Monthly Highlights: October 2018

•  West African equities underperformed as we saw broad-based weakness throughout the region. In Nigeria, the third quarter earnings season moved into full swing as we digested a plethora of results
•  East African equity markets retreated led by weakness in Kenya despite the World Bank raising the 2019 growth outlook for the country to 5.7% from a previous forecast of 5.5%
•  North African equities were negative as we witnessed broad based weakness across the region. In Egypt, we digested impressive 3Q18 results from Juhayna (T/O: +14.6% y/y; PAT: +83.1% y/y) driven by continued volume recovery as yoghurt (20% of 3Q18 revenues) posted the strongest growth +17% y/y followed by dairy up 15% (49% of 3Q18 revenues) and juice +13% y/y
•  Southern African equities were broadly weaker as positive returns in Malawi were overshadowed by negative returns in all the other markets
 

West African equities underperformed as we saw broad-based weakness throughout the region. In Nigeria, the third quarter earnings season moved into full swing as we digested a plethora of results

West African equities underperformed as we saw broad-based weakness throughout the region. In Nigeria, the third quarter earnings season moved into full swing as we digested a plethora of results. In the financial sector, GTB reported impressive numbers (G/E: +15.1% y/y; PAT: +10.3% y/y) as non-interest income grew by +167% y/y mainly on the back of growth in income from financial guarantees (+145%), trading income (+73%) and commission on FX deals (+71%). Similar to GTB, Zenith's results were positive (GE: +1.2% y/y; PAT: +15.5/y) as net-interest income grew by 19.2% y/y offsetting a -18.1% decline in non funded income. Stanbic IBTC posted strong results (GE: -5.0% y/y; PAT: 24.2% y/y) as asset quality improved with loan loss provisions declining by -78.5% y/y. Ecobank also reported positive results (GE: +5.7% y/y; PAT: +10.0% y/y) on the back of a +15.9% growth in non-interest income and lower impairments (-2.4% y/y). On the consumer front, Flour Mills delivered weak 1H18 performance (T/O: -9.6% y/y; PAT: -46.9% y/y) driven by a -7.1% decline in sales from the Food segment (circa 64% of sales) and -14.1% y/y decline in Agro allied revenue (which accounts for circa 17% of sales). Cadbury Nigeria posted disappointing 3Q18 results (T/O: +17.4% y/y; PAT: -15.1% y/y) as gross margins declined by -370bp y/y after cost of sales increased by 22.4% outpacing top-line growth. Nestle Nigeria released positive 3Q18 results (T/O: +7.1% y/y; PAT: +17.2% y/y) on back of a 12% y/y rise in food products revenues and a -4% y/y decline in administration expenses. Okomu Oil reported sturdy 3Q18 results (T/O: -8.9% y/y; PAT: +718.2% y/y) as performance was boosted by a -9.9% decline in operating expenses and a lower effective tax rate of 26.8% vs. 88.3% in the prior year. Nigerian Breweries posted poor 3Q18 results (T/O: -11.2% y/y; PAT: n/a) as a result of lower volumes owing to intense competition in the industry amid depressed consumer spending. In the materials sector, Dangote Cement released relatively flat results (T/O: +6.3% y/y; PAT: +3.1% y/y) as heavy rains and flooding in September saw volumes for Nigeria dip -27% q/q vs. the average 15% y/y volume dip. In Ghana, we digested strong 3Q18 results from Ghana Commercial Bank (G/E: +42.2% y/y; PAT: +148.2% y/y) on the back of +26% growth in net interest income and a +71.6% rise in non-interest income. MTN Ghana reported sturdy 9M18 numbers (T/O: +22.8% y/y; PAT: +21.1 y/y) driven by solid growth in service revenue (+22.9%), data revenues which increased by +30.9% y/y and digital revenue which expanded by more than +28%, driven by MoMo, which increased its contribution to revenue to 16%.

East African equity markets retreated led by weakness in Kenya despite the World Bank raising the 2019 growth outlook for the country to 5.7% from a previous forecast of 5.5%

East African equity markets retreated led by weakness in Kenya despite the World Bank raising the 2019 growth outlook for the country to 5.7% from a previous forecast of 5.5%. On the earnings front, Kengen reported weak FY18 numbers (T/O: +4.2% y/y; PAT: -12.4% y/y) as topline revenue growth was offset by a loss of KES 775m due to net unrealized forex losses from foreign denominated assets and a +27% y/y growth in steam costs. In Tanzania, NMB posted excellent 3Q18 results (GE: +10% y/y; PAT +118.3% y/y) driven by strong non-interest income growth of +30.1% y/y and lower provisions (-36.8%). Similarly, CRDB posted strong 3Q18 results (GE: +3.7% y/y; PAT +57.5% y/y) on the back of higher net-interest income (+19.6%) and lower impairment charges (-27.8%).

North African equities were negative as we witnessed broad based weakness across the region. In Egypt, we digested impressive 3Q18 results from Juhayna (T/O: +14.6% y/y; PAT: +83.1% y/y) driven by continued volume recovery as yoghurt (20% of 3Q18 revenues) posted the strongest growth +17% y/y followed by dairy up 15% (49% of 3Q18 revenues) and juice +13% y/y

North African equities were negative as we witnessed broad based weakness across the region. In Egypt, we digested impressive 3Q18 results from Juhayna (T/O: +14.6% y/y; PAT: +83.1% y/y) driven by continued volume recovery as yoghurt (20% of 3Q18 revenues) posted the strongest growth +17% y/y followed by dairy up 15% (49% of 3Q18 revenues) and juice +13% y/y. Edita also reported strong 3Q18 (T/O: +34% y/y; PAT: +258% y/y) driven by both price increases and volumes as the number of packs sold rose +11.5% while the average price per pack was up +10% y/y. Elswedy Electric has decided to scrap plans to establish 600MW of wind power that was supposed to be implemented in partnership with the New and Renewable Energy Association. The partnership was signed in 2014 and is no longer feasible given Egypt’s excess power generating capacity as well as the pricing for wind power.

Southern African equities were broadly weaker as positive returns in Malawi were overshadowed by negative returns in all the other markets

Southern African equities were broadly weaker as positive returns in Malawi were overshadowed by negative returns in all the other markets. Zimbabwe led the losers after shedding -16% as the economic situation in the country deteriorated amid rising inflationary pressures and currency volatility. On the corporate front, Econet Wireless published a cautionary statement advising that the board is considering the following three transactions subject to shareholder approvals; 1. The demerger from the mobile network operating business and the separate listing on the ZSE of the company’s financial technology business. The company’s technology business includes Ecocash. 2. The exchange of the company’s 51% in Liquid Zimbabwe for a stake of equivalent value in Liquid Telecom ahead of the listing of Liquid Holdings. 3. The conversion to equity of debentures that were issues as part of the company’s rights issue in March 2017. Delta Corporation issued a 2Q19 trading statement stating the company the company’s revenues grew by 33% y/y for the quarter and 37% for 1H19 driven by a 52% y/y growth in larger volumes.