Monthly Highlights: May 2011

•  West African equities performed well on back of strength in Nigeria and Ghana
•  East Africa underperformed amid deteriorating sentiment in Kenya and Mauritius
•  Southern Africa came in mixed as global derisking weighed on overall performance
 

West African equities performed well on back of strength in Nigeria and Ghana

West African equities performed well in May with the NSE ASI (Nigeria) and Ghana Composite posting gains of +2.17% and +5.71% respectively. In Nigeria, a modest pullback in April inflation failed to deter CBN Governor Sanusi as the Bank tightened rates by 50bp to 8%. The market continues to digest 1Q earnings with the consumer sector taking centre stage amid results from Nigerian Breweries, Nestle Nigeria, Unilever Nigeria and UACN. Nigerian Breweries exhibited a +22.7% y/y rise in PAT as its newly launched multipack cans drove top line sales growth whilst Nestle PAT declined by -19.8% y/y as the result of a higher depreciation charge following installation of its new “Maggi” plant. Unilever PAT grew +70% y/y following its business restructuring whilst UACN PAT rose +10% as the result of improvements in its restaurant and real estate businesses. In Ghana, the Cedi continues to appreciate as GHS declined by another -0.17% to GHS 1.5065 from highs of 1.5725. We remain bullish on Ghanaian growth as GNPC announced that nearly 1 million barrels have been extracted from the Jubilee oil field which is right in line with our own internally modelled production forecast. Separately, Tullow increased its stake in Jubilee through the USD 305 million acquisition of EO Group’s position whilst also announced its intention to dual list its shares on the GSE. Shifting to the Francophone region, the BRVM Composite declined by -4.34% in May as the pullback in commodity prices caused the index to retrace its recent gains. Of note, Senegal successfully issued its 10-year USD 500 million Eurobond at YTM of 9.125% whilst Cote d’Ivoire announced that it will miss its 30th June coupon payment.

East Africa underperformed amid deteriorating sentiment in Kenya and Mauritius

In East Africa, equities were broadly weaker on the month as the NSE 20 (Kenya), SEM-7 (Mauritius) and USE ASI (Uganda) declined by -1.45%, - 2.16% and -2.64% respectively. In Kenya, inflation accelerated for the seventh straight month as CBK Governor Ndung’u raised its key interest rate by 25bp to 6.25%. In order to offset the persistent rise in Kenyan food prices, President Kabaki announced an increase in the minimum wage, allocated KES 1 billion to support the livestock ministry and facilitated urgent imports of corn. On the earnings front, Safaricom announced FY10 results as PAT fell -13% y/y due to declining voice revenues from the price war with Bharti Airtel. Investors also digested 1Q bank sector results with KCB (EPS flat as the result of dilutive rights issue), Equity Bank (PAT up +16.1% q/q; up +87% y/y), Barclays Kenya (PAT down -34% q/q; up +11.7% y/y), Co-op Bank (PAT up +93% q/q; up +58% y/y), NIC Bank (PAT flat q/q; up +60% y/y) and Standard Chartered Kenya (PAT up +47% q/q; up +14% y/y). Interestingly, KCB appears to have embarked upon a full corporate restructuring as 15 officials were eliminated from its Executive Committee and we are hearing whispers of sweeping changes across the organization. In Mauritius, BoM Governor Bheenick announced his intention to tighten monetary policy as domestic credit continues to expand with equities rising to their highest level since 1989. On the earnings front, New Mauritius Hotels announced 2Q profit growth of +25% on back of a +22% rise in 1Q11 tourist arrivals whilst shares of MCB rose to a three year high on back of a stronger-than-expected profit forecast. Shifting to Tanzania, the DSEI rose +2.56% as investors digested outstanding bank sector earnings from CRDB, I&M, NIC Bank Tanzania and Standard Chartered Tanzania. Although we recently reduced the Fund’s exposure in Rwanda, we are actively monitoring events surrounding Bank of Kigali’s June IPO and may well look to participate.

Southern Africa came in mixed as global derisking weighed on overall performance

In Southern Africa, equity markets were mixed as the LuSE ASI (Zambia) rose +3.15% whilst the Gaborone DCI and Zimbabwe Industrial Index declined by -2.82% and -0.78% respectively. In Zambia, inflation rose to 8.9% as the nation’s trade surplus widened to USD 233 million. On the corporate front, Zambeef embarked on a fundraising exercise as it seeks to finance the purchase of three farms in North Western Zambia. The company is looking to raise approximately USD 55 million via a rights issue and AIM listing. We view the acquisition as highly earnings accretive as it places the stock on a forward P/E multiple of 7.6x. In Botswana, the Central Bank of Botswana increased its reserve requirement from 6.5% to 10% as S&P reaffirmed its A- credit rating and stable outlook. In Namibia, Trustco announced FY11 results with a +55% increase in headline EPS.