Monthly Highlights: April 2019

•  West African equities were dragged down by Nigeria after Ghana and the Francophone region closed on a positive note
•  East African equities exhibited mixed performance as strength in Uganda and Rwanda was offset by weakness in Tanzania and Kenya
•  In North Africa, equity markets recorded positive returns amid broad-based gains across the region
•  In Southern Africa, equity markets recorded mixed returns as strength in Namibia and Botswana was offset by weakness in Malawi, Zimbabwe and Zambia
 

West African equities were dragged down by Nigeria after Ghana and the Francophone region closed on a positive note

West African equities were dragged down by Nigeria after Ghana and the Francophone region closed on a positive note. On the earnings front, the 1Q19 reporting season was in full swing as we digested a plethora of results. In the financial sector, Access Bank reported strong 1Q19 performance (GE: +16.4% y/y; PAT +86.1% y/y) following the merger with Diamond Bank. Net interest income rose by +27% while provisions were -32% lower. Similarly, GTB Bank posted positive 1Q19 results (GE: +1.2% y/y; PAT +10.4% y/y) driven by the robust non-interest income growth of 27.1% y/y and an improvement in asset quality which saw provisions falling by -60.3% y/y. Zenith Bank posted satisfactory 1Q19 results (GE: -6.5% y/y; PAT: +6.7% y/y) again driven by lower impairment charges (-54% y/y). In the consumer sector, Nestle reported impressive 1Q19 results (T/O: +5.2% y/y; PAT +49.3% y/y) as gross profit margin expanded by 605bp to 46% due to lower cost of sales which declined by -5.4% y/y. In contrast, Unilever delivered a weak set of 1Q19 numbers (T/O: -20.8% y/y; PAT -47.5% y/y) as revenues from both the Food business and Home & Personal Care (HPC) business were lower by -13.1% and -26.9% y/y respectively. Nigerian Breweries also reported disappointing 1Q19 results (T/O: +0.4% y/y; PAT -21.3% y/y) as a jump in excise duty payments of +48.0% y/y to NGN8.1bn from NGN5.5bn in 1Q18 put a dent in net revenue growth. Profitability was also impacted by a +8.2% y/y growth in marketing expenses mainly due to NB’s drive to reclaim lost market share. Okomu Oil reported poor 1Q19 results (T/O: -42.5% y/y; PAT -71% y/y) driven by lower palm oil and rubber revenues which decreased by -45% and -27% y/y respectively as a result of the lower global price of these commodities as well as weaker volumes. Dangote Sugar released mixed 1Q19 results as top-line weakness was offset by improving gross profit margin (T/O: -7.3% y/y; PAT +32.7% y/y). Gross profit margin improved to 33.0% in 1Q19 from 25.0% in 1Q18, as cost of sales declined by -17.2% y/y. In Ghana, GCB posted strong 1Q19 results (GE: +31.1% y/y; PAT: +71.2% y/y) driven by net interest income which rose by +31.1% y/y whilst provisions were -5.3% y/y lower.

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

East African equities exhibited mixed performance as strength in Uganda and Rwanda was offset by weakness in Tanzania and Kenya. In Kenya, we digested strong FY18 results from WPP Scan (T/O: +32.6% y/y, PAT: +21.9% y/y) after the company acquired a majority stake in Research and Marketing Group Investment Limited, which operates Kantar TNS in six countries in East and West Africa. Bamburi posted weak FY18 results (T/O: +3.6% y/y, PAT: -68.9% y/y) as operating profit margin shrunk by 966bp mostly as a result of a +14.7% y/y increase in costs. Nation Media reported poor FY18 numbers (T/O: -9.1 y/y, PAT: -14.7% y/y) driven by a challenging operating environment characterized by continued consumers shift from traditional media to digital and social media, temporary closure of NTV Kenya in 1Q18 and the suspension of ‘My Gov’ circulation from July 2018.

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

In North Africa, equity markets recorded positive returns amid broad-based gains across the region. In Egypt, the index was primarily driven by the performance of index heavy weight, Commercial International Bank (CIB), which gained +12.8% during the month. In other sectors, CIRA reported impressive 2Q18/19 (ending 28 February 2019) results (T/O: +33.0% y/y; PAT: +43.4% y/y) with higher revenues driven by both higher education (+42% y/y) and K-12 (+25% y/y) segments as well as lower interest costs due to deleveraging with a large portion of debt repaid (net interest income of EGP4.3mn vs. net interest cost of EGP3.9mn a year ago). EIPICO’s recently appointed Chairman and Managing Director, Dr. Ahmed Kelani, announced that the company is currently studying establishing one of the biggest Biosimilar factories in Egypt for the production of cancer and hormone drugs with a total proposed investment of EGP1bn. The Chairman added that EIPICO’s biotechnology facilities will produce the active ingredients for these new products. The company is currently analysing various financial solutions to fund this project. In Morroco, Ciments du Maroc reported relatively flat FY18 results (T/O: -0.7% y/y; PAT: +3.4% y/y) as domestic consumption continue to decline after registering -3.7% drop in 2018 vs. -2.5.% in 2017.

In Southern Africa, equity markets recorded mixed returns as strength in Namibia and Botswana was offset by weakness in Malawi, Zimbabwe and Zambia

In Southern Africa, equity markets recorded mixed returns as strength in Namibia and Botswana was offset by weakness in Malawi, Zimbabwe and Zambia. In Zimbabwe, African Sun reported an improved set of financials highlighted by a +108.9% surge in headline earnings (T/O: +32.2% y/y; PAT: +108.9% y/y). Although we provide prior year comparatives caution on interpreting the financials is warranted due to the change in functional currency. The performance was on the back of increased occupancies, improved ADR, cost control and reduced finance costs. The revenue growth was spurred by a 7 percentage point increase in occupancy to 59.0% augmented by a +17.0% growth in ADR to USD109. Room nights sold for domestic, international and regional markets increased by 12.0%, 14.0% and 7.0%, respectively. Delta provided a trading update for 4Q19, mirroring the current economic environment as volumes declined across all beverage categories. Sparkling beverages volume shrunk by -89.0% for the quarter while Lager and Sorghum beers volumes were down by -3% and -2% y/y respectively. The huge decline in volumes for Sparkling beverages was driven by the unavailability of foreign currency to buy concentrates and packaging materials which resulted in the company shutting down the plants in November 2018.