Monthly Highlights: July 2019

•  West African equities underperformed amid broad-based weakness across the region led by Nigeria which was down -8.1% in USD
•  East African equity performance was broadly mixed with weakness in Kenya continuing while Tanzania was outperformed
•  North African equities were dragged down by Egypt after Tunisia and Morocco posted positive returns
•  Southern African equities posted mixed results as Malawi was positive while the other markets underperformed
 

West African equities underperformed amid broad-based weakness across the region led by Nigeria which was down -8.1% in USD

West African equities underperformed amid broad-based weakness across the region led by Nigeria which was down -8.1% in USD. On the earnings front, Nestle reported impressive 1H19 results (T/O: +4.9% y/y; PAT: +36.3% y/y) as gross profit increased by +18% y/y driven by lower cost of sales which declined -5.2% y/y because of lower cocoa, sugar and wheat prices. UACN exhibited strong 1H19 results (T/O: +12.4% y/y; PAT: +100.9% y/y) as top-line growth was driven by +23% y/y growth in the Animal Feeds segment and a -85% y/y decline in finance costs. Nigerian Breweries reported 1H19 results that showed a decline in profitability (T/O: -1.4% y/y; PAT: -27.8% y/y) driven by a -320bps y/y contraction in gross margin to 41.5% and a +24.2% y/y spike in net interest charges. Dangote Cement reported slow profitability growth in 1H19 (T/O: -3% y/y; PAT: +5.4% y/y) as weak top line, due to lower revenues from the Nigerian operations down –4.6% y/y (accounting for 70% of group revenues in 1H19) and flattish revenue (+1% y/y to NGN140.1bn) from the Pan African operations (accounting for 30% of group revenue in 1H19). Lafarge Africa reported mixed 1H19 financials (T/O: -1.2% y/y; PAT: n/a) as weak revenue growth was driven by flat revenues in Nigerian operations amidst sustained weakness in South Africa. However, profitability was up strongly driven by lower interest costs (down -40.7% y/y to NGN14.06bn) following the pay-down of debt from the proceeds of the NGN89.21bn rights issue. Gross debt is -24.6% lower ytd to NGN227.34bn (down -10.2% q/q), with further expectation for lower finance expense following the complete pay-down of shareholder loan which will be finalised following the proposed sale of Lafarge South Africa Holdings (‘LSAH’) in 3Q19. MTN Nigeria reported impressive 1H19 results T/O: -3% y/y; PAT: +5.4% y/y) buoyed largely by double-digit growth in voice (+11.4% y/y to NGN421.1bn) and data revenue (+30% y/y to NGN103.3bn), amidst a sub-inflationary growth in operating expenses (+4% y/y to NGN144.3bn). In the financial sector, FCMB reported strong 1H19 results (GE: +7.0% y/y; PAT: +31.5% y/y) as impairments were down by -25% y/y. FBN reported uninspiring 1H19 results (GE: +0.3% y/y; PAT: +5.4% y/y) as operating costs increased by+24.3% y/y offsetting a -58% y/y decline in provisions. In Ghana, we digested impressive 1H19 results from Ghana Commercial Bank (GE: +14.9% y/y; PAT: +49.7% y/y) as net-interest income grew by +29.5% after interest expense declined by -16% y/y.

East African equity performance was broadly mixed with weakness in Kenya continuing while Tanzania was outperformed

East African equity performance was broadly mixed with weakness in Kenya continuing while Tanzania was outperformed. In Kenya, we digested impressive FY19 results from EABL (T/O: +12.2% y/y; PAT +57.5% y/y) as gross profit margins increased by 2.1 percentage points to 46.2% on the back on productivity savings of KES 2.3bn in cost of sales driven by local sourcing of raw materials and lower distribution costs. BAT reported positive 1H19 results (T/O: +15% y/y; PAT +25.5% y/y) on back of improving operating profit margin (+219bps to 33.1%) and lower finance costs (-23.2% y/y). In Tanzania, we digested disappointing 1H19 results from NMB (GE: +3.3% y/y; PAT: -14.4% y/y) as credit impairments increased by +45% y/y. Similarly, CRDB released negative 1H19 results (GE: +11.4% y/y; PAT: -20.5% y/y) on back of higher provisions (+76.1% y/y) and operating expenses (+15.8% y/y).

North African equities were dragged down by Egypt after Tunisia and Morocco posted positive returns

North African equities were dragged down by Egypt after Tunisia and Morocco posted positive returns. In Egypt, we digested positive 1H19 results from CIB (GE: +17.4% y/y; PAT: +21% y/y) with a +27.4% growth in net interest income and a -38.4% decline in provisions. CIRA reported impressive 3Q19 results (T/O: +30.5% y/y; PAT +62.5% y/y) as the higher education segment (c51% of total revenue) saw growth of +33% y/y in revenue mainly on increased student headcount (+42% y/y to 7.89k) while K-12 segment revenues (c49%) saw a +28% increase in student numbers (+13% to 24.2k) and an average tuition increase of 9% y/y. EDITA reported strong 1H19 results (T/O: +10.1% y/y; PAT +69.9% y/y) as volumes increased 5.8% y/y to 1,250.8m packs in 1H19, while average price per pack was up +4.0% y/y to EGP 1.48 for the first six months of the year. Profitability was boosted by expanding gross profit margins which rose 5.2 percentage points to 33.5% in 2Q19 and 4.5 percentage points in 1H19 to 34.5% driven by improved product mix across Edita’s portfolio and strong cost control efforts. In other news, SODIC announced that it had signed a contract with NUCA to change the use of the Al-Yosr plot from agricultural to residential. By signing this agreement, SODIC will be able to increase the allowable footprint and the allowable height to levels comparable to other residential developments. SODIC is expected to provide the master plan imminently, with its approval being the final step before the project’s launch during 4Q19.

Southern African equities posted mixed results as Malawi was positive while the other markets underperformed

Southern African equities posted mixed results as Malawi was positive while the other markets underperformed. In Zimbabwe, Cassava SmarTech reported impressive FY19 results (T/O: +94.4% y/y; PAT: +47.7% y/y) mainly driven by a huge increase in subscriber base with Ecocash adding +26% y/y to 9.8m while micro insurance subscribers rose +63% y/y to 2.6m. By contrast, Econet released weak FY19 results (T/O: +40.9% y/y; PAT: -22.6% y/y) on back of a ZWL226m FX loss driven by a change in functional currency. Nampack released weak 1H19 results (T/O: +31.2% y/y; PAT: n/a) as strong top line growth was offset by FX loss of ZWL46m.