Monthly Highlights: February 2020

•  West African equity performance was broadly weaker as Nigeria and the BRVM led the markets lower, while Ghana outperformed in dollar terms as the GHS appreciated by +1.96%
•  East African equities performed poorly on the back of broad based weakness across the region
•  North African equities were dragged lower by Egypt and Morocco whilst Tunisia posted slightly positive returns
•  Southern African equities posted mixed results as Namibia, Zambia and Botswana underperformed while Zimbabwe and Malawi were positive
 

West African equity performance was broadly weaker as Nigeria and the BRVM led the markets lower, while Ghana outperformed in dollar terms as the GHS appreciated by +1.96%

West African equity performance was broadly weaker as Nigeria and the BRVM led the markets lower, while Ghana outperformed in dollar terms as the GHS appreciated by +1.96%. In Nigeria, inflation quickened to a 21 month high of 12.13% on the back of higher food costs while 4Q19 GDP growth rose at 2.55% y/y. On the earnings front, we digested poor FY19 results from Dangote Cement (T/O: -1.1% y/y; PAT: -48.4%y/y) with slow top line performance driven by lower volumes in Nigeria (-0.4% y/y), coupled by an increase in operating expenses (+13.4% y/y) and finance cost (+15.9% y/y). The sharp decline in profitability was not helped by a higher tax charge of N49.9bn in FY19 compared to a tax credit of N89.5bn in FY18. In the financial sector, Zenith Bank released satisfactory FY19 results (GE: +5.1% y/y; PAT: +8.0%y/y) as non-funded income increased by +29.0% y/y and the Group’s loan book grew by +26.5% in order to adhere to the CBN’s requirement that banks maintain a loan to deposit ratio of +65% by December 2019. United Bank for Africa posted good FY19 results (GE: +13.3% y/y; PAT: +13.3%y/y) driven by growth in non-funded income (+21.3%y/y) on the back of strong increases in electronic banking income (+38.8% y/y), credit related fees (+54.5% y/y), fixed income trading income (+58.7% y/y) and remittance fee (+67.8% y/y). In the consumer sector, Nigerian Breweries announced poor FY19 results (T/O: -0.43% y/y; PAT: -17.28% y/y) driven by weak top line growth and a +53.5% growth in finance costs as interest expense on loans and borrowings increased +49.2%. Nestle Nigeria exhibited satisfactory FY19 (T/O: +6.7% y/y; PAT: +6.2%y/y) driven top line growth with beverage sales increasing by +10.0% y/y and food turnover grew +4.7% y/y. Okomu Oil Palm Company released unsatisfactory FY19 results (T/O: -3.2% y/y; PAT: -35.3% y/y) as gross profit margin decreased by 350bp to 70.0%. MTN Nigeria reported impressive FY19 earnings (T/O: +12.6% y/y; PAT: +38.7%y/y) driven by strong growth across key revenue lines, voice (+8.4% y/y), data (+63.1% y/y) and fintech (+23.3% y/y), as well as increased traffic on the network as evidenced by the +10.5% y/y growth in subscribers to 64.3m. In Ghana, we digested sturdy FY19 results from MTN Ghana (T/O: +22.8% y/y; PAT: +33.6% y/y) fuelled by growth in voice (+12.3% y/y), data (+28.6% y/y) and mobile money (+10.6% y/y) subscribers.

East African equities performed poorly on the back of broad based weakness across the region

In East African, equity markets recorded negative returns amid broad-based weakness across the region led by Kenya and Uganda. In Kenya, we digested mixed FY19 results from BAT Kenya (T/O: +9.1% y/y; PAT: -4.90% y/y) due to significant increases in regulatory costs in Kenya following the introduction of a solatium contributory levy and a 20% increase in excise duty. In Mauritius, annual inflation accelerated to 2.0% in January 2020 from 0.9% in December 2019 as food and non alcoholic beverages prices increased by +7.7% m/m. On the earnings front, MCB Group released impressive 1H20 results (GE: +27.3% y/y; PAT: +23.3% y/y) driven by strong growth in interest income (+14.7% y/y) boosted by expansion of its international loan book and improved yields on government securities. In Rwanda, the central bank held its key rate steady for third time in an effort to boost the economy. In Tanzania, January 2020 inflation rate declined to 3.7% as consumer price growth dropped from 3.8% in December 2019 and food and non-alcoholic beverage prices grew at a slower pace of 5.7% vs. 6.3% in December 2019. In Uganda, the central bank held key interest rate at 9.0% citing steady economic growth.

North African equities were dragged lower by Egypt and Morocco whilst Tunisia posted slightly positive returns

North African equities were dragged lower by Egypt and Morocco whilst Tunisia posted slightly positive returns. In Tunisia the central bank left interest rates unchanged at 7.75%. In Egypt, annual urban consumer inflation rose to 7.2% in January 2020 from 7.1% in December 2019 after falling to as low as 3.1% in October 2019, it’s slowest since December 2005. The country also reported strong December 2019 GDP growth of 5.6% with the IMF forecasting GDP growth of 5.9% for FY20. On the earnings front, we digested healthy FY19 results from Commercial International Bank (GE: +11.5% y/y; PAT: +18.1% y/y) driven by strong net interest income growth of +18.9% y/y and a decline in NPL provisions by -53.3% y/y from EGP 3.08bn in FY18. El Sewedy Electric exhibited mixed FY19 results (T/O: +9.6% y/y; PAT: -18.5%y/y) as top line growth which was driven by new turnkey projects (+45% y/y) was offset by a decline in net interest income (-68.2% y/y), due to a drop in interest rates, and higher income tax (+39.0% y/y). Ibnsina Pharma posted sturdy FY19 results (T/O: +24.6% y/y; PAT: +25.2% y/y) which we attribute to continued increase in market share growth of 80 basis points to 21.3%. Talaat Moustafa Group released satisfactory FY19 (T/O: +7.5% y/y; PAT: +9.8% y/y) although sales declined by -4.2% y/y, mainly due to FY18 having included the EGP1.0bn sale of four schools, compared to the EGP0.3bn sale of one school in FY19. We also digested impressive FY19 results from MM Group for Industry and International Trade (T/O: +28.9% y/y; PAT: +69.4%y/y) driven by its consumer electronics division (+30.4% y/y) mainly on the back of strong growth in the mobile and home appliance segments where revenues increased by +30.4% y/y and +30.8% y/y respectively.

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

Southern African equities posted mixed results as Namibia, Zambia and Botswana underperformed while Zimbabwe and Malawi were positive. In Zimbabwe, OK Zimbabwe issued mixed 3Q20 trading statement with revenue growing by +513.0% y/y, although volumes were -15.0% y/y lower as inflation supported margins despite the volume reduction. It also needs to be noted that given move from a USD-peg to hyper-inflationary conditions, these are not an accurate depiction of the financials. In Zambia, the annual inflation rate rose for the eleventh consecutive month to 13.9% in February 2020 from 12.5% in January 2020 largely attributable to price increases in food and non-food items. In Botswana, the central bank kept benchmark rate unchanged at 4.75%.