Monthly Highlights: March 2016

•  In March, West African equities performed well with positive performance from Nigeria and the BRVM
•  East African equities posted a mixed performance
•  North African equities rose on back of gains in Egypt as the Central Bank devalued the EGP by almost 13%
•  Southern African equities were mixed after positive contribution from Zambia were offset by poor performance from Zimbabwe
 


In March, West African equities performed well with positive performance from Nigeria and the BRVM

In March, West African equities performed well with positive performance from Nigeria and the BRVM, as the oil prices staged a recovery from February's lows of $30 per barrel. On the earnings front, we digested FY15 results from Dangote Cement T/O: +25.6% y/y; PAT: +13.6% y/y) as strong top-line performance was offset by a 32% spike in operating costs, an 800% increase in net interest expense to N19.5bn and a -451bp contraction in gross margins to 59.0%, resulting in slower PBT growth of just 2%y/y. Nestle Nigeria reported good FY15 numbers (T/O: +5.5% y/y; PAT: +6.8% y/y) driven by an 8% growth in the foods business despite the tough economic climate. Relative to its peers, Nestle is reaping the dividends of its import substitution programme, now only importing 30% of inputs which at a time of foreign currency scarcity is setting it apart from its peers. PZ Cussons reported weak 3Q16 numbers (T/O: -5.6% y/y; PAT: -35.5% y/y) due to a combination of a gross margin contraction of -281bps to 24.3%, a 5.1% rise in operating expenses and a 24.2% increase in net interest expense. In the petroleum sector, Seplat reported FY15 numbers largely in-line with guidance (T/O: -26.4% y/y; PAT: -74% y/y). The average realised oil price almost halved from $97.20/barrel in FY14 to $51.20/barrel . Operationally, average oil production increased 20% y/y to 29,003 bpd and gas production improved 118% to an average of 86mmscf/d. Shifting to the financial sector, we digested GT Bank’s FY15 results which were in line with our expectations (GE: +8.3% y/y; PAT: +5.3% y/y) on back of +12.3% y/y growth in net interest income. However, the non-funded income fell by -7.9% and there was a rise in the bank’s effective tax rate. Access Bank reported results that were also in-line with guidance (GE: +37.5% y/.y; PAT: +53.3% y/y) as non-interest income grew by +89.2% driven by derivative income on foreign currency contracts which increased +129.8%. Zenith Bank's FY15 results were ahead of our expectations (GE: +7.2% y/y; PAT: +6.2 y/y) driven by a lower than expected increase in loan loss provisions and improved operating expenses. Also in the financial sector ETI, Diamond Bank and Skye Bank all issued profit warnings put down to higher than expected provisioning in the energy and commercial business sectors, tough economic climate and acute foreign currency shortages. In Ghana, GCB reported weak FY15 results (GE: +16% y/y; PAT: -9.7% y/y) on back of a –42.4% y/y decline in non-interest income.

East African equities posted a mixed performance

East African equities posted a mixed performance. In Kenya, Bamburi Cement released impressive FY15 results (T/O: +8.8% y/y; PAT: +50.4% y/y) as demand increased in its key domestic markets of Kenya and Uganda as a result of a number of new large infrastructure projects. Operating margins improved from 14.6% to 18.6% due to cost management initiatives. Shifting to financials, Co-Operative Bank posted strong FY15 results (GE: +24.4% y/y; PAT: +46% y/y) supported by strength in non-funded income (+22% y/y) as gains in foreign exchange trading (+125% y/y) drove performance. Operational efficiency also improved as cost-to- income ratio improved to 52% from 57.9% the previous year. Equity Bank posted subpar FY15 results (GE: +21.5% y/y; PAT +1% y/y) as loan loss provision grew by +58% and operating costs increased by +19.8% largely as a result of additional ICT spend on Equitel and its banking platform. KCB posted good FY15 (GE: +14.8% y/y; PAT +16.5% y/y) driven by better than expected cost performance (+7.1%y/y increase in total opex), a -6.8% decline in loan loss provisions (aided by 29%y/y jump in NPL recoveries) and a lower effective tax of 26%. In Uganda, Umeme posted strong FY15 results (T/O: +18.8% y/y, PAT: +50.2% y/y) following strong capex investment in 2014 and a regulatory adjustment in the end-user tariff. Umeme grew its customer base by 22% & increased average units sold by 8%.

North African equities rose on back of gains in Egypt as the Central Bank devalued the EGP by almost 13%

North African equities rose on back of gains in Egypt as the Central Bank devalued the EGP by almost 13% to EGP8.85/USD from EGP7.73/USD. Following the devaluation, the Central Bank also raised its key interest rates by 150 basis points. On the earnings front, we digested positive results from Integrated Diagnotistics Holdings (T/O: +18% y/y; PAT: +9.4% y/y) driven by 28 labs additions, +4% growth in patients, +7% in tests and +10% in revenue per test. Domty, Egyptian cheese & fruit juice manufacturer, posted stellar FY15 results (+24% y/y; PAT: +906% y/y) driven by solid revenue growth and margin expansion off a low base. Revenue was spurred by carton pack cheese (c66% of revenue) which grew 26% and juice (c16% of revenue) grew by 42%. Gross profit increased 52% y/y as margins expanded 4.9% to 26.2% benefitting from lower commodity input prices. Arabian Cement reported weak FY15 results (T/O: -9.8% y/y; PAT: -26%% y/y) as a 20% increase in cement supply flooded the market and impacted pricing and revenue growth. Forex losses (+70.1% y/y) also impacted financial performance. On the economic front Egypt's CPI eased to 9.1% in February from 10.1% in January, the second consecutive decrease after the CBE raised interest rates by 50 basis points in December citing inflationary pressure.

Southern African equities were mixed after positive contribution from Zambia were offset by poor performance from Zimbabwe

Southern African equities were mixed after positive contribution from Zambia were offset by poor performance from Zimbabwe. In Zambia, Zambeef announced an additional $24m investment in its palm plantation business over the next five years. This includes planting 1,400ha of palm trees, upgrading of the mill to a 20-tonne-per-hour capacity. The project cost will be c.$40m and at current prices and an average production of 3-3.5 tonnes per ha, Zampalm will generate more than USD 170m in revenue over the next decade. Zambia announced that it will add 420MW to its electricity grid this year due to new generation projects, almost halving the national power deficit. Zambia's power shortfall has risen to 1,000MW from 700MW in November due to lower hydro generation as water levels have dropped because of drought. In Zimbabwe, Colcom reported a muted set of 1H16 (T/O: +1.7% y/y; PAT: -37.1% y/y) due to a reduction of canned product sales and Associated Meat Packers shops volumes fell 13.0% despite the pig division yielding a growth of 26% on the number of pigs slaughtered. Innscor Africa reported disappointing 1H16 results (T/O: +1.7% y/y; PAT: -37.1% y/y) after the group disposed of its SPAR retail stores and distribution centre with effect from 1 January 2016. This resulted in one-off retrenchment and asset impairment costs. However, continuing operations attributable profit increased +61.6% y/y, on the back of good sales volume growth driven by reduced average selling prices, improved capacity utilization & efficiencies.

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