Monthly Highlights: December 2017

•  West African underperformed amid broad-based weakness across the region
•  East African equity markets were broadly weaker on the month as Kenya underperformed following the decision by the Supreme Court to annul the recently held presidential elections after identifying some irregularities at the IEBC
•  North African equities were mixed after strength in Egypt was offset by weakness in Morocco and Tunisia
•  Southern African equities were weaker as fuel and food shortages raise their ugly heads again in Zimbabwe
 


West African underperformed amid broad-based weakness across the region

West African underperformed amid broad-based weakness across the region. In Nigeria, the country’s GDP grew by +0.55% in 2Q17 after five consecutive quarters of contractions since 1Q16. Economic improvement was more pronounced on a q/q basis given the real GDP growth of 3.3% q/q in 2Q17 vs. a contraction of -13.7% q/q in 1Q17. The recovery seen in 2Q17 was largely driven by the oil sector, which saw real GDP growth of +1.6% y/y as oil production increased following the rehabilitation of 2Q17. On the earnings front, Guinness Nigeria released strong FY17 results (T/O: +23.5% y/y; PAT: n/a) as the company returned to profitability following a strong recovery in 4Q17, underpinned by price increases across Guinness’ products and market share gain. PZ Cussons released impressive FY17 (T/O: +14.5% y/y; PAT: +73.1%) as gross margin expansion of 604bps y/y to 35.1% was strong enough to offset a +205% y/y rise in exchange rate losses. In the financial sector, ETI signed a five-year senior unsecured loan facility of USD250m from Deutsche Bank AG which will be used primarily to refinance maturing facilities.

East African equity markets were broadly weaker on the month as Kenya underperformed following the decision by the Supreme Court to annul the recently held presidential elections after identifying some irregularities at the IEBC

East African equity markets were broadly weaker on the month as Kenya underperformed following the decision by the Supreme Court to annul the recently held presidential elections after identifying some irregularities at the IEBC (Independent Electoral & Boundaries Commission). During the month Kenya's electoral commission moved the proposed date from 17 October 2017 to 26 October as it needed more time to meet the requirements set by the Supreme Court. On the earnings front, ARM Cement reported poor 1H17 numbers (T/O: -19.8% y/y; PAT: n/a) which we attribute to depressed prices in Tanzania and weaker cement demand in Kenya - due to the elections and reduced private sector credit extension as a result of the interest rate cap on lending. This was followed by an announcement from management that they are looking for a strategic partner or additional equity, and even after USD140mn in equity was raised last year. Equity Bank expects the share of profit from its regional subsidiaries to grow four-fold in five years, as its regionalisation strategy compensates for a more difficult operating environment in Kenya. The bank plans anticipates that its subsidiaries will contribute 40% of the group earnings from the current 10% over the next five years. In Uganda, utility company, Umeme, posted disappointing 1H17 results (T/O: +6.9% y/y; PAT: n/a) as a one-off retrospective impairment provision for the previously accrued growth factor revenues offset top-line growth. Operationally the company reported a +3% growth in profits as energy losses reduced to 17.5% from 19.3% recorded in the previous year. Customer numbers increased +19% y/y driven by grid extensions resulting in new customer acquisitions. Going forward we believe there is still a huge growth opportunity for Umeme as only 21% of the population has access to on-grid electricity a. Shifting to Tanzania, TBL reported weak FY17 numbers (T/O: +6.9% y/y; PAT: n/a) driven by weakness in the consumer environment following a squeeze in government spend and government clampdown on trading hours for alcoholic beverages. Also, a ban on sachet packaging impacted on TBL’s spirits business which historically has contributed an average of 18.4% of net revenue in the past five years.

North African equities were mixed after strength in Egypt was offset by weakness in Morocco and Tunisia

North African equities were mixed after strength in Egypt was offset by weakness in Morocco and Tunisia. In Morocco, we digested disappointing 1H17 numbers from Marsa Maroc (T/O: -0.2% y/y; PAT: -11.1% y/y) driven by a -3% decrease in handled volumes of bulk products (dry, liquid and conventional) coupled by a 930bp contraction in EBITDA margins to 44% vs. 53.3% in 1H16. Lafarge Holcim, also posted weak 1H17 numbers (T/O: - 10.3% y/y; PAT: -21.8% y/y) as the company’s gross margin fell 120bp to 67.6% vs. 68.8% in 2016 due to higher Petcoke costs. Ciments du Maroc, reported impressive 1H17 results (T/O: +1.1% y/y; PAT: +19.8% y/y) driven by an increase in clinker export volumes, combined with a marginal increase in cement prices. In Egypt, the country’s current account deficit narrowed by 50% in the fourth quarter of 2016 -2017 to stand at USD2.4bn from USD4.8bn a year earlier, boosted by last year’s decision to float the Egyptian pound.

Southern African equities were weaker as fuel and food shortages raise their ugly heads again in Zimbabwe

Southern African equities were weaker as fuel and food shortages raise their ugly heads again in Zimbabwe. The market was in fact +78% higher in what has now become Zim currency terms, however, once adjusted for the Old Mutual Implied Rate it was lower -25%. Panic buying of assets to preserve value drove the market higher, whilst inflationary fears continue to drive speculation. A three-tiered exchange rate currently exists in Zimbabwe with differing rates for foreign currency, vs. Zim Bonds vs. electronic funds. On the earnings front, we digested negative FY17 results from National Foods (T/O: -12.4% y/y; PAT: -4.0% y/y), driven by the maize division which saw a - 45% decline in volumes after a poor maize harvest in the 2015/16 season. Innscor reported impressive FY17 numbers (T/O: -1.1% y/y; PAT: +38.1% y/ y) on the back of improved efficiencies as EBITDA rose by +19% y/y offsetting a decline in revenues. In financial services, GetBucks reported impressive FY17 results (G/E: +15.1% y/y; PAT: +20.6%) as net-interest income rose by +24.3% y/y driven by a 9.1% growth in advances.

contacts
  • Bermuda +1 441 278 7610
  • UK +44 20 7101 9290
  • South Africa +27 11 243 9054

© Altree Capital ("ACL")

   Terms and Conditions