Monthly Highlights: July 2018

•  West African equities underperformed as we recorded broad based weakness
•  East African equities were higher amid broad-based strength throughout the region
•  North African equity performance was broadly mixed as strength in Morocco and Tunisia was offset by weakness in Egypt as inflation accelerated for the first time in 11 months in June following further reduction in fuel and electricity subsidies
•  Southern African equities rose led by Zimbabwe as the industrial index gained 23% using the Old Mutual Implied rate
 

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

West African equities underperformed as we recorded broad based weakness. In Nigeria, the monetary policy committee of the Central Bank has retained monetary policy rate at 14% for the 11th consecutive meeting. In the consumer sector, Nestle reported impressive 1H18 results (T/O: +11.0% y/y; PAT: 29.7% y/y) driven by volume growth as product pricing remained largely unchanged for key business segments. Dangote Sugar posted disappointing 1H18 results (T/O: ‐29.2% y/y; PAT: ‐25.6% y/y) on account of a slump in volumes and prices. The average selling price per bag fell to NGN 13,220 (-18% y/y), while refined sugar sale volumes reduced to 311,173m tons (-14% y/y). Cadbury also reported weak 1H18 results (T/O: up +7.9% y/y; PAT: n/a) as gross margins narrowed by 287bps y/y to 19.0% in 1H18 due to higher prices of key raw materials such as cocoa. Dangote Cement reported mixed 1H18 results (T/O: +16.9% y/y; PAT: +3.1% y/y) as strong top‐line growth was offset by an NGN2bn foreign exchange loss and a higher effective tax rate (39% in 1H18 vs. 29.5% in 1H17). Seplat reported impressive 1H18 results (T/O: +159.9% y/y; PAT: n/a) as the company returned to profitability, primarily supported by strong growth in working interest production (+94.0% y/y to 51,099 boepd) and higher average realised crude oil price (+54.0% y/y to USD69.10 per barrel). In addition to production and price gains, the company’s unit production opex declined by -23.1% y/y to USD4.50/boe in 1H18 (1H17: USD5.85/boe). In the financial sector, Diamond Bank reported disappointing 1H18 results (GE: +0.6% y/y; PAT: ‐77.6% y/y) as net interest income declined by ‐14% y/y owing to funding cost pressures. By contrast, Ecobank reported impressive 1H18 results (GE: -1.0% y/y; PAT: +28.1% y/y) driven by improvement in asset quality as provisions declined by -35.2% y/y. Shifting to Ghana, GCB released disappointing 1H18 results (GE: +18.7% y/y; PAT: -16.8% y/y) on back of lower net interest income (-1.2% y/y) and higher loan impairment provisions (+159.8%).

East African equities were higher amid broad-based strength throughout the region

East African equities were higher amid broad-based strength throughout the region. In Kenya, East Africa Breweries reported mixed FY18 results (T/O: +4.6% y/y; PAT: -8.5% y/y) as top line growth was offset by a spike in selling and distribution costs (+19.% y/y) as well as a one-off tax provision of KES2.0bn. We also digested mixed 1H18 results from Scan Group (T/O: -6.8% y/y; PAT: +24.8% y/y) as profits increased driven by lower operating costs (-13.7% y/y) following the integration of SCANAD, Millward Brown and TNS, as well as the closure of the Gabon office and an operational scale down in South Africa. In Tanzania, we digested disappointing 1H18 results from NMB (GE: +6.9% y/y; PAT: -13.3% y/y) as the company suffered from both a +62.3% y/y increase in credit impairments and a +24.1% y/y rise in operating expenses.

North African equity performance was broadly mixed as strength in Morocco and Tunisia was offset by weakness in Egypt as inflation accelerated for the first time in 11 months in June following further reduction in fuel and electricity subsidies

North African equity performance was broadly mixed as strength in Morocco and Tunisia was offset by weakness in Egypt as inflation accelerated for the first time in 11 months in June following further reduction in fuel and electricity subsidies, as part of the EFF agreement with the IMF aimed at improving the budget deficit. On the earnings front, we digested strong 1H18 results from Juhayna (T/O: +17.5% y/y; PAT: +180.4% y/y) driven by very strong 2Q18 results with earnings increasing nearly six-folds (+97% q/q partly due to Ramadan) on continued revenue and margin recovery as well as lower net finance costs (-18% y/y). Edita also released impressive 1H18 results (T/O: +33.6% y/y; PAT: +122.1% y/y driven predominantly by volume improvement as the company recorded double-digit growth in number of packs sold (+38.4% y/y). ADES announced that it has signed a definitive agreement to acquire 31 onshore drilling rigs from Weatherford International for a total consideration of USD287.5m. The deal, which is expected to close during 2H18 (pending closing conditions), will see c2,300 employees transferred to ADES service. With this transaction, the total fleet size will expand to an impressive 48 rigs (34 onshore, 14 offshore). Shifting to Morocco, we digested in‐line 1H18 numbers from Maroc Telecom (T/ O: +5.0% y/y; PAT: +8.7% y/y as African subsidiaries grew revenues by +7.4% y/y whilst Morocco revenue growth was muted at +4.8% y/y.

Southern African equities rose led by Zimbabwe as the industrial index gained 23% using the Old Mutual Implied rate

Southern African equities rose led by Zimbabwe as the industrial index gained 23% using the Old Mutual Implied rate. On the corporate front, Delta issued a 1Q18 trading update as volumes recovered in all its major categories. Lager volumes increased by +56.0% y/y and sparkling beverages volumes increased by +23.0% y/y despite the soft drinks category being adversely impacted by challenges of securing imported raw materials. Revenue for the quarter increased by +40.0% y/y, ahead of volume growth due to the change in sales mix. Management reports that all beverage categories recorded revenue increases which positively impacted on profitability and cashflows. We also digested impressive 1H18 results from BAT Zimbawe (T/O: +18.9% y/y; PAT: +60.7% y/y) driven by a+21% growth in volumes.