Monthly Highlights: March 2017

•  West African equities strengthened with Ghana outperforming
•  East Africa posted solid gains for the second consecutive month
•  North African equities posted weak results with Egypt suffering the most as a result of currency declines of ‐15% on the month
•  Southern African equities were positive on the back of broad-based gains across the region
 


West African equities strengthened with Ghana outperforming

West African equities strengthened with Ghana outperforming as the new finance minister, Ofori-Atta announced plans to restore the fiscal balance, create jobs and stimulate private sector growth in the first budget of the new administration Ghana, also raised USD2.2bn from a sale of long-dated domestic bonds, boosting its central bank reserves by a third. On the earnings front, Ghana Commercial Bank reported strong FY16 results (GE: +23.9% y/y; PAT: +24.9% y/y) on back of a +38.4% y/y rise in non-interest income and lower provisions (-70.9%). In Nigeria, Guaranty Trust Bank (GTB) reported impressive FY16 results (GE: +37.4% y/y; PAT: +33% y/y) as strong growth in non-interest income (up +114% y/y) driven primarily by FX revaluation gains fueled the bank’s full-year performance. We similarly digested strong FY16 results from UBA (GE: +21.8% y/y; PAT: +21.1% y/y) as non-interest income and interest income rose by +46% and 20% y/y respectively. Stanbic IBTC also reported strong FY16 results (GE: +11.7% y/y; PAT: +51% y/y) on back of +31.9% y/y growth in net interest income driven by a -23.7% decline in funding cost. Shifting to the energy sector, Seplat posted weak FY16 results (T/O: -55.4% y/y; PAT: n/a) as the top-line performance was impaired by unbudgeted downtime due to the sabotage of the Trans Forcados System, Seplat’s major export pipeline route. In the consumer sector, we digested weak FY16 results from Cadbury (T/O: +7.7% y/y; PAT: n/a) as top-line growth was offset by a 22.4% spike in the cost of sales resulting in a -921bp contraction in gross margins to 22.9%. Unilever Nigeria reported sturdy FY16 numbers (T/O: +17.8% y/y; PAT: +157.6% y/y) driven by 22% growth in the foods business after the company increased prices in an effort to defend margins following the devaluation of the Naira. Positive performance was also boosted by an -11% decline in operating expenses. PZ Cussons reported impressive 3Q17 numbers (T/O: 19% y/y; PAT: 117.8% y/y) due to a combination of a gross margin expansion of +820bps to 32.5% and a -205.5% decline in net interest expense. In the materials sector, Lafarge Africa posted disappointing FY16 results (T/O: -17.8% y/y; PAT: n/a) mainly driven by weaker Nigeria volumes which declined by -15%, underperforming Nigeria’s cement sector’s decline of -5% in FY16.

East Africa posted solid gains for the second consecutive month

East Africa posted solid gains for the second consecutive month. In Kenya, Bamburi Cement released flat FY16 results (T/O: -3% y/y; PAT: 0.3% y/y) as revenues declined on the back of a tough operating environment which was characterized by lower demand in the inland export markets (Eastern DRC, Burundi, and South Sudan). Shifting to financials, Equity Bank posted weaker than expected FY16 results (GE: +13.3% y/y; PAT: -4.4% y/y) as strength in net-interest income (+22.5% y/y) was offset by a +173% growth in impairments. KCB reported flat FY16 earnings (GE: +6.9% y/y; PAT: 0.5% y/y) on back of deteriorating operational efficiency as the bank’s cost-to-income ratio rose from 50.1% in FY15 to 52.6% in FY16 after operating expenses increased by +16.6%. Whilst Co-operative Bank reported satisfactory FY16 results (GE: +10.1% y/y; PAT: 8.3% y/y) as net income margins widened after net interest income rose 27.1% y/y coupled by -6.0% y-o-y decline in interest expense. In the consumer sector, East African Breweries (EABL) unveiled plans to raise up to KES6bn (USD58.5 m) using a five-year medium term note. EABL said the amount was the remainder of a KES11bn note with a fixed coupon rate of 12.25% that it issued in 2015 when it raised KES5bn. In Tanzania, the World Bank will lend the country USD2.4bn over the next three years to finance infrastructure projects. Tanzania is seeking to finance infrastructure projects as part of its plans to transforming the country into a regional transport and trade hub.

North African equities posted weak results with Egypt suffering the most as a result of currency declines of ‐15% on the month

North African equities posted weak results with Egypt suffering the most as a result of currency declines of ‐15% on the month. On the earnings front, we digested positive results from Integrated Diagnostics Holdings (T/O: +15.4% y/y; PAT: +72.3% y/y) driven largely by better pricing as revenue per test increased +13.9% y/y and operating expenses which were -42% lower as comparative figure for last year reflect the impact of fees associated with IDH's initial public offering on the London Stock Exchange of EGP125m as well other non-recurring expenses of EGP6.0m. On the consumer front, Edita posted weak FY16 results (T/O+14.5% y/y; PAT: -86.4% y/y) as gross margin contracted to 35.9% from 39% as the devaluation saw direct material costs rise +15% y/y, as well as the impact of VAT implementation. The results were further impacted as by FX losses of EGP260m as foreign currency liabilities were repriced post the EGP floatation. Similarly Juhayna reported disappointing FY16 numbers (T/O+18% y/y; PAT: -80.1% y/y) as a result of a) gross margin declining by 5.8 percentage points y/y to 29%; b) SG&A expenses growing 23.3% y/y and c) Interest expenses rising +73% y/y.

Southern African equities were positive on the back of broad-based gains across the region

Southern African equities were positive on the back of broad-based gains across the region. In Zimbabwe, we digested decent 1H17 results from Simbisa (T/O: +2.7% y/y; PAT: 5.5% y/y) on the back of increased customer counts in Zimbabwe (+7.0% y-o-y) and a 10% growth in revenues from operations from its regional businesses driven by strong performances from Kenya and the expansion in Mauritius. Axia reported mixed 1H17 numbers (T/O: +14.4% y/y; PAT: -16.6% y/y) as strong top-line growth was offset by deteriorating margins amid increased retailing of locally sourced products, which are expensive relative to imports. National Foods also released mixed 1H17 results (T/O: -3.5% y/y; PAT: 1.1% y/y) as revenues were impacted by a 28% reduction in maize volumes.

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