Key information in your language

Dear Investor,

The AFC Iraq Fund closed at a new all-time high in May 2025, with the fund up 5.9%, and its benchmark, the Rabee Securities U.S. Dollar Equity Index (RSISX USD Index), also closed at an all-time monthly high, with a 0.7% increase. For the year, the AFC Iraq Fund is up 9.4%, while its benchmark is up 4.0%.

However, there is more to the RSISX USD Index’s 0.7% increase than meets the eye due to the nature of the index’s market value-weighted calculation that incorporates stock price changes, but not dividends, that negatively affected the index’s monthly performance far more than in the prior years. The culprits were two humongous dividend announcements of 14.5% and 11.5% by two of its ten components, the Bank of Baghdad (BBOB) and Asiacell Communications (TASC), respectively, with a 28.6% and 10.6% index weighting at the end of April 2025. If these two dividends, as well as another component’s 0.3% dividend, were incorporated in the index’s calculations, then it would have been up 6.4% for the month.

Preceding TASC’s and BBOB’s dividend announcements, was the National Bank of Iraq (BNOI) which declared a 4.9% per share cash dividend and a 30% share dividend. The combination was effectively equivalent to a 12.3% dividend yield. The two bank’s oversized dividends follow from the outstanding earnings and book value growth enjoyed by the top banks in the country over the last two years, as reported here in “Banks End a Second Year with a Bang”, in which the earnings two-year compounded annual growth rate (CAGR) was 203% for BNOI and 104% for BBOB (table below).

For TASC, its dividend increased by 50% year-over-year, from Iraqi Dinar (IQD) 1.0 to IQD 1.50 per share, with the dividend payout ratio increasing to 118% from 88%, reflecting the ongoing growth in the company’s earnings over the last two years with a 22% CAGR (table below), and its cash generating model that resulted in the build-up of huge reserves over the last few years. The market, while expecting a higher dividend, nevertheless received it enthusiastically. According to the Iraq Stock Exchange (ISX) trading regulations, the ISX sets the stock lower by the amount of the dividend payout on the ex-dividend date; in other words, it lowered the stock’s price by IQD 1.50, yet this was completely reversed, on a high trading volume, with the stock ending at the same price that it was before it went ex-dividend. As such, effectively rallying 13% versus the ISX’s ex-dividend price adjustment. Promisingly, it increased by a further 3% again on high trading volumes by month’s close, in the process reflecting the market’s expectation for further strong earnings growth for the company, and continued high dividends. 

Earnings and Book Values for Selected Companies

The backdrop to the strong growth enjoyed by the country’s top companies, as reflected in declared dividends, stems from the relative stability that the country enjoyed over the last few years; that provided a stable and predictable macroeconomic framework for businesses and individuals to operate in and to plan for capital investments on a scale not seen in the prior decades of conflict. The stock market’s upside potential in discounting these developments was the focus of a recent report, “Investing in Iraq, yet more gain to come” by Undervalued Shares “undervalued-shares.com”, itself a second report on Iraq after the initial report four years ago, with the RSISX USD index increasing by 179% between the two reports, i.e. between June 2021 and May 2025.

The over-arching theme, as discussed in “What Next After Two Gangbuster Years?” is that both of the two key dynamics discussed here in the past ––the cumulative positive effects of the relative stability and structural banking developments–– are in the early stages of their transformation of the Iraqi economy, a process that would unfold over the next few years, bringing with it high economic growth that would feed into higher corporate earnings, and ultimately higher stock market returns. Nonetheless, as discussed last month in “Market at an All-time High, Oil Prices Crashing, What Gives?”, the negative effects of lower oil prices on the economy will become a headwind, reversing the positive tailwind of the past two years. Yet, the secular positives of the economic transformation should overcome the drag from the cyclical negatives and thus continue to drive the market’s direction.

We continue to believe that the upside opportunity for the AFC Iraq Fund will come about as the RSISX USD Index, having surpassed its 2014 peak by 11.1% by the end of May 2025, rallies further, reflecting the powerful dynamics discussed here before.

Finally, Thomas Hugger visited Iraq at the end of May, and embarked on a tour of the country, that included business visits to companies such as the Bank of Baghdad and Baghdad Soft Drinks, the Iraq Stock Exchange (ISX); cultural tours starting with Baghdad’s old districts (Mutanabbi Street, Mustansiriyya Madrasa, Al-Shawaka), and its modern districts; the ancient cities of Babylon, Ctesiphon, Ur; the Marshes; the meeting point of the Tigris and Euphrates rivers forming Shatt Al Arab;  and Iraq’s third largest city Basra. All of which will feature in our travel reports over the next few months as part of the 10-year anniversary of the AFC Iraq fund in June 2025.

Thomas Hugger and Ahmed Tabaqchali in front of the Iraq Stock Exchange (ISX)

Notes:

*    Using unaudited quarterly data, and earnings are net profit after tax.

      IBSD’s net profit for 2024 is arrived at after accounting for the company’s tax rate.

AFC Iraq Fund Marketing Information as of 30^th April 2025

Subscriptions

The next cutoff date for subscriptions will be 24^th June 2025. If you would like any assistance with the subscription process, please get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it. .

NAV as of 31^st May 2025 and performance table since inception

Regards
 
Ahmed Tabaqchali
Chief Strategist AFC Iraq Fund
This email address is being protected from spambots. You need JavaScript enabled to view it. 
 

Disclaimer:

This Newsletter is not intended as an offer or solicitation with respect to the purchase or sale of any security. No such offer or solicitation will be made prior to the delivery of the Offering Documents. Before making an investment decision, potential investors should review the Offering Documents and inform themselves as to the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares, and any foreign exchange restrictions that may be relevant thereto. This newsletter is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law and regulation, and is intended solely for the use of the person to whom it is intended. The information and opinions contained in this Newsletter have been compiled from or arrived at in good faith from sources deemed reliable. Opinions expressed are current as of the date appearing in this Newsletter only. Neither Asia Frontier Capital Ltd (AFCL), nor any of its subsidiaries or affiliates will make any representation or warranty to the accuracy or completeness of the information contained herein. Certain information contained herein constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of Funds managed by AFCL or its subsidiaries and affiliates may differ materially from those reflected or contemplated in such forward-looking statements. Past performance is not necessarily indicative of future results.

The AFC Iraq Fund is registered for sale to qualified/professional investors in Japan, Singapore, Switzerland, the United Kingdom, and the United States. The Fund has appointed Acolin Fund Services AG, Maintower, Thurgauerstrasse 36/38, 8050 Zurich, Switzerland, as its Swiss Representative. NPB Neue Privat Bank AG, Limmatquai 1 /am Bellevue, CH – 8024 Zürich, Switzerland is the Swiss Paying Agent. In Switzerland, shares shall be distributed exclusively to qualified investors.  The fund offering documents, articles of association and audited financial statements can be obtained free of charge from the Representative. The place of performance with respect to shares distributed in or from Switzerland is the registered office of the Representative.

By accessing information contained herein, users are deemed to be representing and warranting that they are either a Hong Kong Professional Investor or are observing the applicable laws and regulations of their relevant jurisdictions.

© Asia Frontier Capital Ltd. All rights reserved

Privacy Policy