Monthly Highlights: March 2018

•  West African equities were mixed as Nigeria was lower while Ghana continued to outperform as the Bank of Ghana reduced the interest rates by 200bp to 18%, the lowest in four years as inflation is slowing toward the central bank’s target of between 6-10% in the medium term. In Nigeria, the earning season got into full swing as we digested a plethora of FY17 results
•  East African equities were broadly positive with only Mauritius reporting negative returns
•  In North Africa, equity markets were dragged lower by Morocco after Egypt (+12.8%) and Tunisia (+7.7%) posted strong returns
•  Southern African equities were mixed as positive performance in Malawi and Zambia were offset by weakness in Zimbabwe and Botswana
 


West African equities were mixed as Nigeria was lower while Ghana continued to outperform as the Bank of Ghana reduced the interest rates by 200bp to 18%, the lowest in four years as inflation is slowing toward the central bank’s target of between 6-10% in the medium term. In Nigeria, the earning season got into full swing as we digested a plethora of FY17 results

West African equities were mixed as Nigeria was lower while Ghana continued to outperform as the Bank of Ghana reduced the interest rates by 200bp to 18%, the lowest in four years as inflation is slowing toward the central bank’s target of between 6-10% in the medium term. In Nigeria, the earning season got into full swing as we digested a plethora of FY17 results. Guaranty Trust Bank reported impressive FY17results (GE: +1.4% y/y; PAT: +29.1% y/y) as strong growth in net-interest income (up +26.2% y/y) driven primarily bank’s strategic positioning in high yielding fixed income securities (+16.2% y/y growth in investment securities to NGN613.96bn in FY17). Lower impairment charges -80.3% y/y also drove profitability higher. We similarly digested strong FY17results from Zenith Bank (GE: +46.7% y/y; PAT: +37.2% y/y) on the back of T-bills trading income (+82.3% y/y) and derivative gains (+242.2% y/y) which were driven by robust fixed income yields and new swap contracts by the bank towards the end of the year. Stanbic IBTC also reported strong FY17 results (GE: +35.8% y/y; PAT: +69.6% y/y) as net interest income grew by +30.8% y/y. Access Bank on the contrary posted weak FY17 results (GE: +20.4% y/y; PAT: -11.4% y/y) as asset quality deteriorated with credit losses increasing by +57% y/y, which we attribute partly to provisioning of the bank’s 9mobile exposure. In the consumer sector, we digested impressive FY17 results from Nestle (T/O: +34.2% y/y; PAT: 325.5% y/y) as top-line growth was driven by a combination of volume growth and the full impact of pricing increases implemented in 4Q16. Lower effective tax rate of 13% in FY17 vs. 54% in FY16 also contributed positively to profitability. PZ Cussons reported weak 3Q18 numbers (T/O: -7.2% y/y; PAT: -60.4% y/y) as positives coming through from relatively lower net finance charges and forex-related losses were completely offset by the top-line decline and a -583bps y/y contraction in gross margin to 26.7%. Okomu Oil posted strong FY17results (T/O: +41.1% y/y; PAT: +86.3% y/y) driven by robust top-line growth and a 413bp gross margin expansion. Palm Oil remains the dominant segment with a contribution of 84% to total sales, compared to 85% in FY16. However, palm oil’s contribution to sales in 4Q17 was at its lowest during the year at 73%, as revenue declined by 17% q/q (-2% y/y) during the quarter, mostly on seasonality.

East African equities were broadly positive with only Mauritius reporting negative returns

East African equities were broadly positive with only Mauritius reporting negative returns. In Kenya, Bamburi Cement released disappointing FY17 results (T/O: -6.0% y/y; PAT: -66.5% y/y) as revenues declined on the back of a tough operating environment which was characterized by reduction in cement consumption because of the protracted election cycle with two election rounds which resulted in slow down in construction activities. Shifting to financials, Equity Bank posted better than expected FY17 results (GE: +2.6% y/y; PAT: +13.9% y/y) as decline in net-interest income (-10.2% y/y) was offset by a +24.2% growth non interest income. Profitability was also boosted by lower impairments (-48.4% y/y). KCB reported flat FY17 earnings (GE: +1.7% y/y; PAT: -0.1% y/y) as higher provisions (+54.7% y/y) offset improved operational efficiency as the bank’s cost-to-income ratio declined to from 50.9% in FY17 from 52.6% in FY16. Co-operative Bank reported poor FY17 results (GE: +2.1% y/y; PAT: -10.0% y/y) driven by lower net income which declined by -4.7% y/y coupled by +38.5% y/y growth in impairments.

In North Africa, equity markets were dragged lower by Morocco after Egypt (+12.8%) and Tunisia (+7.7%) posted strong returns

In North Africa, equity markets were dragged lower by Morocco after Egypt (+12.8%) and Tunisia (+7.7%) posted strong returns. In Egypt, the central bank cut interest rates for the second time in six weeks after inflation slowed into its target range. The monetary policy committee lowered the overnight deposit rate by 100bp to 16.75% while the overnight lending rate was also reduced by 100bp to 17.75%. On the earnings front, we digested positive FY17 results from Integrated Diagnostics Holdings (T/O: +29.4% y/y; PAT: +43.6% y/y) driven by a combination of higher prices and volumes. The company’s total patient count grew by +9.5% y/y as it continued to open new locations (lab count up +8% in 2017, added 29 new labs during the year reaching a total of 383 locations as of year-end – 23 in Egypt, 4 in Jordan and 2 in Sudan). Revenue/patient on a blended basis increased 18.2% y/y while revenue/test rose by +21.3% mostly on price adjustments to pass on inflationary pressures. On the consumer front, Raya Contact Center posted strong FY17 results (T/O +44.0% y/y; PAT: +33.80% y/y) as revenue growth was supported by the EGP devaluation as over 77% of the company’s top-line in FY17 was generated from offshore accounts. Margins however came under pressure due to the price discounts Rayahad to grant to clients after the EGP devaluation, as well as expansions into regional in locations where margins are lower.

Southern African equities were mixed as positive performance in Malawi and Zambia were offset by weakness in Zimbabwe and Botswana

Southern African equities were mixed as positive performance in Malawi and Zambia were offset by weakness in Zimbabwe and Botswana. In Zimbabwe, we digested strong 1H18 results from Simbisa (T/O: +29.7% y/y; PAT: 77.5% y/y) on the back of increased revenues from the Zimbabwe operations (+38.7% y/y) while regional operations grew top-line by 13.8% following the disposal of DRC operations and the stabilisation of Mauritius operations. Axia also reported a solid set of 1H18 numbers (T/O: +32.6% y/y; PAT: +52.1% y/y) as strong top-line growth was on account of a 34.0% growth at TV Sales & Home and a 34.0% jump at Transerv.

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