Monthly Highlights: February 2013

•  West African equities performed favorably on back of strength in Nigeria & Ghana
•  East African equities exhibited broad-based strength across the region
•  North African equities retreated amid heightened political tension in Egypt
•  Southern African equity markets performed well on back of strength in Zambia
 


West African equities performed favorably on back of strength in Nigeria & Ghana

In West Africa, equity markets performed favorably on back of strength in Nigeria and Ghana. In Nigeria, Nestle released solid FY12 results (T/O: +19.0% y/y; PBT: +38.0% y/y) as improved supply chain efficiency resulted in better-than-expected margin improvement. Looking ahead, management expects sales growth to triple over the next ten years to USD 2.2bn as the consumer market for food and cereal booms. By contrast, Guinness Nigeria released disappointing 1H13 earnings as PAT declined by -15.7% amid relatively lackluster +4% rise in sales as volume growth slowed. Shifting to the Francophone region, Sonatel reported strong earnings growth as PAT rose +11.1% y/y on back of better-than-expected results from Guinea Bissau and Guinea. In Ghana, we digested strong 1H13 results from Guinness Ghana (T/O: +20.1% y/y; PAT: +115.0% y/y) on back of higher volumes and a -64.0% decline in finance charges. We remain encouraged by Ghana's forward-looking prospects as the nation’s new Finance Minister, Seth Terkper, aims to rein in spending after the nation more than doubled its budget forecast to 12.7% of GDP in FY12.

East African equities exhibited broad-based strength across the region

East African equities exhibited broad-based strength across the region. In Kenya, earnings season was in full throttle as we digested results from Equity Bank, KCB, Barclays Kenya, Co-Operative Bank and East African Breweries, among others. Shifting to the financial sector, Equity Bank posted strong FY12 results as PBT rose by +36.0% y/y on back of a +47.7% y/y rise in net interest income and +19.2% increase in loans. By comparison, KCB announced relatively sanguine FY12 results as PBT grew +13.7% y/y on back of a +28.3% y/y rise in net interest income. Similarly, Barclays Kenya exhibited relatively modest performance as PAT grew +7.7% y/y following a +11.1% rise in net interest income. Co-Operative Bank posted strong results (GE: +42.0% y/y; PAT: +195.6% y/y) as NPLs fell by -71.1% and CTI improved to 55.4% as management’s cost cutting efforts begin to take hold. Shifting to the consumer sector, EABL released disappointing 1H13 results (T/O: +10.3% y/y; PAT: -18.4% y/y) as rising input, distribution and financing costs weighed on overall performance. In Mauritius, we digested solid 1H13 results from Mauritius Commercial Bank (GE: +4.8% y/y; PAT: +10.7% y/y) as growth in foreign-sourced earnings offset domestic weakness at home. In Tanzania, the IMF approved a USD 224.9m standby line of credit to assist with burgeoning BoP pressures as the economy continues to languish amid elevated inflationary pressures.

North African equities retreated amid heightened political tension in Egypt

In North Africa, equity markets retreated amid heightened political tension in Egypt as Morsi’s credibility weakens and the economy continues to deteriorate amid rising imports, FDI outflows, weaker tourism and diminished productivity. Despite management’s guidance that OCI will complete its EGX delisting by mid-May, we are less confident as EFSA appears steadfast in its determination to prevent such a move. In other action, TMG announced strong 4Q12 results (T/O: +96.7% y/y; PAT: +33.2% y/y) as we await clarity following the company’s 16th April court session with implications for 35% of the company’s undeveloped land. Similarly, Juhayna reported exceptional FY12 results (T/O: +27.2% y/y; PAT: +75.0% y/y) as the company opened five stores and expanded its fleet to 140. Nevertheless, we remain cautious as a depreciating EGP is likely to weigh on results once the company begins restocking in 3Q13. In financials, we were relatively pleased with FY12 results from CIB Egypt (GE: +37.7% y/y; PAT +37.8% y/y) although forward-looking performance is likely to remain constrained by artificially low EGP treasury yields and a challenging environment for corporate loan growth.

Southern African equity markets performed well on back of strength in Zambia

In Southern Africa, equity markets performed well as Zambia was this month’s primary contributor. It should be noted that the BoZ has made clear its intent to support commodity exporters by selling USD and buying ZMK. On the corporate front, CEC Zambia has agreed to pay USD 164m for a 60% stake in Nigeria's Abuja Electricity Distribution Company as the company looks to participate in the privatization of Nigeria’s power sector. In Zimbabwe, inflation slowed to 2.51% y/y in January as CPI fell with the country preparing for a 16 March referendum which will set the stage for 2H13 presidential elections. On the earnings front, CBZ Holdings posted impressive FY12 results (GE: +30.5% y/y; PAT +48.4% y/y) as at the bank remains attractively valued at T12mo P/E and P/B of 1.6x and 0.5x respectively.

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