Monthly Highlights: July 2017

•  West African equities were mixed as the Francophone region continued to underperform
•  East African equities were mixed as Kenya was positive whilst Tanzania was slightly lower on the month
•  North African equities were positive as Egypt’s foreign-currency reserves jumped to a record USD36.0bn in July
•  Southern African equity performance was broadly mixed as strength in Zimbabwe and Malawi were offset by weakness in Botswana
 

West African equities were mixed as the Francophone region continued to underperform

West African equities were mixed as the Francophone region continued to underperform, but was offset by positive performances from Nigeria and Ghana. In Nigeria, Nestle reported impressive 1H17 results (T/O: +51.6% y/y; PAT: +2988.4% y/y) as price increases implemented supported margin recovery. Profitability was further boosted by a -50.4% decline in financing costs. Similarly, Nigerian Breweries exhibited strong 1H17 results (T/O: +15% y/y; PAT: -24.6% y/y) as financing costs dropped by -38.2% y/y. UACN posted mixed 1H17 results (T/O: -7.2% y/y; PAT: -70.2% y/y) as strong top-line growth was offset by a 638bp shrink in gross profit margins to 15.8% and a +253% y/y increase in finance costs. Flour Mills reported 1Q18 results that showed slow profitability growth (T/O: up +25% y/y; PAT: +2.7% y/y) driven by a combination of factors including a 124bps y/y contraction in gross margin to 11.6%, a +23% y/y rise in operating expenses and a +74% y/y spike in net interest charges. Dangote Cement performed well in 1H17 (T/O: +41.2% y/y; PAT: +39.3% y/y) underpinned by price increases in Nigeria and higher cement sales volumes in Pan African countries. Notably, sales volumes fell in Nigeria by -21.8% y/y in 1H17, but sales volumes rose by 12.6% y/y in Pan African countries. Seplat reported in-line1H17 results (T/O: -36.1% y/y; PAT: -78.2% y/y) as the performance was negatively impacted downtime at the Trans Forcados pipeline. We believe Seplat is on track to recover from its 1H17 loss following the lifting of the force majeure on exports of Nigeria's Forcados crude oil. In the financial sector, FCMB reported poor 1H17 results (GE: -12.2% y/y; PAT: -80.6% y/y) as non-interest income declined by -45.5% y/y mainly because of negative base effects as last year’s results were propped up by significant one-off fx-related gains. Diamond Bank also reported uninspiring 1H17 results (GE: +16.1% y/y; PAT: +3.0% y/y) as non-interest income fell by -18.0% y/y in 1H17, due to the contraction of net FX trading income to NGN2.14bn from NGN8.60bn in 1H16. Similarly, FBNH also released disappointing 1H17 results (GE: +8.2% y/y; PAT: -17.8% y/y) as a +30.2% y/y growth in net interest income was offset by a -45.6% decline in non-funded income. In Ghana, we digested weak 1H17 results from Ghana Commercial Bank (GE: +24.5% y/y; PAT: -47.4% y/y) as net-interest income growth was flat after interest expense rose by 128% y/y offsetting a 13.8% growth in interest income. Profitability was also impacted by a +44% growth in operating expenses and impairments of GHS22.4m vs. GHS4,000 write back in the previous year.

East African equities were mixed as Kenya was positive whilst Tanzania was slightly lower on the month

East African equities were mixed as Kenya was positive whilst Tanzania was slightly lower on the month. Kenya is gearing up for the presidential elections on 8 August 2017, which we expect to be a tightly contested race between the incumbent President Uhuru Kenyatta and opposition coalition led by former Prime Minister, Raila Odinga. The tension in the country is on the rise as a top official overseeing Kenya's electronic voting system was found dead just over a week before national polls. On the earnings front, we digested relatively flat 1H17 results from Nation Media (T/O: -7.3% y/y; PAT: +1.0% y/y) on back of a decline in Nation Media's print division with The Daily Nation, The East African, The Business Daily, The Daily Monitor (UG) and The Mwananchi newspapers recording declines of -7.0%, -21.0%, -3.0%,-6.0% and -17.0% y/y respectively. East Africa Breweries released muted FY17 results (T/O: +2.2% y/y; PAT: -17.6% y/y) with continuing operations reporting a +6.1% growth in net income after factoring out a one-off KES2.2bn net gain from the sale of Central Glass Industries in 1H16. Shifting to Tanzania, Vodacom amended the timeline for its IPO with the offering closing on the 28th of July 2017 and listing is now expected to be on the 15th of August 2017.

North African equities were positive as Egypt’s foreign-currency reserves jumped to a record USD36bn in July

North African equities were positive as Egypt’s foreign-currency reserves jumped to a record USD36bn in July, as investor confidence surged since the country embarked on an International Monetary Fund-backed economic program last year. Egypt’s reserves saw total inflows of USD7.7bn in July, including USD3.7bn in foreign investments and USD4bn from the local economy according to Central Bank of Egypt. On the earnings front, we digested impressive 1H17 results from CIB Egypt (GE: +52.1% y/y; PAT: +28.9% y/y) as net interest income rose by +26.7% y/y with non-interest income also strong, posting a +42% y/y growth. In the consumer sector, Juhayna reported mixed 1H17 results (T/O: +17.4% y/y; PAT: -23.3% y/y) on a combination of weaker-than-expected gross margin from 32.1% in 1Q17 to 27.8% in 2Q17 and higher net interest costs (+89% y/y to EGP183.5m) due to the current high interest rate environment. Edita also reported disappointing 1H17 results (T/O: +17.4% y/y; PAT: -47.9% y/y) as top-line growth was overshadowed by input cost pressures and higher SG&A costs. In Morocco, we digested weak 1H17 numbers from Maroc Telecom (T/O: -2.9% y/y; PAT: -5.3% y/y) as Morocco and International revenues were -5.1% and -1.3% y/y lower respectively.

Southern African equity performance was broadly mixed as strength in Zimbabwe, Zambia and Malawi were offset by weakness in Botswana

Southern African equity performance was broadly mixed as strength in Zimbabwe, Zambia and Malawi were offset by weakness in Botswana. In Zimbabwe, Delta issued an improved 1Q17 trading update as volumes recovered in most categories. Lager volumes increased by +12.0% y/y for the quarter driven by a stronger recovery in the value brands. Soft drinks volumes grew by +3.0% y/y for the quarter while sorghum beer volume declined by -5.0% y/y despite volume for Chibuku Super growing by +9.0% y/y. On the earnings front, BAT reported mixed 1H17 results (T/O: -0.5% y/y; PAT: +27.4% y/y) as strong profitability was driven by lower administration expense which fell -34.1% y/y due to the non-recurring costs relating to the staff rationalization exercise completed in 2016. In Zambia, Choppies plans to expand its operations in the country by opening nine more outlets bringing the total number to 21 stores.