Monthly Highlights: February 2019

•  West African equities were dragged lower by Ghana after Nigeria whilst the Francophone region posted positive returns. In Nigeria, incumbent President Muhammadu Buhari won the presidential elections with 56% of the vote
•  East African equities performed poorly on the back of broad based weakness across the region. In Kenya, Kenya Power & Lighting Company posted weak 1H19 results (T/O: +3.8% y/y; PAT: -14.7% y/y)
•  In North Africa, equity markets were dragged lower by Morocco after Egypt and Tunisia posted strong returns.
•  Southern African equities performance was mixed as gains in Zimbabwe and Zambia were offset by weakness in Malawi and Botswana
 

West African equities were dragged lower by Ghana after Nigeria whilst the Francophone region posted positive returns. In Nigeria, incumbent President Muhammadu Buhari won the presidential elections with 56% of the vote

West African equities were dragged lower by Ghana after Nigeria whilst the Francophone region posted positive returns. In Nigeria, incumbent President Muhammadu Buhari won the presidential elections with 56% of the vote. Once ballots from all 36 states were counted, Buhari’s All Progressives Congress (APC) garnered 15.2m votes compared to 11.3m for Atiku Abubakar’s People’s Democratic Party (PDP). The election turnout was low at 35.6%, compared to 44% turnout for the 2015 presidential election, put down to the eleventh hour postponement of voting by a week. On the earnings front, Zenith Bank reported mixed FY18 results (GE: -15.4% y/y; PAT: +11.3% y/y) as weaker non-interest income (-31.6% y/y) impacted gross earnings, whilst profitability was boosted by lower provisions (-81.3% y/y). Nigerian Breweries (NB) posted weak FY18 results (T/O: -5.8% y/y; PAT: -41.2% y/y) driven by sustained competition in NB’s core lager beer business as International Breweries continues eat into its market share undercutting NB’s price of mainstream lager beer products. Flour Mills reported poor 9M19 numbers (T/O: -6.3% y/y; PAT: -40.4% y/y) as gross profit margin fell to 11.6% from 13.1% in the prior period. The decline in topline was largely due to -5% y/y and -10% y/y decrease in Food revenues (accounting for 64% of revenue) and Agro-allied revenues (accounting for 17% of revenue) respectively. Dangote Cement reported impressive FY18 numbers (T/O: +11.9% y/y; PAT: +91.1% y/y) driven by an increase in both volumes and price in Nigeria. Cement volume sold increased by +7.4% y/y from 21.9mt to 23.5mt and average price per ton rose +4.2% from NGN36,746/tonne to NGN38,280/tonne. Cement sales in Nigeria and from its Pan African operations rose +11.9% y/y and +9.6% y/y to NGN618.3bn and NGN283.3bn respectively.

East African equities performed poorly on the back of broad based weakness across the region. In Kenya, Kenya Power & Lighting Company posted weak 1H19 results (T/O: +3.8% y/y; PAT: -14.7% y/y)

East African equities performed poorly on the back of broad based weakness across the region. In Kenya, Kenya Power & Lighting Company posted weak 1H19 results (T/O: +3.8% y/y; PAT: -14.7% y/y) as transmission and distribution costs rose +37.3% y/y to KES21.7bn and network management costs increased by +28.3% y/y due to a rise in the net cost recharged to the Rural Electrification Program, Ketraco’s wheeling charge and other consumable goods. In Tanzania, DSE reported disappointing FY18 financials (T/O: -21.1% y/y; PAT: -56.7% y/y) driven by lower transaction fees (-51.5% y/y) and investment income (-26.6% y/y). In Mauritius, MCB Group posted impressive 1H19 results (GE: +18.2% y/y; PAT +17.8% y/y) as net-interest income rose by +26.1% y/y and cost- to-income ratio improved to 39.9% from 42.5% in the prior year.

North Africa posted mixed returns as Morocco and Tunisia underperformed while Egypt continued its upward momentum as the Central Bank of Egypt cut overnight deposit and lending rates by 100bps to 15.75% and 16.75% respectively

North Africa posted mixed returns as Morocco and Tunisia underperformed while Egypt continued its upward momentum as the Central Bank of Egypt cut overnight deposit and lending rates by 100bps to 15.75% and 16.75% respectively, which caught large parts of the market by surprise despite moderating inflation. On the earnings front, Commercial International Bank posted strong FY18 results (GE: +38.2% y/y; PAT: +27.5% y/y) as net interest income increased by +45.1% y/y as loan book grew by +20% y/y. Asset quality remained healthy with coverage at 269% while NPL decreased to 4.07% in 2018 from 6.95% in 2017. Housing & Development Bank also reported impressive FY18 results (GE: +14.5% y/y; PAT: +51.1% y/y) as provisions declined by -51% y/y. In the consumer sector, Edita posted positive FY18 numbers (T/O: +24.1% y/y; PAT: +43.3% y/y) as gross margin expanded an impressive 4.4 percentage points y/y to 35.8%, which is the highest level since 2Q16, with gross profit rising by +28.1% y/y, on better volumes (+20% y/y) and several indirect price increases and an improved product mix. Integrated energy solutions company, Elsewedy, reported weaker FY18 results but slightly ahead of market expectations (T/O: -1.0% y/y; PAT: -21.6% y/y) on the back of decreasing revenues from turnkey projects (-14.6% y/y), the second largest contributor to the company’s top-line, however the company is well positioned with its largest ever pipeline of contracts in excess of USD3.3bn going forward. In other news, The Cairo Economic Court fined Ibnsina Pharma EGP160mn for monopolistic practices where the company and four other pharma distributors were accused of allegedly colluding on sale and marketing policies by reducing financing facilities and discount periods for retailers, which harmed small-sized pharmacies. Ibnsina can still appeal the ruling however this will then drag-on for at least another two-three years – in either case, the maximum penalty will remain EGP160mn.

Southern African equities performance was mixed as gains in Zimbabwe and Zambia were offset by weakness in Malawi and Botswana

Southern African equities performance was mixed as gains in Zimbabwe and Zambia were offset by weakness in Malawi and Botswana. In Zimbabwe, we digested strong 1H18 results from Afdis (T/O: +57.0% y/y; PAT: +157.1% y/y) mainly as a result of strong volume growth and cost containment. Sales volume grew by +40% driven by a +55% growth in ready-to-drink (RTDs), +25% increase in spirits and +22% rise in wines. Art Corporation issued a trading update for five months to February 2019 indicating that turnover was +27.8% above the corresponding period at USD23.0m. Despite local volumes declining by -20.0% y/y across the business except in Kadoma where volumes were flat, export volumes increased by +10.0% y/y to USD 2.2m. Gross profit margins deteriorated to 41.0% from 44.0% in the previous period.