Monthly Highlights: January 2013

•  West African equities performed well amid broad based strength across the region
•  East African equities continued their upward trajectory on back of continued strength in Kenya
•  North African equities declined amid continued weakness in Egypt
•  Southern African equity markets posted mixed results in January
 

West African equities performed well amid broad based strength across the region

West African equities performed well amid broad based strength across the region. In Nigeria, yields continue to decline as the CBN appears committed to its 6% inflation target. In its efforts to support the local bond market, the Federal Government of Nigeria plans on raising an additional NGN 210 – 360bn in sovereign bonds over 1Q13 while AMCON has managed to restructure loans worth NGN 1tn. On the corporate front, Flour Mills reported a +1.6% y/y increase in 3Q13 revenue while PAT remained flat at NGN 8.16bn. Despite these weaker than expected 3Q13 results, we remain optimistic on the company’s forward-looking prospects and expect 4Q12 improvement to materialize on back of increased capacity (new 750,000 MT sugar refinery), the addition of new production lines across its foods business and increased operating efficiencies following the merger of Flour Mills Nigeria Plc and Niger Mills Limited. In other news, ETI continues to expand its African footprint with a move into Equatorial Guinea, and as such, the bank presently maintains a presence in 33 African countries. Shifting to Ghana, the economy grew +1.7% y/y in 3Q12 as the nation’s agricultural sector recorded +4.6% y/y growth. In the Francophone region, Cote d’Ivoire signed a USD 500m loan with China's Export-Import Bank to finance construction of a new 275MW hydro power station in what amounts to the nation’s largest deal with China in over 30 years.

East African equities continued their upward trajectory on back of continued strength in Kenya

East African equities continued their upward trajectory on back of continued strength in Kenya. Kenya's inflation rate rose to 3.67% y/y in January although it is still well within the government's medium-term target of 5%. On the corporate front, Kenya Airways passenger numbers rose +3.6% to 991,149 in the final three months of FY12, compared to a +15.4% jump in 3Q12. On another note, Deacons Kenya has finalized its joint venture with S. Africa’s Woolworths as we expect to see the Kenyan retailer yield some control of its local activities to the South African retailer. Shifting to Mauritius, annual average inflation retreated to 3.9% in December as lower costs of food and nonalcoholic beverages contributed to the decline. In Tanzania, annual inflation remained at 12.1% - above the Bank of Tanzania’s 10% year-end target.

North African equities declined amid continued weakness in Egypt

North African equities declined amid continued weakness in Egypt. Although Qatar has provided Egypt with USD 2.5bn of monetary aid, the weaker EGP has made it more difficult for cash-strapped Cairo to buy crude oil for its refineries. It should thus come as no surprise that Fitch cut Egypt's sovereign credit rating to B from B+, citing a wider budget deficit and political instability given the country's political transition. On the corporate front, OCI launched a tender for LSE GDRs and EGX shares in exchange OCI N.V. shares to be listed on Euronext. Although the OCI tender still requires EFSA approval, management’s offer includes a 9% premium above the current share price. In other news, Juhayna provided further details of its EGP 1.2bn capex plans as management hopes to complete its yogurt factory, start a dairy farm, build logistical sales & distribution centers, and expand existing branches.

Southern African equity markets posted mixed results in January

Southern African equity markets posted mixed results in January as strength in Botswana, Malawi and Zimbabwe was offset by subpar performance in Zambia. In Zambia, ZESCO’s power generation capacity is expected to increase to 2,310MW in FY14 from the current 1,600MW due to on-going power expansion projects. We view this is a positive development that is likely to result in elimination of the load shedding exercise that has been impacting the industry. In Zimbabwe, the Industrial Index was this month’s leading performer amid strong foreign interest in Delta and Econet. On the corporate front, Econet has made an offer to acquire the remaining 55% shareholding in TN Bank Limited for approximately USD 26.5m in cash and cash equivalents. Management also announced that its number of subscribers exceeded 8m as the company’s fibre and satellite subsidiary (Liquid Telecom) has emerged as Africa’s largest operator of terrestrial cross-border fibre optic networks after acquiring the East African operations of SA technology giant Altech. Econet was up +24.4% in January and closed the month at a forward P/E of 5.6x – undemanding when compared to its regional peers. In other action, Delta recorded 5% growth in lager volumes during 9M12 after the excise duty rose from 40% to 45%. Looking ahead, we remain overweight Delta and expect the company to post positive results in FY13. Despite World Bank approval of a MWK 245bn economic support package for Malawi, we remain underweight amid concerns over inflationary pressures and continued currency weakness. It should be noted that Malawi’s central bank maintained its benchmark interest rate at a six-year high of 25% after inflation accelerated to 34.7% y/y in December.