Monthly Highlights: September 2019

•  West African equity performance was broadly lower with Nigeria the only market to report positive performance off a very low base
•  East African equities markets underperformed as all markets posted negative returns led by Kenya (-1.7%) and Uganda (-1.4%)
•  North African equities recorded negative returns across the region. We expect volatility levels in Egypt to recede a little in 4Q19 (September contained both year high and year low with a 13% trading range)
•  Southern African equities exhibited mixed performance as strength in Zimbabwe, Namibia and Botswana were offset by weakness in Zambia
 

West African equity performance was broadly lower with Nigeria the only market to report positive performance off a very low base

West African equity performance was broadly lower with Nigeria the only market to report positive performance off a very low base. Nigeria released disappointing 2Q19 GDP numbers reflecting as the anaemic growth of +1.94% y/y despite rising oil production (+7.6% y/y to 1.98m bpd). Positively, Nigeria’s inflation rate fell to 11%, its lowest in more than three years as growth in food prices slowed. The Central Bank of Nigeria kept the benchmark monetary policy rate at 13.50%. On the corporate front, MTN Nigeria announced that it is currently exploring issuing financing options including commercial paper in response to reports that it plans to raise NGN100bn. On the earnings front, Access Bank reported impressive 1H19 results following the merger with Diamond Bank (GE: +28.20% y/y; PAT:+59.0% y/y) driven by +82% y/y growth in net interest income as cost of funds were 100bps lower at 4.8% in 1H19 after deposits grew by 63% y/y. In Ghana, GDP grew by +5.7% from a year earlier, compared with 6.7% in 1Q19. The slowdown is partly due to a lack of infrastructure spending by the government as the construction sector contracted by -8.3% from a year earlier. In BRVM Onatel (T/O: -6.1% y/y; PAT: -27.7% y/y) posted disappointing 1H19 results driven by high marketing and promotional spending as increased data usage and free roaming services have cannibalised the traditional voice revenues.

East African equities markets underperformed as all markets posted negative returns led by Kenya (-1.7%) and Uganda (-1.4%)

East African equities markets underperformed as all markets posted negative returns led by Kenya (-1.7%) and Uganda (-1.4%). In Kenya, the Central Bank held the key rate at 9% as it signalled future easing. Kenya’s economy grew by +5.6% as agriculture output rose +4.1% y/y while manufacturing output improved by +4.2% y/y. On the earnings front we digested impressive 1H19 results from Liberty Holdings (GE: +3.9% y/y; PAT: +35.7% y/y) as net earned premiums grew by +3.4% y/y while claims where -0.50% y/y lower. In other news Equity Bank announced plans to acquire a controlling stake in Banque Commerciale du Congo, its second purchase in the Democratic Republic of Congo. The Nairobi Securities Exchange suspended Mumias Sugar from trading for the next three months after it was placed under receivership and ARM Cement’s suspension was extended by nine months. In Mauritius, 2Q19 GDP expanded by +3.4% y/y as manufacturing output expanded 1.2% y/y compared to a rise of 1.1% y/y in the first quarter. On the earnings front, MCB Group posted impressive FY19 numbers (GE: 22.3% y/y; PAT: +32.47% y/y) boosted by significant expansion of its international loan book and improved yields on government securities. Phoenix Beverages released strong FY19 results (T/O: +7.3% y/y; PAT: +33.7% y/y) driven by its local Mauritian operations which grew revenue by +8.4% y/y as well as a decrease in the effective tax rate by 6 percentage points. In Rwanda, the economy grew by +12.2% y/y in 2Q19 driven by strong performance in services (+12% y/y) and industrial sector (+2% y/y). Crystal Telecom released sturdy 1H19 results (T/O: +84.1% y/y; PAT: +104.3% y/y) on the back of strong 1H19 performance of MTN Rwanda. In Tanzania, we digested satisfactory 1H19 results from Tanzania Breweries (T/O: -2.9% y/y; PAT: +14.2% y/y) revenue fell as a result of scaling down the Darbrew operations and a reduction in spirit volume, however, as a result of improving productivity in the breweries, lower brewing and packaging raw material prices, efficiencies in logistics and lower overhead costs, PAT increased by 28%. Vodacom TZ warned that a government directive for the registration of all SIM card owners before the end of the year could affect its operations negatively.

North African equities recorded negative returns across the region. We expect volatility levels in Egypt to recede a little in 4Q19 (September contained both year high and year low with a 13% trading range)

North African equities recorded negative returns across the region. We expect volatility levels in Egypt to recede a little in 4Q19 (September contained both year high and year low with a 13% trading range). The majority of EGX30 names experienced some profit taking and we expect some more drift prior to a recovery.. On the earnings front, we digested flat 1H19 results from Integrated Diagnostics Holdings (T/O: +22.5% y/y; PAT: +0.9% y/y) as revenue growth was driven by strong growth in number of patients (+14.0% y/y) and test volumes (+24.0 % y/y) but was offset by higher interest expense (+128.3 % y/y) related to financing of the new headquarters and Al Borg Scan’s (radiology) expansion. Cleopatra Hospitals posted disappointing 1H19 results (T/O: +22.4% y/y; PAT: -26.8% y/y) as revenue was weighed down by a significant increase in the SG&A expense ( +114.0% y/y) driven by a jump in the long-term incentive program expenses and an impairment of trade receivables. In Morocco, we digested perfunctory 1H19 results from Attijariwafa Bank (GE: +4.3% y/y; PAT: +4.9% y/y) driven by good growth in net interest income (+6% y/y) and lower provisioning costs (-11% y/y). Label'Vie published strong 1H19 results (T/O: +12.3% y/y; PAT: 20.0% y/y) as the group opened an additional 4,468 m² of retail space (6 supermarkets). HPS posted weak 1H19 numbers (T/O: +17.0% y/y; PAT: -5.0% y/y) as top-line growth was offset by an FX loss versus an FX gain in 1H18, and also due to the introduction of the new social solidarity tax in Morocco (2.5% of pre-tax result for FY-2019E and 2020E only) leading to a higher effective tax rate.

Southern African equities exhibited mixed performance as strength in Zimbabwe, Namibia and Botswana were offset by weakness in Zambia

Southern African equities exhibited mixed performance as strength in Zimbabwe, Namibia and Botswana were offset by weakness in Zambia. In Zimbabwe the central bank raised its overnight borrowing rate from 50% to 70% after a surge in inflation and a steep fall in the domestic currency. On the earning front Dairibord Holdings (T/O: +138.7% y/y; PAT: +710.3% y/y) published strong 1H19 numbers despite post local currency exchange losses the group increased its focus on improving its foreign currency generating capacity through exports resulting in a +244% growth in foreign currency denominated revenues. Axia Corporation exhibited impressive FY19 results (T/O: +102.0% y/y; PAT: +274.0% y/y) driven by a rise in finance income up +848.6% y/y.. We also digested strong 1H19 results from African Sun (T/O: +192.6% y/y; PAT: +763.5% y/y) as the group benefited from replacement cost pricing, improved sales mix and the lag in inflation on opex. Operating profit was also supported by other income which was up +11.6 times y/y due to foreign exchange gains. Innscor Africa posted positive FY19 results (T/O: +103.6% y/y; PAT: +390.0% y/y) on the back of double digit volume growth across most categories except bread and flour, well-priced raw material pipeline, margin distortions from replacement cost pricing, improved sales mix and factory efficiencies as well as the lag in inflation on opex. Property company Dawn Properties released solid 1H19 results (T/O: +108.5%% y/y; PAT: +53,110.3% y/y) fuelled by revenue from hotel property leases which increased by 193.8% y/y and an increase in international business by 208.0% y/y. Lafarge Cement Zimbabwe published disappointing 1H19 numbers (T/O: +168.7%% y/y; PAT: n/a) as cement sales volumes declined by -3.4% coupled by high operating costs, revaluation of foreign denominated expenses following the liberalisation of the exchange rate and high staff and administration costs due to inflationary pressures. In Namibia, 2Q19 GDP contracted -2.6% y/y as weak performances in the mining (-20% y/y), agriculture (-28% y/y), wholesale and retail sectors (-2% y/y) kept the domestic economy subdued. On the earnings front we digested excellent FY19 results from Namibia Breweries (T/O: +15.3% y/y; PAT: +134.1% y/y) driven by overall volumes which increased by 13.8% y/y as volumes to South Africa grew by an impressive +44.8% y/y. In Botswana we digested uninspiring FY19 results from Letshego Holdings (T/O: +22.2% y/y; PAT: -1.8% y/y) attributable to an increase of +8.0% y/y in credit loss/ impairment on advances. In Zambia, Zambia National Commercial Bank reported negative 1H19 results (GE: +0.4% y/y; PAT: -28.5% y/y) mainly driven by an increase in impairments. Standard Chartered Bank Zambia posted weak 1H19 growth (GE: -6.0% y/y; PAT: -26.7% y/y) which we attribute to the decrease in non-funded income by -21% y/y as well as an increase in operating expenses(+ 11% y/y).