Monthly Highlights: February 2016

•  West African equities strengthened & the Francophone region posted the best performance in Africa ex-ZA
•  East African equities performed well on the back of strength in Kenya & Tanzania
•  North Africa posted solid gains as Egyptian equities outperformed
•  Southern African equities performed poorly amid broad-based weakness throughout the region
 

West African equities strengthened & the Francophone region posted the best performance in Africa ex-ZA

West African equities strengthened & the Francophone region posted the best performance in Africa ex-ZA. In Nigeria, President Buhari hardened his stance against devaluing the Nigerian Naira, stating that the country has few exports other than oil & a devaluation would significantly increase costs for the import dependent country. The IMF is of a different view, that the CBN needs to devalue its currency in order to achieve its goal of growing the economy by over 5% from 2017. On the ground, Nigerians are feeling the pain of the government’s FX policy which has created a severe foreign currency shortage, with most importers & local manufacturers unable to obtain the currency required to import basic inputs for factories. The NGN/USD official rate remains pegged at NGN197/USD, whilst on the parallel market the rate has moved as high as NGN405/USD . On the corporate front, Nigerian Breweries reported mixed FY15 results (T/O: +10.3% y/y; PAT: -10.5% y/y) as the value segment larger drove overall volume growth. Profitability was weighed down by a 243bps gross margin contraction driven by increasing costs. In the financial sector, Guaranty Trust Bank announced that it had retired 25% of is USD 500m Euro bond which matures in May. Also, one of the country's largest banks, FBNH Plc, issued a profit warning stating that FY15 earnings will be materially below the previous year. The announcement was attributed to the recognition of impairment charges on specific accounts within the commercial banking business. There is also significant distress within the oil industry, many of the International Oil Companies (IOC) have over 6-months payables to local contractors. This coupled with the banks unwillingness to extend LC's as a result of a large asset/liability mismatch with existing matured obligations makes it an increasingly difficult economic environment in Nigeria.

East African equities performed well on the back of strength in Kenya & Tanzania

East African equities performed well on the back of strength in Kenya & Tanzania. In Kenya, BAT posted strong FY15 results (T/O: +5.8% y/y; PAT: +16.5% y/y) as operating margins improved with the aid of improved cost management strategies & productivity savings. Similarly, Housing Finance posted healthy FY15 results (GE: +13.7% y/y; PAT: +22.7% y/y) attributed to a rise in interest income from the group's banking and mortgage lending subsidiary HFC & profits from the sale of properties by HFDI (HF Development and Investment). In Mauritius, MCB Group posted satisfactory 1H16 results (GE: +6.6% y/y; PAT +8.7 y/y) as non-interest income rose by +10.4% y/y and cost- to-income ratio improved to 41.8% from 42.3% in the prior year.

North Africa posted solid gains as Egyptian equities outperformed

North Africa posted solid gains as Egyptian equities outperformed despite the CBE cutting its 2016 GDP growth forecast to 4.25% for the current fiscal year ending on 30 June 2016, down from 5.0% and increasing the budget deficit target to 11.0% of GDP, from its previous target of 8.9%. On the earnings front, Commercial International Bank (CIB) posted strong FY15 results (GE: +29.7% y/y; PAT: +32.1% y/y) as net interest income increased by +29.3% y/y on the back of wider net interest margins amid lower funding costs. The bank grew its loan book by +18.0% and experienced strong growth in deposits, +27.3%, despite significant increase in competition for deposits in particular from the Government owned banks. Asset quality remained healthy. The bank also announced the receipt of a binding offer from Orascom Telecom and Media Technology (OTMT) Holding to buy 100% of CI Capital Holding, its investment banking subsidiary for EGP 924m. Should CIB accept this offer, it will record a capital gain of circa EGP 400m from this transaction. In the real estate sector, we digested impressive FY15 results from Palm Hills (T/O: +69.1% y/y; PAT: +192.1% y/y) driven by the strong sales in East Cairo and North Coast (contracted sales grew 49% y/y to reach EGP4.4 bn in FY15 and EGP1.1bn in 4Q15). In Morocco, Maroc Telecom reported mixed FY15 numbers (T/O: +17.1% y/y; PAT: -4.3% y/y) as the strong top-line performance was weighed down by losses relating to its acquisition of six Etisalat subsidiaries. Benin, Ivory Coast, Gabon, Niger, the Central African Republic and Togo for EUR 474m.

Southern African equities performed poorly amid broad-based weakness throughout the region

Southern African equities performed poorly amid broad-based weakness throughout the region. In Zimbabwe, the IMF is forecasting 1.5% GDP growth for 2016 as a result of global and local constraints to its recovery. On the earnings front, we digested encouraging FY15 results from CBZ (GR: +8.8% y/y; PAT: +6.7% y/y) as group benefited from an expansion in NIMs, an increase in transactional volumes and solid growth in the insurance business (+53.8%), In Zambia, the Government is expected to engage the IMF on an economic programme in 2016, as we see GDP growth forecasts cut from an initial target of 7% to 3.7%, whilst inflation is forecast to remain around the 15% well above its 7% target.