Monthly Highlights: September 2018

•  West African equity markets exhibited mixed performances as Nigeria and the Francophone region closed on a negative note whilst Ghana was positive. In Nigeria, the central bank maintained lending rates at a record high of 14%, citing the risk of increasing inflationary pressure
•  East African equities underperformed, led by Kenya (-10.3%) as President Uhuru Kenyatta signed into law the Finance Bill 2018
•  In North African equities underperformed as we saw broad-based weakness throughout the region. In Egypt, the headline inflation (urban CPI) increased to 14.2% in August, compared to 13.5% in July while monthly inflation rate decreased to 1.8% from 2.4% in July
•  Southern African equities were weaker as fuel and food shortages raise their ugly heads again in Zimbabwe
 

West African equity markets exhibited mixed performances as Nigeria and the Francophone region closed on a negative note whilst Ghana was positive. In Nigeria, the central bank maintained lending rates at a record high of 14%, citing the risk of increasing inflationary pressure

West African equity markets exhibited mixed performances as Nigeria and the Francophone region closed on a negative note whilst Ghana was positive. In Nigeria, the central bank maintained lending rates at a record high of 14%, citing the risk of increasing inflationary pressure. On the earnings front, PZ Cussons released weak FY18 results (T/O: +2.99% y/y; PAT: -47.7%) mainly due to intensive industry competition, weak disposable income levels and underperformance in the company’s white goods business (-6% y/y decline in revenues). In the financial sector, Fidelity Bank released impressive 1H18 (G/E: +3.6% y/y; PAT: +31.1%) as net fees and commission income grew +61% y/y on the back of higher account maintenance charges, commission on travellers cheque and foreign bills as well as e-banking income. Profitability was further aided by -46% decline in impairment charges. Polaris Bank took over Skye Bank and injected NGN 786bn fresh capital to keep the rejuvenated operations ongoing, while the initial NGN350bn injected by the apex bank would be withdrawn. In Ghana, the economy expanded by 24.6% to USD 58.9bn after rebasing. The recalculation means that gross domestic product last year grew by 8.1%, not 8.5% as previously estimated.

East African equities underperformed, led by Kenya (-10.3%) as President Uhuru Kenyatta signed into law the Finance Bill 2018

East African equities underperformed, led by Kenya (-10.3%) as President Uhuru Kenyatta signed into law the Finance Bill 2018. The bill passed by the National Assembly reflects the president’s recommendation for a reduction of VAT on petroleum products from the initial 16% to 8% among other amendments on various taxes. The Government, under pressure to reach IMF mandated fiscal deficit targets, faced a fuel dealers strike when fuel and transport costs escalated due to the application of 16% VAT implemented on September 1. Further, Kenya has escalated a trade war against Tanzania hitting back at Tanzania by imposing new tariffs on imported products (e.g. flour) from Tanzania, after the neighbouring country ignored a deal that granted Kenyan-made chocolate, ice cream, biscuits and sweets unrestricted entry into its market. In Mauritius, Mauritius Commercial Bank announced positive FY18 results (GE: +7.1% y/y; PAT: +7.3% y/y) as a +12% y/y growth in net interest income fuelled overall performance.

In North African equities underperformed as we saw broad-based weakness throughout the region. In Egypt, the headline inflation (urban CPI) increased to 14.2% in August, compared to 13.5% in July while monthly inflation rate decreased to 1.8% from 2.4% in July

In North African equities underperformed as we saw broad-based weakness throughout the region. In Egypt, the headline inflation (urban CPI) increased to 14.2% in August, compared to 13.5% in July while monthly inflation rate decreased to 1.8% from 2.4% in July. The higher inflation numbers are as a result of continued indirect impacts of the energy subsidy cuts and seasonality factors. On the corporate front, Elsewedy Electric announced that it had been awarded a contract worth EGP138m in a consortium with ABB Switzerland and ABB Arab to develop the regional control centre for canal cities. EK Holdings also announced that its subsidiary, Kahraba (91.95% owned), will expand its power generation capacity from 75MW to 115MW (+40MW) with a total investment cost of EGP550mn (USD30mn). The project is expected to be completed and start operations during 1Q20. In Morocco, we digested negative 1H18 numbers from Ciments du Maroc (T/O: -4.2% y/y; PAT: -5.1% y/y) as a result of weaker domestic cement consumption (-2.9% in 1H18 from prior year). HPS, posted solid 1H18 numbers (T/O: +11.0% y/y; PAT: +41.1% y/y) as the company registered growth in all of its business units with Electronic Payment Activity growing by 13% while the Processing Activity increased by 22% driven by the booming usage of non-cash payment methods. Cosumar reported weak 1H18 results (T/O: -14.3% y/y; PAT: -12.3% y/y) impacted by a -25.2% drop in exports due to an unfavourable sugar refining margins internationally.

Southern African equities were weaker as fuel and food shortages raise their ugly heads again in Zimbabwe

Southern African equities were mixed as positive performance in Zimbabwe, Namibia & Malawi were weighed down by weakness in Zambia and Botswana. In Zimbabwe, we digested solid FY18 results from National Foods (T/O: +2.9% y/y; PAT: +25.3% y/y) as muted top-line growth was offset by an improvement in EBITDA margins as the group managed to contain operating expenses. Axia, reported impressive FY18 numbers (T/O: +30.5% y/y; PAT: +48.1% y/y) on the back of strong revenue growth reported from Distribution - Africa Operations (+28.7% y/y) and TV Sales and Home (+36% y/y). Simbisa reported impressive FY18 numbers (T/O: +32.8% y/y; PAT: +107.3% y/y) on the back of strong organic growth in Zimbabwe and Kenya, disposal of DRC operations and the stabilisation of Mauritius operations. Customer counts increased by +6.7% to 56m and operating efficiencies improved significantly as EBITDA margins grew to 13.7% from 11.4% in the previous year.