Africa's "Amazon"? The next ten-bagger in the eyes of fund managers

Hedge fund manager Josh Koren believes that the market value of Jumia Technologies (JMIA), a pan-African e-commerce company listed on the NYSE, could grow tenfold or more in the coming years.

Jumia, often referred to as the "Amazon of Africa," operates e-commerce platforms in 10 African countries.

So far this year, the stock has risen by over 270%, but Musketeer Capital's portfolio manager and chief investment officer Koren believes that there is still significant upside potential.

"This is the investment that I am most interested in. I think this is the best idea I have come across in my entire career," Koren told CNBC Pro, adding that this stock is the "largest" position in his fund at the moment.

Since its initial public offering in 2019, Jumia has experienced significant volatility.

According to FactSet data, the stock surged to around $62 in 2021 from its IPO price of $14.50 per share. However, the enthusiasm for e-commerce stocks driven by the pandemic was relatively short-lived.

Concerns about the company's path to profitability, along with the sell-off of growth and tech stocks, led to a sharp decline in Jumia's stock price. By October 2023, the stock had fallen below $3, a 95% drop from its peak.

However, it has since rebounded by over 300%, trading around $13 on Monday. The company has a new management team, and its latest financial report shows signs of improvement.

Koren pointed out that Jumia's recent quarterly report is proof of the company's potential. Jumia reported a significant reduction in losses and positive operating cash flow for the first time.

"At this stage of the company's lifecycle, people expect them to spend money and lose money. However, they are doing the opposite," Koren noted. "Future cash utilization is greatly improving, and profit margins are also increasing."

Despite the recent surge in stock price, Jumia's market value is still slightly above $1 billion. Koren believes that considering its growth potential and strategic position in the African market, this valuation significantly undervalues the company.

"This company is currently valued at only $1.2 billion. This is simply unbelievable given its actual value," Koren said. He expects Jumia to reach a valuation of $10 billion in two to three years and possibly $50 billion within the next decade.

"There is no reason why this company won't be a $3 billion to $5 billion company because e-commerce market values in other regions of the world are at least $50 billion to $60 billion, if not more," he added. "The US has e-commerce companies valued at trillions of dollars. China has several hundred billion dollars. Southeast Asia even has $100 billion. Africa has none."

However, investing in Jumia is not without risks.

In addition to significant stock price fluctuations, the company has yet to achieve sustained profitability, and its 2023 sales in US dollars are lower compared to 2022.

Koren attributes this to intentional business streamlining and unfavorable exchange rates, which he believes are now turning into positives.

Jumia also faces unique challenges specific to African businesses, including infrastructure limitations and exchange rate fluctuations in certain markets. Koren sees these challenges as opportunities and highlights the increased investment by major tech companies in Africa's internet infrastructure, as well as Jumia's collaboration with Elon Musk's Starlink, as positive developments.

Koren stated, "All funds are flowing into this market to improve internet quality, infrastructure, and technological foundations. This is the best internet platform directly benefiting from this trend."

Earlier this month, analysts from investment bank Benchmark also expressed similar views, giving Jumia a buy rating and a target price of $14.

"As Africa's leading e-commerce platform, JMIA is poised to benefit from demographic shifts that will drive e-commerce growth in the region for many years, if not decades," analysts led by Fawne Jiang at Benchmark stated in a report to clients on July 9th