Monthly Highlights: November 2010

•  West African equities performed well despite weakness in Nigeria & the Francophone region
•  East Africa declined amid increased profit taking in Kenya
•  Southern Africa lagged the broader markets on back of weakness in Botswana & Zimbabwe
 


West African equities performed well despite weakness in Nigeria & the Francophone region

West Africa performed reasonably well despite weakness in Nigerian equities as the NSE ASI posted a -1.14% decline on the month. The Central Bank of Nigeria (CBN) kept its benchmark interest rate unchanged at 6.25% while tightening the deposit rate by 100bp as inflation remained persistently high at 13.4% in October. Nevertheless, economic growth remains strong with CBN Governor Sanusi targeting 7.85% GDP growth in 2010 and the IMF looking for “exceptionally high” growth on the year. In other news, Amcon announced its intention to purchase USD 15bn of debt in its efforts to recapitalize the banking sector. Separately, Nigeria plans on introducing new tariffs on various consumer goods (i.e. furniture, beverages, et al). On a positive note, Nigeria’s economic council approved creation of a sovereign wealth fund to invest savings from its excess crude account. Should legislation pass, the nation’s sovereign wealth fund is expected to launch in May 2011 with estimated USD 1bn. This month’s earnings announcements were highlighted by stronger-than-expected results out of Flour Mills, Guinness and Oando. Oando posted a +29% increase in PAT for its 3Q10 results and improved margins across most of its businesses – the company is now trading on 12x rolling earnings which is very attractive in comparison to the peer group average of 16x. Guinness announced a +43.75% increase in PAT and Flour Mills reported a +20% increase in PAT for 1H11. Flour Mills now trades on a P/E of 7.8x relative to the peer group average of 19x. Other results include Nigerian Breweries (strong top line growth), FCMB, Fidelity and Stanbic IBTC. Shifting to Ghana, the GSE ASI rose by +1.79% as market participants view the recent S&P downgrade as uncalled for. Separately, Ghanaian Minister of Finance Duffuor is calling for inflation to decline to 8.5% and GDP growth of 12.3% in FY11. We believe that interest rates will continue to ease as private sector lending remains depressed. The Jubilee Oil Field is expected to start production next month with 30k bpd before rising to 110k bpd by May 2011. Of note, we are presently looking for investment opportunities which will benefit from the nation’s commitment to increased infrastructure development. In other action, the BRVM Composite (Francophone) declined by -5.27% on the month as the nation awaits an outcome of the Nov. 28th presidential election.

East Africa declined amid increased profit taking in Kenya

East African equity markets declined on back of profit-taking in Kenya and Mauritius as the NSE 20 and SEM-7 Indices declined by -5.96% and -1.10% respectively. In Kenya, S&P raised the nation’s credit rating to B+ from B given the improved growth outlook. The Central Bank of Kenya left its benchmark interest rate unchanged at 6% as inflation rose for the first time in four months. Remittances rose 13% in Sept and the IMF agreed to a USD 500m loan in order to improve the nation’s energy and power infrastructure. In the telecom sector, Safaricom reported a +15% rise in 1H11 profit while Bharti Airtel’s profit declined by -27% on price cuts in Africa and India. Shifting to financials, Barclays Kenya, Co-op Bank, DTB and Stanchart Kenya all reported stronger-than-expected earnings with PAT increasing by +20%, +75%, +119% and +17% respectively. In Mauritius, Finance Minister Jugnauth forecasted 4.2% GDP growth in FY11 whilst the nation’s trade gap widened in 3Q10. Mauritius Commercial Bank (MCB) sees a delayed recovery in the hotel industry as European tourist arrivals are not expected to exhibit much improvement until FY12. Although MCB and State Bank of Mauritius posted stronger-than-expected 3Q10 results, Sun Resorts posted a wider than expected loss on the quarter. Shifting to the consumer sector, we saw strong numbers out of Phoenix Beverages and Harel Freres. In other action, the DSEI (Tanzania) remained unchanged while the USE ASI (Uganda) fell by -1.09% on the month.

Southern Africa lagged the broader markets on back of weakness in Botswana & Zimbabwe

In Southern Africa, Botswana was this month’s biggest laggard as the Gabarone DCI (Botswana) declined by -6.01% on back of weakness in SCBB – down -27.9% on the month. On the macro front, inflation rose to 7.2% and diamond exports declined sharply. In Zambia, the LuSE ASI declined by - 0.62% as the nation agreed to a USD 300m tax settlement with foreign mining companies as well as a 30% corporate tax rate, 3% royalty and 15% variable profit tax going forward. Separately, Zambian inflation slowed to 7.1% on back of a bumper crop harvest which resulted in lower food prices. In Malawi, the DCI rose by +0.35% albeit on thin volume. In Zimbabwe, the ZSE Industrial Index declined by -3.11% while the ZSE Mining Index rose by +6.24% on the month.

 

 

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