Monthly Highlights: January 2017

•  West African equities performed poorly on back weakness in Nigeria and the Francophone region
•  East African equities underperformed amid weakness in Kenya as the IMF revised the country’s GDP growth downwards
•  North African equities were mixed as Morocco continued to perform well while Egypt reversed December’s gains
•  In Southern Africa, equity markets recorded negative returns amid broad-based weakness across the region
 

West African equities performed poorly on back weakness in Nigeria and the Francophone region

West African equities performed poorly on back weakness in Nigeria and the Francophone region as economic uncertainty in Nigeria continues to prove negative for investor sentiment, with foreign activity dwindling each day On the earnings front, Guinness Nigeria released disappointing 1H17 results (T/O: +19.4% y/y; PAT: n/a) as strong top-line performance was significantly offset by a -1,680bp y/y gross margin contraction to 26.1% and a +165% y/y rise in net interest expense resulting in a PAT loss. PZ Cussons released mixed 1H17 results (T/O: +8.8% y/y; PBT: n/a) as higher prices (up +40-60% y/y) across the company’s brands propelled revenues despite volumes declining by 20-30% y/y while profitability declined driven by an exchange loss of NGN4.9bn as the naira depreciated from NGN280:USD to NGN315:USD in December. International Breweries released solid 3Q17 results (T/O: +46.2% y/y, PAT: +42.9% y/y) as the squeeze on household wallets caused by deteriorating market condition led consumers to down-trade further to much cheaper brands thereby benefiting International Breweries – which operates solely in the value segment. Shifting to Ghana, the Monetary Policy Committee (MPC) of the Bank of Ghana maintained its prime rate at 25.5% prioritising currency stability, the Central Bank also expects the government to hit its medium-term goal of lowering inflation in 2018 rather than in late 2017. On the earnings front, we digested positive FY16 results from Unilever (T/O: -4.3% y/y; PAT: +11.5% y/y) as gross margin expansion of 191bp to 30.4% offset a decline in revenues.

East African equities underperformed amid weakness in Kenya as the IMF revised the country’s GDP growth downwards

East African equities underperformed amid weakness in Kenya as the IMF revised the country’s GDP growth downwards, from about 6.1% in 2016 to 5.3% in 2017, due to drought conditions and sluggish credit growth and as investors take a wait-and-see attitude ahead of the presidential elections in August. On the earnings front we digested in line 1H17 results from EABL (T/O: -6.3% y/y; PAT: -27.8% y/y) as value beers continue to drive revenue growth in the face of down-trading by consumers, while mainstream beer volumes (particularly in Kenya) remain the key risk to growth. Eveready East Africa has closed its Ugandan warehouse and opted to supply the market through a distributor after “cultural and structural hardships” impeded its operations in that country. The troubled battery firm saw its FY16 revenues halve to KES553.3m in what is attributed to stock shortages following the termination of a long -term distribution agreement with US-based Energizer Holdings. Shifting to Tanzania, the World Bank has approved a USD225m loan to Tanzania to improve water supply in the African nation's commercial capital Dar es Salaam. Tanzania plans to raise USD900m in fiscal year 2016/17 to fund public investment projects in the transport, energy and water sectors.

North African equities were mixed as Morocco continued to perform well while Egypt reversed December’s gains

North African equities were mixed as Morocco continued to perform well while Egypt reversed December’s gains despite the country issuing a highly successful Eurobond, raising USD4bn, double its target of USD2bn and with total applications in excess of USD14bn This is the largest issuance in Egypt and makes it one of the largest recent raises in EM, bridging the funding gap for 2016-17 fiscal year as well as a large portion of the upcoming fiscal year. On the earnings front, we digested impressive FY16 results from Commercial International Bank CIB (G/E: +13.3% y/y; PAT: +27.1% y/y) driven by lower provisioning charges (-47%) and higher net interest income (+23%). In other action, Elsewedy Electric won a bid for the EPC contract for a power transmission project in Egypt. The contract pertains to laying overhead electrical transmission lines in Upper Egypt extending from Samalout to Naga Hammadi at a cost of EGP4.2bn. As at 30 Sep 2016, Elswedy’s total project backlog was USD2.3bnand will be executed over FY17and FY18.

In Southern Africa, equity markets recorded negative returns amid broad-based weakness across the region

In Southern Africa, equity markets recorded negative returns amid broad-based weakness across the region. In Zimbabwe, Delta issued a disappointing 3Q17 update in what is generally the groups best quarter over the Christmas season, where lager volumes exhibited a sequential decline of -11% q/q as the company continue to experience subdued volumes and revenue decline. On a year-over-year basis, volume and revenue at Delta for the nine-month period ending December have fallen by -1% and -9% respectively. On the earnings front, we digested weak FY16 numbers from CFI (T/O:-55.9% y/y; PAT: n/a) on the back of low capacity utilisation and a weak operating environment. Overall performance across all the divisions remains depressed and the prospects are looking dim after sales declined across the board.