Monthly Highlights: April 2011

•  West African equities flourished amid diminished political risk
•  East African equities contributed nicely on the month
•  Southern Africa performed well on back of Zambian outperformance
 

West African equities flourished amid diminished political risk

West African equities exhibited broad based strength as the NSE ASI (Nigeria), BRVM Composite (Francophone) and Ghana Composite rose by +2.00%, +2.37% and +3.31% respectively. In Nigeria, President Jonathan’s re-election ensures the continuation of existing reforms, most notably in the financial and energy sectors. In addition, his influence within Delta state inspires confidence that the continued threat of MEND-related oil disruption is less likely to materialize over the medium-term. Of note, we believe that the selection of Namadi Sambo as vice president sets the stage for Jonathan to step down in 2015 and reinstitute the North-South zoning agreement. On the earnings front, we digested mixed 1Q11 earnings from across the banking sector with Zenith and GTB leading the way on back of strong loan growth and profitability. On an annualised basis, both banks are set to surpass our internal benchmark of 20% loan growth in FY11. FBN also posted strong 1Q11 loan growth (+9.9% q/q) although earnings growth was modest (+1.9% y/y) as management continues to struggle with high overheads. At Stanbic IBTC, it’s interesting to note that provisioning kept profitability low despite +13.5% q/q loan growth in 1Q11. UBA lagged its peers in 1Q11 as PBT declined -8.0% y/y amid little to no loan growth (+0.1% q/q) and high interest expense. From amongst the Tier I names, Zenith remains our preferred play as last month’s meeting with CFO Udom Emmanuel has us feeling comfortable with the bank’s strategy and management appears to be well positioned over the mediumterm. Of the Tier II players, we prefer Skye given its strength in transaction-based corporate banking and public finance. In 1Q11, the bank posted a +32.9% increase in PAT despite modest loan growth (+2.7% q/q). In other news, AMCON issued its first bond series across three separate tranches totalling USD 11 billion. Of particular note, Series I Tranche II in the amount of USD 133 million priced at an implied yield of 11.8% - a premium to comparable FGNs. Looking ahead, AMCON bonds will most likely be priced at a discount to similar duration FGNs as the result of policy restrictions and generally tighter secondary market liquidity. Shifting to Ghana, inflation slowed modestly whilst total production from the Jubilee Oil field surpassed 8 million barrels. On the earnings front, GCB announced 1Q11 earnings which came in below expectations as PBT declined -12.3% y/ y amid a -26.9% reduction in interest income as margins came under pressure as the result of declining interest rates and higher costs. In the Francophone region, Gbagbo’s capture and the military defeat of pro-Gbagbo forces in Cote d’Ivoire has placed the spotlight on President Ouattara as he seeks to reinvigorate the economy.

East African equities contributed nicely on the month

In East Africa, equities were broadly higher as the NSE 20 (Kenya), SEM-7 (Mauritius) and USE ASI (Uganda) rose +3.22%, +7.93% and +8.82% respectively. In Kenya, inflation remains a cause for concern as higher food and energy prices take a toll and inflation jumped almost 3% in March to 12.05%. On the earnings front, Equity Bank released strong 1Q11 results with EPS growth of +87% y/y (+17% q/q). Positively interest expense and operating costs fell, whilst its loan book grew by 10%. KCB also released 1Q11 results posting a 33.3% increase in PAT but no growth on a EPS basis as a result of dilution following the recent rights issue. Shifting to Mauritius, the BoM increased the benchmark repo rate by 50bp to 5.25%, bringing to an end 30 consecutive months of monetary easing. On the earnings front, SBM announced 3Q11 results with EPS increasing +4.6% y/y – lower than anticipated but not surprising given where real rates are in the economy. In other action, the DSEI Composite (Tanzania) declined by - 0.37% on the month. Of note, Afren recently acquired a 74% stake in the Tanga block, offshore Tanzania as it seeks to expand its East African portfolio.

Southern Africa performed well on back of Zambian outperformance

In Southern Africa, equity markets performed well as the LuSE ASI (Zambia), Gaborone DCI (Botswana) and ZSE Industrial Index (Zimbabwe), rose by +7.01%, 2.62% and 2.50% respectively. In Zambia, ZANACO reported +41.7% y/y growth in its loan book and an impressive +43.0% y/y rise in PAT for the year ending Mar 2011. We are encouraged by the leadership of newly-appointed CEO Schouten as the bank’s credit risk management continues to improve in line with the declining rate of NPLs. In Botswana, Letshego published strong year-end results which highlighted a +25% y/y rise in earnings. Eliminating the exceptional gain from its sale of Letshego Guard, PAT grew by +40.2% on the year. In Zimbabwe, politics continues to dominate due to continued uncertainty as to whether elections will take place in 2011 Also differing statements from the Government regarding indigenization continue to prohibit investment.