Monthly Highlights: June 2019

•  West African equities underperformed as all the markets posted negative returns
•  East African equity markets were generally weaker with only Mauritius recording positive returns
•  North African equity markets outperformed amid broad-based gains across the region led by Tunisia which gained +5.5% in USD
•  Southern African markets reported negative returns across the region. In Zimbabwe, TSL issued a trading update for 1H19 reporting that the group posted a satisfactory performance
 

West African equities underperformed as all the markets posted negative returns

West African equities underperformed as all the markets posted negative returns. In Nigeria, we digested improving 1Q19 results from Lafarge Africa (T/O: -2.6% y/y; PAT: n/) as the company returned to a profit position as it reported a Pre-tax Profit of NGN123m compared to Pre-tax loss of NGN2.9bn in 1Q18, despite the decline in revenue (-2.6% y/y to NGN78.5bn) - which we attribute to lower sales from its Nigerian operations owing to elections which disrupted economic activities. Management also announced that Lafarge Africa Plc is divesting from its South Africa operations which will help in deleveraging the firm’s balance sheet and support further growth in earnings when the sale is finally completed in 3Q19. Presco posted disappointing 1Q19 results (T/O: -16.4% y/y; PAT: -17.6% y/y) driven by the combination of lower local refined crude palm oil (CPO) price, which declined by 11% y/y coupled with moderate volume growth as a result of rising CPO imports.

East African equity markets were generally weaker with only Mauritius recording positive returns

East African equity markets were generally weaker with only Mauritius recording positive returns. Kenya’s economic growth slowed in the first quarter of this year compared with the same period last year due to dry weather which curbed the farming sector. The Kenya National Bureau of Statistics said the economy grew 5.6% y/y from 6.5% in the same quarter last year. Elsewhere, the government is set to raise excise duty on cigarettes, wines and spirits by 15% in part of newly proposed tax measures aimed at mobilizing resources for the KES3.02tn 2019/20 budget. In Tanzania, inflation rose to 3.5% y/y in May, from 3.2% in April, fuelled by higher prices of commodities.

North African equity markets outperformed amid broad-based gains across the region led by Tunisia which gained +5.5% in USD

North African equity markets outperformed amid broad-based gains across the region led by Tunisia which gained +5.5% in USD. In Egypt, Palm Hills reported weak 1Q19 results growth (T/O: +5.0% y/y; PAT: -37.0% y/y) as Alexandria contributed c45% of new sales during the quarter, while the weak sales growth came on the back of slower residential launches during the quarter, the scheduled launch of the next block in Badya project in West Cairo was delayed. El Sewedy Electric has entered into a Share Purchase Agreement with R.F. Energy, a subsidiary of F.G Europe, to acquire 100% of the three wind and one hydro-electric energy companies it owns in Greece for EUR55m. The companies have an aggregate capacity of 63.6MW, three wind parks (Aioliki Kilindrias, Kallisti Energeiaki and Aioliki Aderes) and one small Hydro Power Plant, which, combined, generate enough energy to power c.34,000 homes. Edita Food Industries announced that it signed a loan contract with the International Finance Corporation (“IFC”) for a seven-year loan of USD20m, which can be increased to USD30m, this is to fund local and regional expansion, in particular its new venture in Morocco. Interest on the loan is 4% over six months LIBOR, which should lower the firm’s effective interest rate with the loan (USD20mn) accounting for c50% of the firm’s 1Q19 outstanding debt balance.

Southern African markets reported negative returns across the region. In Zimbabwe, TSL issued a trading update for 1H19 reporting that the group posted a satisfactory performance

Southern African markets reported negative returns across the region. In Zimbabwe, TSL issued a trading update for 1H19 reporting that the group posted a satisfactory performance. The national tobacco crop is expected to decline by between 10.0% and 15.0%. Market share for the merchant auctioning business remained strong at +65.0%. The national average price of tobacco dropped by -41.6% to USD 1.64/kg. Zimplow also issued a 5 months trading update saying revenue expanded by +86% y/y to USD29.8m driven by strong volumes at Mealie Brand (+49% y/y) on the back of good export volumes (+232% y/y). Dairibord in its 5 month trading update indicated that revenue grew by +125.0% y/y, supported by an +8.0% increase in volumes, a better sales mix and a +95.0% jump in average selling prices. Demand remained firm across all product categories but foreign currency induced supply constrains negatively impacted product supply. In Zambia, Zambeef posted weak 1H19 numbers (T/O: -4.0% y/y; PAT: n/a) with the company reporting a loss from a profit position in the prior year as gross margins shrunk by 439bp to 33%.