Monthly Highlights: September 2016

•  West African equity markets exhibited mixed performances as Nigeria closed on a positive note
•  East African equities were higher amid broad-based strength throughout the region
•  North African equities were mixed after strength in Morocco was offset by weakness in Egypt
•  Southern African equities were mixed as positive performance in Botswana were weighed down by weakness in Zimbabwe
 

West African equity markets exhibited mixed performances as Nigeria closed on a positive note

West African equity markets exhibited mixed performances as Nigeria closed on a positive note whilst Ghana and the Francophone region underperformed. In Nigeria, MSCI decided to retain Nigeria in its benchmark Frontier Market Indices in acknowledgment of the Nigerian Government’s efforts to improve foreign exchange liquidity. However, MSCI caveated the move with a statement that it has formally added the Nigeria MSCI index to the review list for a potential reclassification to Standalone Status during its 2017 Annual Market Classification Review in June 2017. On the economic front, Nigeria’s central bank resisted political pressure to loosen policy and kept its main lending rate unchanged, as the Finance Minister called for lower borrowing costs to help stimulate an ailing economy. On the earnings front, Guinness Nigeria released weak FY16 results (T/O: -13.9% y/y; PAT: n/a) as finance costs grew +42.5% y/y mainly driven by a gross margin contraction of -537bps y/y to 41% as well as foreign exchange losses as a result of the NGN devaluation. Conoil released impressive 1H16 (T/O: +14.4% y/y; PAT: +4.1%) as the company’s internal cost management and control initiatives paid dividend as gross margins improved by 210bps to 13.2%. In the materials sector, Dangote Cement has decided to use locally mined coal to power the factory in order to sustain its production in the face of a persistent drop in gas supply. This move, the company said would ameliorate the disruption in production resulting gas supply that threatens its operations and increasing production.

East African equities were higher amid broad-based strength throughout the region

East African equities were higher amid broad-based strength throughout the region. In Kenya, business sentiment improved to a 5-month high with firms reporting a pick-up in business activity. Nation Media reported weak 1H16 results (T/O: -19.9% y/y; PAT: 15.1%) as print revenue fell -9% y/y, despite newspaper market share increasing 2% in Kenya & Tanzania and 3% in Uganda. Transcentury announced mixed 1H16 results (T/O: -20.5% y/y; PAT: n/a) as the company returned to profitability with earnings positively impacted by the recognition of a write back of the convertible bond, following the successful resolution where part of the debt was written-off, part converted to equity, resulting in a –59.3%y//y fall in interest expense. In the insurance sector, Kenya Re reported slowing earnings growth in 1H16 (T/O: +14.4% y/y; PAT: +4.1%) as net claims & benefits grew +30.8% y/y, the highest growth in three years, diluting top-line growth. Net claims accounted for 54.8% of net earned premiums compared to 50% in 1H15 & 50.8% in 1H14. In Mauritius, Mauritius Commercial Bank announced positive FY16 results (GE: +7.1% y/y; PAT: +17.9% y/y) as a +9% growth in net interest income and a -12% y/y decline in impairments fuelled overall performance. Shifting to Uganda, utility company, Umeme, posted mixed 1H16 results (T/O: +20.3% y/y; PAT: -19.7% y/y) as a higher tax charge (+277%) offset strong top-line performance. Operationally the company reported a +12% growth in profits as energy losses remained stable at 19.2%. The company targeting to improve its technical loss reduction strategy, whilst customer numbers increased +20.6% y/y driven by grid extensions resulting in new customers acquisitions. There remains a huge opportunity for Umeme as only 15% of the population has access to on-grid electricity today.

North African equities were mixed after strength in Morocco was offset by weakness in Egypt

North African equities were mixed after strength in Morocco was offset by weakness in Egypt as the Central Bank of Egypt unexpectedly kept interest rates unchanged, after inflation soared to the highest level since at least 2009. Policy makers left the overnight deposit rate at 11.75%. In Morocco, we digested positive 1H16 numbers from Residences Dar Saada (T/O: +29.7% y/y; PAT: +8.1% y/y) with much more social housing units being delivered as compared to land plots (87% of the units delivered were social housing units, 4% were land plots and 6% were intermediate housing units) resulting in lower net margins (23% in 1H15 vs. 19% in 1H16). Addoha, also posted good 1H16 numbers (T/O: +1.4% y/y; PAT: +10.9% y/y) as slow top-line growth was offset by widening gross margins (32.9%:1H16 vs. 29.1%:1H15). This was mainly driven by a 5 percentage points improvement in the social and intermediate housing gross margin as well as a 2 percentage points improvement in the high-end housing segment. Shifting to the consumer sector, Cosumar reported impressive 1H16 results (T/O: +10.5% y/y; PAT: +27.7% y/y) driven by an increase in export volumes which reached 136k tons from 72k tons reported in the prior period. Brasseries du Maroc posted mixed 1H16 numbers (T/O: -2.5% y/y; PAT: +5.2% y/y) as volumes were negatively impacted by Chaabane and Ramadan which took place between May and June this year. However, despite declining sales, the company managed its costs effectively with EBITDA improving by +16.3% while EBITDA margin rose by 3.5 percentage points to 21.8%.

Southern African equities were mixed as positive performance in Botswana & Malawi were weighed down by weakness in Zimbabwe & Zambia

Southern African equities were mixed as positive performance in Botswana & Malawi were weighed down by weakness in Zimbabwe & Zambia. In Zimbabwe, we digested solid FY16 results from National Foods (T/O: +5.2% y/y; PAT: +10.4% y/y), driven by the maize division which saw a +67% rise in volumes after a poor maize harvest in the 2014/15 season. Axia, which was recently unbundled from Innscor reported impressive FY16 numbers (T/O: +27.5% y/y; PAT: +33.4% y/y) on the back of strong growth reported from Distribution - Africa Operations. In Botswana, the country's consumer inflation slowed to 2.6% y/y in August from 2.7% in July, while on a m/m basis, prices rose 0.2% in August after a 0.1% increase the previous month.