Monthly Highlights: January 2021

•  West African equities performance was largely positive as Nigeria and Ghana outperformed while the Francophone region closed in the red
•  In East Africa, equity markets recorded negative returns amid broad-based weakness across the region led by Tanzania (-1.8%) and Uganda (-1.5%)
•  In North Africa, equity markets were dragged lower by Tunisia, after Egypt and Morocco posted strong returns
•  Southern African markets exhibited mixed performance as strength in Zimbabwe and Malawi was offset by weakness in Namibia, Botswana and Zambia
 


In January, ten African stock markets posted negative dollar returns, led by the Francophone region (-8.9%), Namibia (-7.8%) and Tunisia (-3.7%)subsequent to a number of countries reinstating lockdown measures to curb the spread of Covid-19 after experiencing a second wave featuring a new variant that is more transmissible than earlier variants. On the positive side, the biggest gainers were the Zimbabwe RTGS dollar (+35.8%), Nigeria (+10.8%) and Egypt (+6.5%). In other economic news, the International Monetary Fund (IMF) updated its World Economic Outlook and revised sub-Saharan Africa GDP growth for 2021 and 2022 which is now expected to be +3.18% and +3.94% respectively from +3.08% and +4.03% previously forecast in October 2020. In Africa, only Egypt, Nigeria and South Africa's growth forecasts were revised. Egypt is projected to grow at +2.80% in 2021, before improving further in 2022 by +5.50%. Nigeria was revised downwards in 2021 and 2022 to +1.50% and +2.50% respectively from the prior forecasts of +1.70% and +2.52% respectively.

West African equities performance was largely positive as Nigeria and Ghana outperformed while the Francophone region closed in the red

West African equities performance was largely positive as Nigeria and Ghana outperformed while the Francophone region closed in the red. In Nigeria, the MPC held its benchmark interest rate at 11.50%. On the earnings front, BUA Cement reported sturdy FY20 results (T/O: +19.3% y/y; PAT: +16.3%) driven by strong top line growth and a decrease in net finance costs by -33.8% y/y. We digested strong 3Q20 results from Airtel Africa (T/O: +17.2% y/y; PAT: +13.1% y/y) driven by strong growth across key revenue lines, voice (+11.8% y/y), data (+20.8% y/y) and mobile money (+34.0% y/y). In the consumer sector, Flour Mills posted impressive 3Q21 results (T/O: +31.1% y/y; PAT: +150.3% y/y) in line with our expectations, driven by strong top line growth as well as a decline in net finance costs (-41.1% y/y) and administrative expenses (-20.9% y/y). Okomu Oil Palm exhibited solid FY20 earnings (T/O: +24.1% y/y; PAT: +46.3% y/y) as the border closures drove growth in volumes as well as price expansion. Profitability was further supported by a decline in the effective tax rate to 12.6% vs.32.9% in FY19. Cadbury Nigeria released disappointing FY20 results (T/O: -10.0% y/y; PAT: -83.9% y/y) as gross profit margin decreased to 16.3% from 21.3% in the prior period. Guinness Nigeria reported mixed 2H21 results (T/O: +5.9% y/y; PAT: -124.1% y/y) as satisfactory top line growth was offset by higher cost of sales (+10.9% y/y), finance costs (+44.1% y/y) as well as an increase in effective tax rate to 124.5% from 32.0% in 1H20. Shifting to the financial sector, Stanbic IBTC released healthy FY20 results (G/E: +0.3% y/y; PAT: +10.9% y/y) where a decline in net interest income (-4.6% y/y) was more than offset by improving non funded income (+14.7% y/y) and profitability increased fuelled by a decline in the effective tax rate to 12.1% from 17.5% in FY19. FBN Holding reported mixed FY20 earnings (G/E: -2.7% y/y; PAT: +8.2% y/y) as net interest income declined by -8.2% y/y, whilst non-funded income grew by 21.9% y/y with provisions decreasing by -0.4% y/y. Ecobank Transnational announced poor FY20 results (G/E: -2.0% y/y; PAT: -66.0% y/y) despite a -27.0% y/y decline in interest expense which led to net interest income increasing by +21.0% y/y, impairments increased by +74.0% y/y and net monetary loss arising from hyperinflationary economies increased by +361.0% y/y to USD 43.7bn.

In East Africa, equity markets recorded negative returns amid broad-based weakness across the region led by Tanzania (-1.8%) and Uganda (-1.5%)

In East Africa, equity markets recorded negative returns amid broad-based weakness across the region led by Tanzania (-1.8%) and Uganda (-1.5%). Kenya's economy slid into a recession for the first time in at least two decades in 3Q20 after gross domestic product contracted for a second straight quarter, as measures to slow the spread of the Covid-19 pandemic continued to hurt output. GDP fell -1.1% compared with a year earlier, after shrinking a revised -5.5% in the second quarter. The contraction was driven by a severe decline in the hospitality and education sectors, and a slowdown in manufacturing, retail and services. On the earnings front, East African Breweries posted poor 1H21 results (T/O: -3.0% y/y; PAT: -61.3% y/y) as volumes fell by -5.0% and net sales declined by -3.0% y/y. However, half-on-half volumes improved by +45.0% and gross profit margins increased by 500bps from 38.5% in 2H20. Kenya Power & Lighting Company posted excellent FY20 results (T/O: +11.3% y/y; PAT: +133.1% y/y) on the back of growth in electricity revenue (+13.4% y/y) and the recognition of a tax credit of KES 4.6bn during the year following the commissioning and operationalisation of Olkaria V (165 MW) in November 2019. In Tanzania, NMB Bank released strong FY20 results (G/E: +14.3% y/y; PAT: +42.4% y/y) driven by impressive growth in non-funded income (+32.0% y/y), alongside a +9.1% increase in funded income. CRDB Bank also published impressive FY20 results (G/E: +7.3% y/y; PAT: +37.4% y/y) which we attribute to a decrease in impairments by -18.6% y/y lower with the cost of risk decreasing to 1.9% in FY20 from 2.7% in FY19. In Uganda, incumbent Yoweri Museveni won a sixth presidential term, extending his 35 year rule, with 58.6% of the vote, while main rival, pop star, Bobi Wine received 34.8% of the vote.

In North Africa, equity markets were dragged lower by Tunisia, after Egypt and Morocco posted strong returns

In North Africa, equity markets were dragged lower by Tunisia, after Egypt and Morocco posted strong returns. In Egypt, the Central Bank of Egypt (CBE) banned banks from distributing dividends to shareholders for the year ending December 2020, aiming to strengthen banks' capital bases to mitigate an inherited risk environment in light of the uncertain Covid-19 implications on both domestic and global economies. The CBE, however, said it will still allow banks to distribute employee profit share along with board member remunerations. Egypt's Ministry of Health began the process of Covid-19 vaccination of medical teams across the country using China's Sinopharma Covid-19 vaccine in this phase of inoculation. On the earnings front, we digested strong 1Q21 results from education play CIRA (T/O: +18.2% y/y; PAT: +10.6% y/y) driven by solid growth in total enrolment of the group's students (in BUC and K-12) by +10.0% y/ y, coupled with +13.0% y/y rise in the blended tuition per student. Obour Land for Food Industries, dairy manufacturer, released satisfactory FY20 results (T/O: +5.9% y/y; PAT: +5.1% y/y) driven by top line growth on the back of a +3.0% y/y growth in white cheese sales as well as growth in the new processed cheese segment (+257.0% y/y). In Morocco, foreign currency reserves increased to USD 34.4bn in December 2020, +25.9% y/y, equivalent of seven months of imports, compared to five months during the same period in 2019. Morocco also received 2m doses of AstraZeneca's vaccine, manufactured by the Serum Institute of India, and 500,000 doses of a vaccine made by China's Sinopharm and it began distributing to centres around the country as it become the first African state to roll out a mass immunisation programme. In Tunisia, SAH Group's (Lilas) 4Q20 trading statement indicated that revenue grew by +12.6% y/y driven by strong performance from local market sales by +23.7% y/y, however exports dropped -6.2% y/y due to disruptions caused by the Covid-19 pandemic in particular border and customs delays.

Southern African markets exhibited mixed performance as strength in Zimbabwe and Malawi was offset by weakness in Namibia, Botswana and Zambia

Southern African markets exhibited mixed performance as strength in Zimbabwe and Malawi was offset by weakness in Namibia, Botswana and Zambia. In Zimbabwe, the inflation rate rose to 362.63% in January 2021 from 348.6% in December 2020. On the earnings front, Econet Wireless published an improved 3Q21 trading update as data traffic volume increased by +89.5% y/y and voice traffic grew marginally by +0.1% y/y. Delta Corporations also issued a commendable 3Q21 trading statement with Lager volumes increasing by +48.0% for the quarter and +20% for the nine months and volumes for Sparking Beverages increased by +66.0% for the quarter and +42.0% for the nine months. In Malawi, the Reserve Bank maintained the policy rate unchanged at a record low of 12%. Bank of Mozambique increased the key interest rate by 300bp to 13.25% from 10.25% and the permanent lending facility rate to 16.25% from 13.25%.

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