Monthly Highlights: July 2016

•  West African equities posted mixed results with Nigeria suffering the most
•  East African equity performance was broadly mixed as strength in Tanzania and Mauritius was offset by weakness in Kenya
•  North African equities posted positive gains. Egypt announced that it was in formal talks with the IMF regarding a USD12bn loan
•  Southern African equities declined as weakness in Zimbabwe & Botswana fuelled this month’s negative performance
 


West African equities posted mixed results with Nigeria suffering the most

West African equities posted mixed results with Nigeria suffering the most as a result of further currency declines of ‐12.3% on the month, whilst Ghana posted positive performance. In Nigeria, the free‐float came under significant pressure with the maturity of $697milion one‐month forwards that the Central Bank of Nigeria (CBN) sold as it liberalised the currency market. This saw the currency post a significant fall in the last week of the month. Also, in a surprise move, the CBN raised rates by +2ppts in an attempt to instil greater confidence in NGN stability, and attract foreign portfolio flows. We see the authorities as having little option but to tighten further in the short‐term. In the financial sector, Diamond Bank reported disappointing 1H16 results (GE: ‐8.5% y/y; PAT: ‐25.5% y/y) as net interest income declined by ‐14.8% y/y and provisions increased by +45.6%. By contrast, FCMB reported impressive 1H16 results (GE: +13.7% y/y; PAT: +88.8% y/y) as non‐interest income showed robust growth of +107% y/y, largely driven by foreign exchange gains. In the consumer sector, Nigerian Breweries reported lacklustre 1H16 results (T/O: +3.8% y/y; PAT: ‐11.2% y/y) driven by a 187.7% y/y increase in net interest expense and a gross margin contraction of ‐193bps y/y to 47.0%. Unilever Nigeria exhibited impressive 1H16 results (T/O: +12.4% y/y; PAT: +1178% y/y) as the company grew its top‐line because of reduced competition from imported products, coupled by a ‐54.2% decline in interest costs. UACN posted disappointing 1H16 results (T/O: ‐2.4% y/y; PAT: ‐15.9% y/y) weighed down by the Paints and property (UPDC) divisions which reported a ‐28.6% decline in profits before taxes. Flour Mills reported positive FY16 results (T/O: up +11% y/y; PAT: +70.4% y/y) as earnings were supported by a one‐off gain of NGN 23.7bn following the successful sale of its stake in UNICEM. Dangote Cement reported mixed 1H16 (T/O: +20.6% y/y; PAT: ‐ 15.1% y/y) as strong top‐line growth was offset by a +52.2% increase in operating expenses largely as a result of expensive fuel costs. Volumes growth was impressive with Group and the Nigerian unit growing by 60% y/y and 39% y/y to 13.0mmt and 8.8mmt respectively. Seplat reported weak 1H16 results that were in‐line with guidance (T/O: ‐42.2% y/y; PAT: ‐247.5% y/y). The results were driven by a ‐56.6% y/y decline in oil sales to US$96m as a result of lower oil production and lower realised oil prices. Oil production in Q2 declined by ‐51% y/y to 11,526bpd due to pipeline sabotage at Shell's Trans Forcados System (TFS), which is Seplat’s major export pipeline route. In the Francophone region, we digested positive 1H16 results from Sonatel (T/O: +7.8% y/y; PAT: +11.9% y/y) as EBITDA margins expanded by 40bps to 52.80%. Revenue growth continues to be driven by the mobile segment, which remains the main contributor to the group revenue (68.80%). Shifting to Ghana, GCB released impressive 1H16 results (GE: +18.7% y/y; PAT: +24.1% y/y) on back of higher net interest income (+20.6% y/y) and a loan impairment recovery of GHS4.8m.

East African equity performance was broadly mixed as strength in Tanzania and Mauritius was offset by weakness in Kenya

East African equity performance was broadly mixed as strength in Tanzania and Mauritius was offset by weakness in Kenya. Looking at the consumer sector, East Africa Breweries reported mixed FY16 results (T/O: ‐0.2% y/y; PAT: +7.8% y/y) as bottom line increased as a result of a KES 2bn one off gain from the sale of Central Gas Industries, excluding this item, net income fell ‐15.9%. We also digested impressive 1H16 results from Scan Group (T/O: +11% y/y; PAT: +47.2% y/y) as the company benefited from its regional expansion strategy, with the biggest gains coming from outside of East Africa which now account for circa 40% of group’s revenue (2015: 34%, 2014: 30%). In Tanzania, we digested disappointing 1H16 results from CRDB (GE: +24.6% y/y; PAT: +1.3% y/y) as the company suffered from both a +76.5% y/y increase in credit impairments and a +21.8% y/y rise in operating expenses. In contrast, NMB released positive 1H16 results (GE: +19.4% y/y; PAT: +9.5% y/y) on back of higher net interest income (+23.4% y/y).

North African equities posted positive gains. Egypt announced that it was in formal talks with the IMF regarding a USD12bn loan

North African equities posted positive gains. Egypt announced that it was in formal talks with the IMF regarding a USD12bn loan, this will be dependent upon the implementation of VAT and further currency liberalisation, ideally a free‐float. On the earnings front, we digested impressive 1H16 results from CIB Egypt (GE: +19.4% y/y; PAT: +22.4% y/y) driven by strong net‐interest income (+19.2% y/y) as well as an improvement on provisioning (‐22.2% y/y). Telecom Egypt, the country's state‐owned landline monopoly is in talks with banks regarding an EGP 5bn (USD 563.1m) loan to acquire a 4G licence. The sale of 4G licences is part of Egypt's long‐awaited plan to reform the telecoms sector. Saudi Telecom, Kuwait's Zain, China Telecom and a European firm have expressed interest in the licence. Shifting to Morocco, we digested in‐line 1H16 numbers from Maroc Telecom (T/ O: +6.1% y/y; PAT: +5.7% y/y as strong growth in revenues of African subsidiaries (+17%) offset the decline in Morocco mobile turnover.

Southern African equities declined as weakness in Zimbabwe & Botswana fuelled this month’s negative performance

Southern African equities declined as weakness in Zimbabwe & Botswana fuelled this month’s negative performance. In Zimbabwe, the RBZ is projecting 2016 GDP growth of 1.4%. On the corporate front, Delta issued a 1Q17 trading update as deteriorating macroeconomic conditions weigh on demand for lager and sparkling beverages. Looking ahead, we expect that the operating environment to remain difficult amid lower disposable incomes and tight liquidity.

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