African e-tailer Jumia shares soar as analysts see a number of tailwinds working in its favour

10 May 2019

Mergers, Acquisitions and Financial Results


As of Monday’s close, Jumia shares were up 168% from the stock’s opening trade on April 12

Analysts are bullish about the future of African e-commerce company Jumia Technologies Inc., identifying a number of favorable tailwinds for long-term growth including the adoption potential for e-commerce across the continent.

Right now, e-commerce penetration in Africa is about 0.5%, compared with about 20% for China, according to Raymond James analyst Aaron Kessler.

“While early, we believe a number of factors should drive strong e-commerce growth in Africa going forward, including a growing middle class, a fast-growing young population more digitally inclined, increasing urbanization, and increasing smartphone adoption,” Kessler said.

Jumia JMIA, -7.59%   was founded in 2012 and is now active in 14 countries that account for 74% of Africa’s consumer spending. It calls itself the top online shopping site in Nigeria. As of Dec. 31, 2018, it had 81,000 active sellers and 4 million active shoppers.

“We believe Jumia’s reach and scale positions the company to be a preferred shopping destination in Africa,” Kessler wrote, noting the company’s investments tailored for the region.

The company also has JumiaPay and Jumia One for online transactions and payments.

“We believe this deep local knowledge and [these] payments and logistics systems provide Jumia with competitive advantages versus potential new market entrants,” said Raymond James.

Jumia’s services go beyond its core e-commerce business, including food delivery, travel booking and utility bill payment. Jumia’s online capabilities have earned it the nickname “Amazon of Africa.” AMZN, +0.21% In a region where services and financial institutions are fragmented, Jumia is well-positioned.

“Jumia has developed an advanced and sophisticated payment infrastructure, including its own e-wallet, which integrates its payments and certain financial services relevant to its sellers and consumers,” Raymond James said. “Longer term, Jumia also aims to use JumiaPay as the cornerstone of a wider financial services platform and also plans to allow other companies, particularly those located outside of Africa, to use it as a unified payments service.”

Raymond James initiated Jumia stock at market perform, saying that shares are fairly valued.

Jumia is up about 160% since it went public on April 12. Shares were priced at $14.50.

“In effect, Jumia has already done the heavy lifting in building out a logistics network and a digital payments platform,” wrote analysts led by Scott Devitt. “However, Jumia’s relatively high valuation and long path to profitability drives our hold rating as we await a more attractive entry point. With e-commerce in Africa still in its infancy, Jumia’s growth is likely to be bumpy as the e-commerce landscape needs to catch up to the platform.”

Source: Market Watch