Monthly Highlights: February 2017

•  West African equities were mixed as BRVM strengthened (+2.1%) whilst Nigeria underperformed
•  East Africa posted solid gains led by Kenya and Tanzania, reversing January’s negative returns
•  In North Africa, equity markets were dragged down by Morocco after Egypt posted strong returns in USD
•  Southern African equities posted mixed results as Zambia and Malawi were positive while Zimbabwe underperformed
 

West African equities were mixed as BRVM strengthened (+2.1%) whilst Nigeria underperformed

West African equities were mixed as BRVM strengthened (+2.1%) whilst Nigeria underperformed, as trading volumes fell and the market was driven lower by the consumer sector, with the sector closing -11.03% lower a. On the earnings front, we digested impressive 3Q17 numbers from Flour Mills (T/O: +56.4% y/y; PAT: n/a) as the company returned to profitability following a NGN5.3bn loss in the prior period. This performance was mainly driven by a gross margin expansion of 170bp to 12.7% as well as a 25% y/y reduction in other operating expenses. Nigerian Breweries released FY16 results that were in-line with our expectations (T/O: +15.2% y/y; PAT: -30.1% y/y) as the challenging economic environment led to a decline in demand for the company’s premium brands with consumers downgrading to mainstream. A weaker currency also put pressure on the margins with gross profit margin contracting by 1,286bp y/y to 41.9%. Dangote Cement released disappointing FY16 results (T/O: +25.1% y/y; PAT: +2.9%% y/y) as strong revenue growth was offset by deteriorating margins amid rising input costs due to the devaluation of the Naira and gas shortages which led to the use of more expensive fuel mix, also some of the African subsidiaries diluted bottom-line performance which was in fact aided by a tax credit. In the financial sector, Zenith Bank reported impressive FY16 numbers (GE: +17.5% y/y; PAT: +22.7% y/y) as non-interest income rose by +46% y/y driven by a +56% increase in trading income to NGN28.4bn, while other income increased fourfold to NGN26bn. In the Francophone region, Sonatel released FY16 that were in line with our expectation (T/O: +4.8% y/y; PAT: -2.4% y/y) with profits declining due to a rise in operating costs caused by the impact of the new fiscal and regulatory measures combined with the currency effects and the charges related to the business model transformation programme.

East Africa posted solid gains led by Kenya and Tanzania, reversing January’s negative returns

East Africa posted solid gains led by Kenya and Tanzania, reversing January’s negative returns. In Kenya, The ongoing drought continues to impact the cost of living, with food costs soaring during the month of February as inflation rose to 9.04%, above the government’s upper target of 7.5% driven solely by food price inflation which was a whopping 36%. On the political front, parliament might soon be debating the Banking (Amendment) Bill 2017 which proposes greater control over the banking activities (deposit placements) of State Agencies, also, the inclusion of all lending fees within the lending limit of CBR + 400bp as earlier introduced, which would further impact lending margins should this be legislated. On the earnings front, Barclays Kenya posted weak FY16 results (GE: +7.5% y/y; PAT: -11.9% y/y) driven by a decline in fees and commission income (-13.2% y/y) and higher impairment charges (+122.4%). We also digested poor FY16 results from BAT Kenya (T/O: -10.8% y/y; PAT: -14.9% y/y) as top line growth was impacted by a +24% growth in excise duty and VAT payment outpacing the +2.4% growth in gross revenues. In Mauritius, MCB Group posted strong 1H17 results (GE: +4.5% y/y; PAT +7.1y/y) as net-interest income rose by +8% y/y and operational efficiency improved as cost to income ratio went down to 41.3% from 41.8% in 2016. In Tanzania, Vodacom Tanzania has received approval to list on the Dar es Salaam Stock Exchange. The IPO will see the mobile services provider raising TZS476bn (USD214m) from selling 560m shares at TZS 850 each. This transaction values Vodacom Tanzania at TZS1.9tn (USD855m).

In North Africa, equity markets were dragged down by Morocco after Egypt posted strong returns in USD

In North Africa, equity markets were dragged down by Morocco after Egypt posted strong returns in USD following the strengthening of the currency against the USD from EGP18.85 in January to close the month at EGP15.80. On the earnings front, Credit Agricole posted strong FY16 results (GE: +25.2% y/y; PAT: +30.6% y/y) driven by net interest income which rose by +31.7% y/y on back wider net interest margins and an improved cost-to-income ratio. SODIC released impressive FY16 results (T/O: +40.5% y/y; PAT: +44% y/y) as the company delivered 1,060 units (+47%) and with gross margins remaining high at 38%, despite the initial units of Eastown carrying lower margins. On the economic front, Egypt will propose a stamp duty on stock market transactions on buyers and sellers starting at EGP1.25 (USD0.0774) per 1,000. The tax would go up to EGP1.5 per 1,000 in the second year of its implementation and EGP1.75 pounds in its third. In Morocco, Maroc Telecom reported FY16 numbers that showed slow growth (T/O: +3.3% y/y; PAT: +3.2% y/y) as International revenues growth (+9.4% y/y) was offset but a decline in Morocco’s mobile revenues (-1.1%).

Southern African equities posted mixed results as Zambia and Malawi were positive while Zimbabwe and Botswana underperformed

Southern African equities posted mixed results as Zambia and Malawi were positive while Zimbabwe and Botswana underperformed. In Zimbabwe, CBZ Bank announced disappointing FY16 results (GE: -13.7% y/y; PAT: -32.5% y/y) as net interest income fell by -25.2% after the central bank reached an agreement with banks to cap interest rates at 18% coupled with a -33.6% decline in underwriting income driven by high claim ratios. Barclays reported a strong set of FY16 numbers (GE: +25.6% y/y; PAT: +179% y/y) as the bank’s net interest margin grew to 9.5% from 6.9% driven by lower funding costs. Earnings were further boosted up by a +34.4% y/y growth in non-funded income driven by foreign exchange income which rose by 261.5% y/y. In Zambia, the World Bank sees the country's economic growth rising to 4% in 2017 and 4.2% in 2018, predicting a jump in copper prices and improved power supply.