Monthly Highlights: April 2017

•  West African equities rose as weakness in the Francophone region was more than offset by strength in Ghana and Nigeria
•  East African equities exhibited mixed performance as strength in Kenya and Mauritius was offset by weakness in Tanzania
•  North African equity markets continued to underperform on the back of weakness in Egypt and Tunisia
•  In Southern Africa, equity markets recorded positive returns amid broad-based gains across the region
 

West African equities rose as weakness in the Francophone region was more than offset by strength in Ghana and Nigeria

West African equities rose as weakness in the Francophone region was more than offset by strength in Ghana and Nigeria. In Nigeria the Central Bank of Nigeria (CBN) announced a new Investors & Exporters Exchange Rate mechanism which will be launched in May, in theory, this will provide foreign investors and exporters a market determined rate and improved ability to source FX liquidity. On the earnings front, the 1Q17 reporting season was in full swing as we digested a plethora of results. In the financial sector, Stanbic IBTC reported strong 1Q17 performance (GE: +35.2% y/y; PAT +100.6% y/y) as net interest income rose by +79% from higher yields on assets. Similarly, Zenith Bank posted impressive 1Q17 results (GE: +48.6% y/y; PAT +41.1% y/y) driven by the robust interest and non-interest income growth of 40.3% y/y and 93.7% y/y respectively. GTB also posted solid 1Q17 results (GE: +39.1% y/y; PAT: +61.9% y/y) driven by a solid performance in net interest income which grew by 62% y/y on the back of a +150% y/y growth in income from investment securities. UBA reported positive 1Q17 results (GE: +37.5% y/y; PAT +31.6% y/y) as interest income advanced by 42.6% y/y to and net trading income on fixed income and FX trading rose by 157.2% y/y. The performance was also boosted by an improvement in operational efficiency which saw the bank’s cost-to-income ratio declining by 200bps. Diamond Bank released disappointing 1Q17 results (GE: +8.6% y/y; PAT -16.5% y/y) driven by a -25.6% y/y fall in non-interest income on lower FX trading income coupled by higher impairment charges (+20% y/y). In the consumer sector, Nestle reported impressive 1Q17 results (T/O: +69.3% y/y; PAT +25.1% y/y) as price increases of about 35-40% and improved volumes across the board drove strong top-line performance offsetting the negative impact from a gross margin contraction of -1,081bps y/y to 38.4% and a double-digit rise in opex. Similarly, Unilever delivered a strong set of 1Q17 numbers (T/O: +32.1% y/y; PAT +53.9% y/y) mainly driven by the Household and Personal Care (HPC) segment, which grew by 43.0% y/y compared to the food segment, which grew by +21.8% y/y as new products prices came into effect. Cadbury reported mixed results as profits declined despite a positive growth in revenue (T/O: +13.3% y/y; PAT -86.2% y/y) as gross margin was significantly lower at 21.8% in 1Q17 vs. 33.4% in 1Q16, reflecting the impact of the NGN devaluation and higher raw material prices. Okomu reported outstanding 1Q17 results (T/O: +77.3% y/y; PAT +92.3% y/y) driven by strong growth in palm oil and rubber sales which increased by +74% and +112% y/y respectively coupled by a -94% reduction in net finance costs. In the Francophone region, SGBCI delivered stronger-than-expected results (GE: +11.3% y/y, PAT: +31.1% y/y) as a +14.6% y/y growth in net interest income and -57.5% y/y decline in loan losses contributed to the positive performance. In Ghana, SCB posted strong 1Q17 results (GE: +9.6% y/y; PAT: +17.9% y/y) driven by net interest income which rose by +13% y/y and a recovery on financial assets of GHS 12.1m vs. a loss GHS 2m reported in 1Q16. On the contrary, GCB posted disappointing 1Q17 results (GE: +20% y/y; PAT: -31.9% y/y) as strong top-line performance was offset by an increase in operating costs (+42.9%) and higher impairment charges (+2,386%).

East African equities exhibited mixed performance as strength in Kenya and Mauritius was offset by weakness in Tanzania

East African equities exhibited mixed performance as strength in Kenya and Mauritius was offset by weakness in Tanzania. In Kenya, we digested weak FY16 results from WPP Scan (T/O: -3.7% y/y, PAT: -3.8% y/y) as tough trading conditions affected the Kenyan market which accounted for 60% (2015: 66%) of the total revenues. Bottom line was further impacted by FX losses reported in Nigeria following the devaluation of the Naira. Shifting to Tanzania, Swiss Port delivered a disappointing set of FY16 numbers (T/O: +0.9% y/y; PAT -16% y/y) as handling revenue growth of +7% was offset a -8.6% decline in cargo sales, attributed to the general decline in imports. In the financial sector, NMB released FY16 numbers in-line with our expectations (GE: +18.6% y/y; PAT: +4.9% y/y) as a +21% growth in net interest income was offset by a 132% y/y increase in impairments.

North African equity markets continued to underperform on the back of weakness in Egypt and Tunisia

North African equity markets continued to underperform on the back of weakness in Egypt and Tunisia. On the earnings front, we digested solid 1Q17 numbers from Eastern Co (T/O: +54% y/y; PAT: +67% y/y) as ex-factory prices for EC's best-selling brands (c90% of volumes) increased by 25%, in addition to another ex-factory increase of c14% for c50% of volumes (Cleopatra Box and Queen) during the quarter. Emaar Misr reported strong 1Q17 results (T/O: +11.9% y/y; PAT: +72% y/y) as lower deliveries at UTC (EGP33.2m in revenue only, 15% of trailing four-quarter average), resulted in lower-than-expected revenue, while gross profit margin was robust, averaging 46.6%(2016: 40.6%), on strong margins across projects, a reflection of the price increases which took place in the previous years. Shifting to the industrial sector, Elsewedy performed strongly as FY16 earnings (GE: +30.4% y/y; PAT: +209.5% y/y) driven by both organic growth and the translation into local currency of international and export revenues denominated in foreign currencies. Improvement in bottom-line profitability was also supported by an FX gain following the float of the Egyptian Pound, which saw the company book a gain of EGP1.1bn in 4Q16 and EGP1.3bn for the full-year.

In Southern Africa, equity markets recorded positive returns amid broad-based gains across the region

In Southern Africa, equity markets recorded positive returns amid broad-based gains across the region. In Zimbabwe, Econet’s majority shareholder, which underwrote the issue has subsequently increased its holding in the Company to 40% (from 30%) as few foreign investors followed their rights however, there was greater interest from local investors following the relaxation of payment terms allowing local investors to subscribe with new Zimbabwe bonds and equivalent. According to the results, the capital raise had a subscription rate of 74.6%. In another action, South Africa’s retail giant Pick n Pay says its Zimbabwe associate, TM Supermarkets (TM), delivered a strong 75% earnings growth for the full year to February 2017 despite a tough macroeconomic environment marked by poor liquidity, rising unemployment and falling consumer confidence in the country. In Zambia, Zesco plans to introduce a flat electricity tariff USD0.093/kilowatt-hour (kWh) backdated to January for mining companies, instead of individually negotiated rates that have averaged at USD0.06/kWh while prices for retail customer prices will rise by 50% in May and a further 25% in September 2017.