Monthly Highlights: November 2017

•  All West African equity markets gained led by Nigeria as the economy continues to recover with GDP growing by 1.40% y/y in 3Q17 in real terms
•  East African equities outperformed as Tanzania and Rwanda led the pack
•  North Africa posted solid gains as Egyptian equities continue to outperform
•  Southern African equities were positive led by Zimbabwe which was up +85% on the month using the Old Mutual Implied rate following military intervention which resulted in the resignation of President Robert Mugabe who had been in power for 37 years
 

All West African equity markets gained led by Nigeria as the economy continues to recover with GDP growing by 1.40% y/y in 3Q17 in real terms

All West African equity markets gained led by Nigeria as the economy continues to recover with GDP growing by 1.40% y/y in 3Q17 in real terms. This growth is higher than the 0.72% growth reported in 2Q17 and more in line with expectations. On the earnings front, we digested mixed 1H18 results from International Breweries (T/O: +28.9% y/y; PAT: n/a) primarily driven by a 195bp contraction in gross profit margin and a +27.9% increase in operating expenses. Presco released disappointing 3Q17 results (T/O -7.3% y/y; PAT n/a) as cost of sales increased by +861% y/y mainly driven by increased land clearing and cultivation costs for replanting. Flour Mills released impressive 1H18 numbers (T/O 16.9% y/y; PAT 44.6% y/y) as strong top-line growth was reported in the agro-allied (+10.4% y/y), packaging (+83.0% y/y) and real estate (+327.7% y/y) segments. In the financial sector, FCMB released impressive 3Q17 numbers (G/E -21.2% y/y; PAT n/a) as the group returned to profitability, mainly driven by lower impairments (-87.2% y/y) offsetting a -62.6% decline in non-interest income.

East African equities outperformed as Tanzania and Rwanda led the pack

East African equities outperformed as Tanzania and Rwanda led the pack. In Kenya, Uhuru Kenyatta was sworn in for a second five-year term as President after the Supreme Court ruled that the October 26 presidential run-off met all constitutional requirements. On the earnings front, we digested strong 3Q16 results from Co-operative Bank (GE: +3.0% y/y; PAT: +8.9% y/y) as non-interest income rose +22.7% y/y. On the contrary, Kenya Commercial Bank posted weak 3Q17 results (GE: +7.8%% y/y; PAT -12.7% y/y) driven by lower net interest income (-8.0% y/y) and higher operating expenses (+18.1%) as the cost-to-income ratio deteriorated to 52.5% from 47.2% in the previous year. Shifting to telecoms, Safaricom released strong 1H18 results (T/O: +12.0% y/y; PAT: +9.5% y/y) as non-voice revenue increased +19.3% y/y to KES 62.4bn, primarily driven by 31.0% y/y growth in mobile data revenue and +16.2% y/y growth in MPESA revenue. In Tanzania, Tanzania Breweries released mixed 1H18 results (T/O +12% y/y; PAT -3% y/y) Top-line growth was strong driven by a +31% percent increase in volumes mostly from affordable beer segments, whilst profitability was lower as a result of higher operating expenses coupled with a higher effective tax rate(24% in 2016 vs. 35% in 2017. Vodacom Tanzania released disappointing 1H17 (T/O +5.5% y/y; PAT -42.2% y/y) as operating expenses grew by +30.2%. Also a non- recurring TZS 6.6bn share-based payment charge relating to an underwriting agreement between Vodacom and the Public Investment Corporation also impacted profitability.

North Africa posted solid gains as Egyptian equities continue to outperform

North Africa posted solid gains as Egyptian equities continue to outperform. On the earnings front, Commercial International Bank of Egypt reported strong 3Q16 earnings (GE: +56.6% y/y; PAT: +34.0% y/y) driven by net interest income which rose by +40.9% y/y and a +32.3% growth in non-interest income. Edita posted impressive 3Q17 results (T/O: +35.7% y/y; PAT: +41.6% y/y) as revenue growth was largely price-driven as average price per pack was up +59.7% y/y across the company’s portfolio. Volumes also recorded a strong +41.0% q/q recovery over 2Q17 levels. Egyptian cheese producer, Obourland, also posted strong 3Q17 numbers (T/O: +56.6% y/y; PAT: +95.1% y/y) as top-line growth was driven by +9% y/y volume growth plus about +45% y/y on average prices. IDH released positive 3Q17 results (T/O: +41.3% y/y; PAT: +66.7% y/y) driven by a combination of better pricing, favourable currency translation and higher test volumes. MHND reported disappointing 3Q17 (T/O: -3.1% y/y; PAT: -20.0% y/y) as top-line growth was muted (really as a result of historical performance), however on a positive note the company booking EGP1.24bn worth of contracted sales in 3Q17 (+13% y/y, +154% q/q), a strong figure in the absence of any new major launches during the quarter.

Southern African equities were positive led by Zimbabwe which was up +85% on the month using the Old Mutual Implied rate following military intervention which resulted in the resignation of President Robert Mugabe who had been in power for 37 years

Southern African equities were positive led by Zimbabwe which was up +85% on the month using the Old Mutual Implied rate following military intervention which resulted in the resignation of President Robert Mugabe who had been in power for 37 years. On the earnings front, the beverages company, Delta reported relatively flat 1H18 results (T/O: -1.4% y/y; PAT: +4.3% y/y) as consumers continue to down-trade to cheaper, lower margin alternatives within Delta's product offering. Aggregate volumes remained flat at 3.2mn hl; sustained by a +11% growth in lager beer volumes. White goods retailer, logistics & distribution group, Axia, issued a brief trading update for 1Q18 reporting that revenue for the group increased +32% y/y as prices were adjusted upwards in line with the increase in procurement costs. In Zambia, we digested negative FY17 earnings from Zambeef (T/O: 16.6% y/y; PAT: -94.4% y/y) mainly on lower FX gains (-86.9%) and rising operating expenses (+17.8% y/y).