Monthly Highlights: May 2018

•  All West African equity markets retreated led by weakness in Ghana (-12.7%). In Nigeria, we digested disappointing GDP numbers with 1Q18 growth of 1.95%, this is lower than 4Q17 growth of 2.11% despite improved fundamentals in the oil sector
•  East African equities were weaker as all the markets reported negative returns. In the Kenyan financial sector, we digested strong 1Q18 results from Equity Bank (GE: +8.9% y/y; PAT: +21.4% y/y) on back of higher net-interest income (+10.5% y/y) and a reduction in provisions (-55% y/y).
•  North African equities were mixed as strong performance in Tunisia was offset by negative returns in Egypt and Morocco. In Egypt, the central bank kept its benchmark interest rate unchanged, as the government prepares for a new round of fuel subsidy cuts against a backdrop of rising global oil prices
•  Southern African equities were mixed with Malawi posting strong returns while Zimbabwe, Botswana and Namibia underperformed. In Zimbabwe, Delta reported impressive FY18 results (T/O: +18.5% y/y; PAT: +27.1% y/y)
 

All West African equity markets retreated led by weakness in Ghana (-12.7%). In Nigeria, we digested disappointing GDP numbers with 1Q18 growth of 1.95%, this is lower than 4Q17 growth of 2.11% despite improved fundamentals in the oil sector

All West African equity markets retreated led by weakness in Ghana (-12.7%). In Nigeria, we digested disappointing GDP numbers with 1Q18 growth of 1.95%, this is lower than 4Q17 growth of 2.11% despite improved fundamentals in the oil sector, which posted 14.77% GDP growth compared with -15.6% in 1Q17 and 11.2% in 4Q17. This slow down was largely as a result of the non-oil sector, where growth fell from 1.45% in 4Q17 to 0.76% in 1Q18. On the earnings front, we digested disappointing 1Q18 results from International Breweries following its acquisition of Pabod Breweries and Intafact Beverages. Sales were NGN30.0bn and the company reported a pre-tax loss of –NGN2.6bn for the quarter, driven by a lower gross margin of 35% (vs. 45%, 5 yr average for International Breweries before the merger.) and a high opex-to-sales ratio of 30% (vs. 22%, 5 yr average prior to the merger). We were hoping to see improved cost efficiencies following the merger but it appears that these businesses might take a little longer to consolidate. Presco posted weak 1Q18 results (T/O: -8.1% y/y; PAT: -33.4% y/y) as gross margin contracted by -195bps y/y to 77.9% while operating expenses and net finance charges increased by +17% y/y and +135% y/y respectively. Diamond Bank also reported unimpressive 1Q18 results (G/E: -2.0% y/y; PAT: n/a) driven by a combination of factors including y/y declines of -52% and -48% in funding and non-funding income respectively and a +29% y/y spike in loan loss provisions. These negatives completely offset a -9% y/y reduction in opex. Shifting to Ghana, Ghana Commercial Bank released disappointing 1Q18 results (GE: -4.6% y/y; PAT -42.3% y/y) driven by a -9.9% y/y decline in net interest income and higher impairment charges (+150% y/y).

East African equities were weaker as all the markets reported negative returns. In the Kenyan financial sector, we digested strong 1Q18 results from Equity Bank (GE: +8.9% y/y; PAT: +21.4% y/y) on back of higher net-interest income (+10.5% y/y) and a reduction in provisions (-55% y/y)

East African equities were weaker as all the markets reported negative returns. In the Kenyan financial sector, we digested strong 1Q18 results from Equity Bank (GE: +8.9% y/y; PAT: +21.4% y/y) on back of higher net-interest income (+10.5% y/y) and a reduction in provisions (-55% y/y). Similarly, Kenya Commercial Bank posted sturdy 1Q18 results (GE: +7.8%% y/y; PAT +14.1% y/y) as net interest income increased (+10.5% y/y). Co-operative Bank posted satisfactory 1Q18 results (GE: +7.7% y/y; PAT: +6.8% y/y) as net-interest income rose +10.8% y/y. Shifting to telecoms, Safaricom released FY18 results that were in line with our expectations (T/O: +9.8% y/y; PAT: +14.1% y/y) on back of strong growth in mobile data (+24.6% y/y) and M-Pesa (+14.2% y/y). In Tanzania, Vodacom Tanzania reported impressive FY18 results (T/O: +5.9% y/y; PAT +258% y/y) driven by a one-off gain of TZS 120.3bn from the sale of the company's 25% stake in Helios Towers Tanzania Limited. Removing the one-off gain, the company’s PBT would have grown by +35% y/y.

North African equities were mixed as strong performance in Tunisia was offset by negative returns in Egypt and Morocco. In Egypt, the central bank kept its benchmark interest rate unchanged, as the government prepares for a new round of fuel subsidy cuts against a backdrop of rising global oil prices

North African equities were mixed as strong performance in Tunisia was offset by negative returns in Egypt and Morocco. In Egypt, the central bank kept its benchmark interest rate unchanged, as the government prepares for a new round of fuel subsidy cuts against a backdrop of rising global oil prices. On the earnings front, Egyptian International Pharmaceutical Industries Co. (EIPICO) reported good 1Q18 earnings (T/O: +20.9% y/y; PAT: +16.5% y/y) supported by price increases (in January 2017 drugs below EGP50 saw a 50% ex-factory price increase). Raya Contact Centre reported solid 1Q18 results (T/O: +22.5% y/y; PAT: +18.8% y/y) as top-line performance was driven the organic expansion of the business with the company adding eight new clients during 1Q18, four of which are offshore contracts. Housing and Development Bank released satisfactory 1Q18 results (GE: 25.8% y/y; PAT 13.2% y/y) as strong growth in net interest income +76% y/y was offset by increase in loan loss provisions (+137% y/y). GB Auto released impressive 1Q18 results as the company returned to profitability after five consecutive loss making quarters. (T/O: +60.7% y/y; PAT: n/a) driven by the company’s largest segment Egypt passenger cars (c33% of 1Q18 revenue), which saw revenue up +77% y/y on the back of 57% y/y increase in volumes.

Southern African equities were mixed with Malawi posting strong returns while Zimbabwe, Botswana and Namibia underperformed. In Zimbabwe, Delta reported impressive FY18 results (T/O: +18.5% y/y; PAT: +27.1% y/y)

Southern African equities were mixed with Malawi posting strong returns while Zimbabwe, Botswana and Namibia underperformed. In Zimbabwe, Delta reported impressive FY18 results (T/O: +18.5% y/y; PAT: +27.1% y/y) the back of volume recovery across all beverage categories attributed to improved consumer spending driven by the better agricultural season as well as increased usage of electronic payment platforms for transactional purposes. Aggregate volumes grew by 14% to 6.9m hl, supported by growth in lagers (+27% to 1.5m hl), sparkling beverages (+15% to 1.4m hl), sorghum (+9% to 3.8m hl) and maheu (+19%). Plastic tonnage decreased by 6% to 25,904 tonnes. OK Zimbabwe Limited reported a strong set of FY18 numbers (T/O: +23.4% y/y; PAT: +174.6% y/y) buoyed by volume and price movements, promotional activities as well as increased online transactions stemming from cash shortages compared to FY17. Management indicated that online transactions now contribute c.82.0% to the total value of transactions. Econet posted a stellar set of FY19 financials which were ahead of our expectations (T/O: +33.8% y/y; PAT: +280.7% y/y) on the back strong of subscriber growth, increased usage of the group’s products, higher contribution from Fintech services, cost containment, lower effective tax rate as well as reduced interest expense following the rights offer last year.