obviously the recovery has been hard because the crisis lasted ten years. The country is now investing, mostly from public spending but also the private sector is contributing. If you look at the statistics you will see that the purchasing power of the population is also improving. The real economy is growing, as is demand. Also, all of the different sectors such as agriculture, mining and service companies are investing in the country.

Do you expect this trend to continue for the next year?

We are going to continue on this path. First of all, because the elections are next year and from where I am standing in the private sector, things are looking good because all of the political parties are now talking to each other and trying to find the best way to have a peaceful election. Thus we have a stable political environment and so the private sector will continue to invest and companies will even increase their investment level.

You also deal with regional stocks. What is your assessment of the region?

The BRVM is the regional market for eight countries of West Africa. You will see that the countries that are really moving forward in 2014 include Côte d’Ivoire with an expected GDP growth of 9%, Burkina Faso with an expected GDP growth of 7%, and Togo with an expected GDP growth of 6%. So it is really not only one country, but the entire region that is improving and growing, you will see that all of these countries are improving their economies; their base economies are becoming more diverse with both mining and agriculture, but also services.

Do you think that investors know enough about this region and about Côte d’Ivoire?

I don’t think that they are well aware. Côte d’Ivoire is a country that is suffering from the French speaking link, because the investors that we see coming into the BRVM are mostly from the US or from the UK, in fact we have seen very few investors from France in the BRVM. In part because most listed companies are French owned. We realise that the French funds do not invest into the secondary market of the BRVM. Therefore, last week we were in Paris, the BRVM management organised a roadshow for all of the securities firms to go and promote the BRVM market to French investors. It was a first and something that we need to continue to promote the BRVM in France. Obviously we speak French here, but as we target international investors who speak English we have to break that language barrier and we also have to attract investors from the French speaking zones who are coming into the real economy as entrepreneurs but now is the time to encourage them to get more involved in the capital market.

What are the main challenges that stop the development of this stock market?

Well, as we just mentioned the lack of awareness about the market and the knowledge of the rules and regulations of the BRVM are challenges. This market is a regional one and so the rules are targeted to accommodate the different countries; the rules aren´t just set for the smallest country or the largest country. There is also an issue with liquidity on the stock exchange; this is something that will improve with new stock IPOs and new issues on the bond market. It is already improving; we have seen the rotation on the bond market go from 1.37% to 4% this year. The liquidity on the stock exchange is now at 1 million dollars a day from 700 000.

What is the philosophy behind your company? What are the main characteristics of the company?

Hudson is a full service securities firm that was created in 1995. It was the first independent firm to be licenced in 1998 when the market was created. Therefore we targeted institutional investors because we didn’t have a relationship with the banking group to give us a network to target retail investors. Our focus was to provide international standard services to regional and international investors to enable them to invest on the BRVM. For that, we put together a research department that issues weekly and daily research notes and publications that you find from any international brokers. We offer a world class service to our clients to help them make wise decisions about investing on the BRVM.

What success story can you tell us that illustrates this?

When Hudson was created, 100% of our clients were international clients. We decided to offer our services to regional investors as well, and from 2012 we have been able to distribute our research to the local and regional investors and execute their transactions via our trading desk. Now we have 75% international investors and 25% local and regional investors. Regional trading is growing and we are now able to have them realise their profits on historical positions and invest into new assets. Historically, the regional investors were mostly buy and hold investors. They are the initial investors on the BRVM and they currently hold 80% of the market capitalisation. Thus liquidity was an issue because they were not doing any selling or buying or taking capital gain accumulated from 1998.

What are they doing now?

Now, they are selling and buying, so this is a success story that I would like to share and extend to my team because they were able to pick up the phone, send the research, share investment ideas and advise these investors on the good timing rotate their capital gain into another stock, etc. We have been doing that for a few insurance companies and we are very happy to be able to do it for them.

What are the priorities at the moment?

We offer advisory and corporate investment banking services. This is something that has been at the roots ever since the creation of Hudson. Our priority is to grow this activity back and make it represent 50% of our revenue. From 1995 to 1998, corporate investment banking represented 100% of our revenue. From 2000 to 2010, it represented 0%. From 2010 we started to invest more in this activity segment and now it represents 25% of our revenue. Our goal is to balance and have 50% from brokerage and 50% from investment banking. We want to diversify our revenue in this sense and also geographically. We want to be more active in the other countries of the region. For now our activities are mostly focused on Côte d’Ivoire.

To diversify we will sign partnerships with other companies in the region. We currently have a partnership with a financial company in Togo. This partnership has been running for seven years now and is working very well. This is the model that we would like to extend to other countries.

How come so far you only have this partnership in Togo?

Our focus has been in Côte d’Ivoire, the largest economy of the WAEMU region. We have other securities firms coming from Benin and Senegal to do business in Côte d’Ivoire. The reason we want to go into the other countries is because we want to offer our services to other investors in those regions, and be able to service our clients all the way within the region. However from our business in Côte d’Ivoire we are leaders with 30% market share in the regional market. We would like to penetrate the other markets and believe there is still room to penetrate the Ivorian market that is why the pace of our expansion is slow.

Are you interested in other kinds of partnerships such as mergers?

We have been thinking about it. We have had some offers for capitalistic partnerships but the shareholders are not ready for it yet. We have instead opened the share capital to employees. There are 23 people working for Hudson and there are four partners: myself, two other directors and the founder of the company. It is a model that we would like to extend to have more employees being part of the company. We are not ready for a merger in the short term.

What are the main challenges that you expect to face in the future?

One of the major challenges is the regulation as this is something that we can´t influence or change. If the regulation is more flexible to enable investors to come into the market, for both international and local investors that would definitely boost business. Furthermore, fiscal policy has to be more creative. Liquidity is another challenge as I mentioned before and there is also the political aspect of the market to take into account. For 2015, the election is a no brainer but for 2020 there is still some risk that we have to look at. We also have to make this market better known by the international community and investors, by promoting the BRVM to show people that this is a market that can deliver high returns, high capital gain and great dividend yield as well.

To conclude this interview do you have a message about Côte d’Ivoire that you would like to share?

I invite people to come and get to know this market. When investors enter new markets and try to penetrate those markets, the ones that get in early make big gains, although there are greater risks of course, but they have higher gains than those who enter the market later. This is the time to come into this market. This is not an emerging market, it is a nascent market. investors need to be flexible, adapt their size and be able to carry out fundamental analysis to get to understand the different risks, but it is a market where they will get great returns.

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