Monthly Highlights: February 2021

•  West African equity markets exhibited mixed performances as Ghana and the Francophone region closed on a positive note whilst Nigeria was negative
•  East African equities were broadly positive with only Mauritius reporting negative returns
•  In North Africa, Morocco and Tunisia posted weak returns whilst Egypt posted marginally positive returns
•  Southern African equities recorded mixed returns with Zimbabwe and Zambia trading in positive territory while Namibia, Botswana and Malawi were weaker
 

African stock markets were generally mixed in February, with nine markets posting positive performances in dollar terms led by Zimbabwe (+13.07%) using the RTGS dollar, Ghana (+9.93%) and Uganda (+4.58%), whilst the biggest losers were Nigeria (-13.01%), Namibia (-3.68%) and Mauritius (-3.04%). There was a general feeling of renewed optimism as a number of countries started receiving Covid-19 vaccines, with Ghana and Ivory Coast becoming the world’s first recipient of a Covid-19 vaccine from COVAX, a global scheme to procure and distribute inoculations free of charge to poorer countries. Nigeria’s negative returns came as the currency continued to depreciate with the NGN weakening by -7.3% to NGN408.86 to the USD in February.

West African equity markets exhibited mixed performances as Ghana and the Francophone region closed on a positive note whilst Nigeria was negative

West African equity markets exhibited mixed performances as Ghana and the Francophone region closed on a positive note whilst Nigeria was negative. Nigeria’s gross domestic product (GDP) contracted by -1.92% in real terms in 2020 from NGN 71.4tn in 2019 to NGN 70.0tn. However, it unexpectedly came out of a recession in 4Q20 growing by +0.11%, compared with a decline of -3.6% in 3Q20, as growth in agriculture and telecommunications offset a sharp drop in oil production. Nigeria’s inflation rate jumped to 16.5%, the highest since April 2017. On the earnings front, Zenith Bank reported a solid set of FY20 results in-line with our expectation (G/E: 0.0% y/y; PAT: +10.4% y/y) driven by strong growth in net interest income (+12.2% y/y) on the back of an impressive -18.4% y/y decrease in interest expense as average cost of funds improved to 2.1% vs. 3.1% in FY19. Interest income remained benign, growing by only +1.3% y/y given the low rate environment. Nigerian Breweries posted mixed FY20 earnings (T/O: +4.3% y/y; PAT: -54.3% y/y) as the relatively flat revenue was dampened by an increase in cost of goods sold of+13.9% y/y, as well as, finance costs (+50.8% y/y). In Ghana, Scancom (MTN Ghana) released strong FY20 results (T/O: +16.4% y/y; PAT: +38.4% y/y) fuelled by subscriber growth of +23.4% y/y to 24.4m, active data subscribers grew by +32.4% y/y to 10.8m and mobile money users increased by +16.3% y/y to 10.6m. In economic news, the Central Bank of Ghana left the benchmark rate unchanged at 14.5% and inflation rate eased to 9.9% in January compared to 10.4% in December 2020 as inflation on the food and non-alcoholic beverages basket fell to 12.8% compared to 14.1%. In the Francophone region, we digested relatively flat FY20 earnings from Sonatel (T/O: +2.3% y/y; PAT: +3.1% y/y) as EBITDA margin expanded by 2.1percentage points to 43.0% but was offset by a 1,542% increase in FX losses and a 1.3 percentage point increase in effective tax.

East African equities were broadly positive with only Mauritius reporting negative returns

East African equities were broadly positive with only Mauritius reporting negative returns. In economic news from Kenya, it reached a staff-level agreement with the International Monetary Fund (IMF)on a three-year USD 2.4bn loan financing package, to support the next phase of the country’s Covid-19 response and the authorities’ plans for a strong multi-year effort to stabilise and begin reducing debt levels relative to GDP. On the earnings front, British American Tobacco (BAT) Kenya reported impressive FY20 results (T/O: -2.5% y/y; PAT: +42.03%y/y) with profitability increasing strongly despite weak top line growth driven by a -24.0% y/y decline in domestic sales but compensated by its export strategy. Profits were boosted by cost improvement as operational expenses fell by -3.1% y/y, alongside reduced tax expenses with the reduction in VAT from 16.0% to 14.0% and the downward revision of corporate tax rate from 30.0% to 25.0% effected in April 2020. BAT proposed a final dividend of KES 41.50 per share, an impressive 34.3% increase from FY19. In other company news, Bharat Thakrar, the Chief Executive Officer of WPP Scangroup, and his Chief Finance Officer Satyabrata Das were suspended by the company’s board, to allow for investigations into allegations of gross misconduct and possible offences. Safaricom issued a notice on interim dividend for the year ended 31 March 2021, of KES 0.45 per share amounting to KES 18.0bn, in recognition of the telco’s solid 1H21 performance. In Mauritius, MCB Group published poor 1H21 results which are in line with our expectations (G/E: -13.7% y/y; PAT: -27.0% y/y) driven by a decline in interest income (-17.1% y/y), as well as, a +169.7% increase in loan loss provisions. In economic news, Bank of Mauritius retained the benchmark rate at 1.85% for third consecutive meeting, stating that the current stance is supportive of economic recovery. In Tanzania, Vodacom Tanzania published a poor 3Q21 trading update driven by a decline in number of customers (-2.7% y/y), data customers (-5.8% y/y) as well as M-Pesa customers (-0.4% y/y). In Uganda, the central bank MPC held the key MPC interest rate at 7.0% for fourth meeting and Uganda’s annual inflation accelerated to 3.8% in February from 3.7% in January, the second straight month of increase. In Rwanda, the National Bank of Rwanda kept its benchmark interest rate unchanged at 4.5% for a third consecutive meeting to support the economy as inflation is expected below the medium-term benchmark of 5% this year.

In North Africa, Morocco and Tunisia posted weak returns whilst Egypt posted marginally positive returns

In North Africa, Morocco and Tunisia posted weak returns whilst Egypt posted marginally positive returns. Egypt’s MPC held the key interest rates with the deposit and lending rates remaining at 8.25% and 9.25% respectively. Egypt’s annual headline inflation decelerated to 4.3% in January 2021 from 5.4% in the previous month. On the earnings front, Credit Agricole released disappointing FY20 results (G/E: -13.7% y/y; PAT: -41.9% y/y) driven by a decline in net interest income (-8.2% y/y) as well non-funded income (-16.3% y/y). Speed Medical reported stellar FY20 results (T/O: +107.3% y/y; PAT: +363.5% y/y) as gross profit margin increased to 58.8% from 51.3% coupled with EBIT margin expansion to 36.0% from 32.6% in FY19. Speed also announced its intention to fully acquire Prime Speed Healthcare, which owns 70% of Prime Speed Medical Services (PSM), with SPMD owning the remaining 30%. Following this transaction, Speed will consolidate the full business of PSM under its umbrella and benefit from PSM's current and future business in the healthcare sector and utilize its strong liquidity. Telecom Egypt released strong FY20 results (T/O: +24.0% y/y; PAT: +10.0% y/y) supported by higher data-related revenue, in addition to a growth in customer base across all segments and a +79.0% y/y increase in EBITDA. Heliopolis for Housing and Development reported poor 1H21 results (T/O: -89.4% y/y; PAT: -124.1% y/y) as gross profit declined by -90.0% y/y with gross profit margin of 76.6% in 1H21 compared to 81.5% a year earlier. El Sewedy Electric posted uninspiring FY20 earnings (T/O: -0.5% y/y; PAT: -24.7% y/y) driven by weak top line mainly from its wires & cables and meters segments which reported -8.5% y/y and -19.6% y/y decline in gross profits, respectively. Edita Food Industries reported disappointing FY20 results (T/O: -0.1% y/y; PAT: -10.8% y/y) with flat revenues driven by Covid-19 restrictions, which negatively impacted demand for on-the-go snack consumption, culminating in a -9.0% y/y drop in volumes. In other corporate news, Juhayna Foods Industries, Egypt’s largest dairy products and juices producer, confirmed the detention of CEO and deputy chairman, Seifeldin Thabet, in a disclosure to Egypt’s bourse regarding a pending investigation into his father, ex-chairman, Safwan Thabet, who was arrested in December 2020. In Morocco, we digested solid FY20 results from Maroc Telecom (T/O: +0.7% y/y; PAT: +74.8% y/y) where despite flat top line, profitability was boosted by a significant decrease in depreciation, amortisation and provisions (-60.5% y/y) due to a reversal of the provision for the regulator's penalty in Morocco amounting to MAD 3.3bn. In other company news, High Payment Systems agreed to buy MCB Group’s 80% stake in Mauritius-based ICPS. The deal makes HPS the sole shareholder of ICPS, a joint venture founded with MCB in 2008. ICPS handles 6m cards, 600 ATMs and monthly 10m transactions. In Tunisia, 4Q20 GDP contracted by -6.1% from a year earlier as the tourism sector was the most affected, reflecting in hotels & restaurants (-43.6%), followed by the transportation services (-28%). In 2020, the economy plunged -8.8%, after expanding +0.9% in 2019.

Southern African equities recorded mixed returns with Zimbabwe and Zambia trading in positive territory while Namibia, Botswana and Malawi were weaker

Southern African equities recorded mixed returns with Zimbabwe and Zambia trading in positive territory while Namibia, Botswana and Malawi were weaker. In Zimbabwe, the Reserve Bank hiked the bank policy rate from 35% to 40% and the inflation rate was 321.59% y/y in February 2021 compared to 362.63% in January 2021. In Zambia, the central bank raised its key interest rate for the first time since November 2019 by 50bp to 8.5% in order to contain rising inflation and anchor inflation expectations. The inflation rate surge continued increasing to 22.2% in February from 21.5% recorded in January, as high food prices rose at 27.3% in February 2021 compared to 25.6% in January 2021. Botswana's MPC left its benchmark bank rate steady at 3.75% for the second time to maintain an accommodative monetary policy stance, saying it expects the economy to operate below full capacity in the short and medium-term.