Monthly Highlights: January 2018

•  In West Africa, the Nigeria stock exchange closed +15.6% higher in USD as investors moved money into equities as yields on Government securities fell dramatically
•  East African equities were dragged down by Tanzania and Rwanda despite solid returns in Mauritius, Uganda and Kenya
•  North African equities were positive after strong returns from Morocco, Tunisia and Egypt. In Egypt, The IMF hailed Egypt’s progress on economic reforms in its second major review of the country’s loan programme, revising up its growth outlook but warning against the risks of not pushing forward with austerity
•  In Southern Africa, equities outperformed amid broad-based gains across the region. In Zimbabwe, Delta Corporation issued an encouraging 3Q18 update amid increased volumes and revenues for the period
 

In West Africa, the Nigeria stock exchange closed +15.6% higher in USD as investors moved money into equities as yields on Government securities fell dramatically

In West Africa, the Nigeria stock exchange closed +15.6% higher in USD as investors moved money into equities as yields on Government securities fell dramatically. Generally, investors are also encouraged by the improving economic outlook for the country with GDP expected to grow by about 2.1%. The country’s external reserves rose to USD40.3bn in January, as investors injected USD5.2bn through the Investors and Exporters (I&E) foreign exchange window in the first four weeks of 2018. Although earnings season begins next month, we digested solid 3Q18 results from Flour Mills (T/O: -4.1% y/y; PAT: +317.3% y/y) mainly driven by a gross margin expansion of 322bps y/y to 15.9% coupled by a positive result of NGN431m in other operating income compared with a loss of –NGN3.7bn in the corresponding period. These positives completely offset a -4%y/y decline in sales, a 26% y/y spike in interest expense and a +17% y/y rise in operating expenses. Guinness Nigeria released impressive 1H18 results (T/O: +18.6% y/y; PAT: n/a y/y) as the company reported a PAT of NGN2.1bn vs. a loss of NGN4.7bn in the previous year. The strong growth in earnings was driven by a gross margin expansion of 314bp y/y to 34% and a -32.2% y/y reduction in interest expenses after the company reduced its debt following a successful rights issue. In Ghana, the World Bank has tipped the country to be Africa’s fastest growing economy in 2018 with a growth rate of +8% driven by the growing oil and gas sector, improving domestic consumption and industrial output, supported by improving electricity supply from LNG projects. On the earnings front, Guinness Ghana reported disappointing 1H18 numbers (G/E: +8.5% y/y; PBT: n/a) reporting a net loss of -GHS4.7m driven by increased cost of sales +10.8% y/y and higher operating expenses (+16%).

East African equities were dragged down by Tanzania and Rwanda despite solid returns in Mauritius, Uganda and Kenya

East African equities were dragged down by Tanzania and Rwanda despite solid returns in Mauritius, Uganda and Kenya. In Kenya, we digested weak 1H18 results from EABL (T/O: +4.7% y/y; PAT: -11.3% y/y) as profitability was affected by excise tax increases in Uganda on imported beer and the weakness in the consumer segment in Kenya, in particular at the low-end, impacted by the drought and the prolonged election cycle. On the economic front, the Central Bank of Kenya (CBK) retained the benchmark lending rate at 10% for the eighth consecutive meeting as it seeks to anchor inflation and ensure stability within the financial sector. In Tanzania, National Microfinance Bank released disappointing FY17 results which were below our expectations (GE: +6.6% y/y; PAT -38.4 y/y) as a result of higher impairments (+333.2% y/y). Similarity, CRDB Bank released weak FY17 (GE: -0.8% y/y; PAT -6.2 y/y) amid lower net-interest income (-6.4% y/y) and an increase in operating expenses. The Bank’s cost-to-income ratio also deteriorated to 66.9% by year-end vs. 63.2% in the previous year.

North African equities were positive after strong returns from Morocco, Tunisia and Egypt. In Egypt, The IMF hailed Egypt’s progress on economic reforms in its second major review of the country’s loan programme, revising up its growth outlook but warning against the risks of not pushing forward with austerity

North African equities were positive after strong returns from Morocco, Tunisia and Egypt. In Egypt, The IMF hailed Egypt’s progress on economic reforms in its second major review of the country’s loan programme, revising up its growth outlook but warning against the risks of not pushing forward with austerity. IMF raised its forecast for Egypt’s GDP growth for FY17-18 to 4.8% from 4.5%, citing a recovery in consumption and private investment as the main drivers. On the earnings front, we digested impressive FY17 results from Juhayna (T/O: +21.5% y/y; PAT: +268.5% y/y) as management implemented a host of strategies to ensure growth in earnings. During the year Juhayna closed uneconomical distribution centres, delisted non-profitable SKUs, cut down its workforce and reduced debt. Commercial International Bank reported strong FY17 (G/E: +46.3% y/y; PAT: +25.2% y/y) driven by non-funded income (+23.4%) and higher net interest income (+24.8%).

In Southern Africa, equities outperformed amid broad-based gains across the region. In Zimbabwe, Delta Corporation issued an encouraging 3Q18 update amid increased volumes and revenues for the period

In Southern Africa, equities outperformed amid broad-based gains across the region. In Zimbabwe, Delta Corporation issued an encouraging 3Q18 update amid increased volumes and revenues for the period. Lager volumes increased by +36% y/y in 3Q17 and +20% y/y for 9M18. Sparling beverages and sorghum beer also had a strong quarter with volumes increasing by 14% and 10% y/y respectively. The company also issued a further cautionary statement advising that negotiations with the Coca-cola Company (TCCC) regarding TCCC’s intention to terminate the bottlers’ agreements with Delta and its associate Schweppes are ongoing and discussions have progressed at a slower pace than anticipated. TSL reported satisfactory results for FY17 (T/O: +7.0% y/y; PAT: +10.0% y/y) mainly driven by the agricultural division which reported a +37.3% increase in revenues and a +204% growth in profitability benefiting from the good rain season.