Monthly Highlights: June 2012

•  West African equities as strength across the Francophone region overcame weakness in Nigeria & Ghana
•  East Africa performed well as Kenyan equities continued their resurgence
•  North Africa dominated by events in Egypt
•  Southern Africa performed well amid broad-based regional strength
 

West African equities as strength across the Francophone region overcame weakness in Nigeria & Ghana

West African equities declined as strength across the Francophone region failed to overcome weakness in Nigeria and Ghana. Nigerian banks posted a second straight month of underperformance as we prepare for next month’s release of 1H12 earnings. Although we anticipate a generally strong reporting season from the Nigerian banking sector, sentiment remains weak as declining oil prices, rising inflation and record bond yields have tempered investor appetite. A relatively quiet month although shares of Dangote Cement rose as its new Obajana plant came on line with total capacity of 10.25m MT. The Nigerian building materials sector has exhibited significant capacity gains over the first half of 2012 and we expect the secular supply / demand imbalance to diminish in the months ahead. In Ghana, GCB reported healthy 1Q12 results (NI: +13.9% y/y; PAT: +18.3% y/y) on back of a +7.6% rise in net interest income while GGBL rose to its highest level in nearly four years as investors anticipate strong FY results for the period ending 30 June. Shifting to the Francophone region, Cote d’Ivoire announced that it successfully completed the HIPC program and resumed payments on USD 2.3 billion in defaulted Eurobonds. In so doing, the IMF has agreed to cancel USD 4.4 billion of the nation’s outstanding debt as Cote d’Ivoire qualifies for USD 3.1 billion in relief under the program.

East Africa performed well as Kenyan equities continued their resurgence

East Africa performed well as Kenyan equities continued their resurgence amid diminished inflation, improved agricultural conditions and greater currency stability. Yet despite our affinity for the nation’s improved economic backdrop, equity valuations are no longer cheap and we remain mindful of next year’s presidential election which will test of the Kibaki-Odinga peace accord that ended over two months of violent protests following the December 2007 vote. In Tanzania, TBL announced strong FY11 results (T/O: +26.0% y/y; NI: +36.5% y/y) as increased volumes, an improved product mix and more efficient distribution drove performance. Yet despite the company’s exceptional performance, shares of TBL remain artificially cheap as foreign ownership constraints limit the level of international participation.

North Africa dominated by events in Egypt

North African equity markets were dominated by events in Egypt where Muslim Brotherhood candidate Mohammed Morsi was named the nation’s first democratically elected civilian president after defeating former Egyptian PM Ahmed Shafiq in this month’s run-off. Despite the apprehension surrounding election of Egypt’s first Islamic president, we view Morsi as far too pragmatic to apply radical social change given the current political and economic environment. If anything, we are encouraged by Morsi’s economic policies which target annual GDP growth of 7%, inflation of 3.5% and unemployment of 7% with the goal of narrowing Egypt’s fiscal deficit to less than 6% of GDP by the end of his term. Further, we approve of his intention to restructure the nation’s food and energy subsidies with the goal of achieving self-sufficiency in strategic crops such as wheat, corn and cotton. Looking ahead, we suspect Morsi and the Muslim Brotherhood will seek to gradually expand their influence as the military remains a dominant player across Egypt’s evolving political system and the domestic economy must undergo massive restructuring which will take many years to implement.

Southern Africa performed well amid broad-based regional strength

Southern Africa performed well amid broad-based strength across the region. In Zambia, we digested strong 1H12 results from Zambeef (Revenue: +43.0% y/y; NI: +55.0% y/y) as the Mpongwe Farms acquisition had a positive impact on earnings. Looking ahead, the Zamanita tax liability remains a concern and we will seek additional guidance from management. In Malawi, President Banda was rewarded for her bold efforts to transform the nation’s beleaguered economy with a USD 157 million IMF package designed to stimulate growth. We will continue to monitor the nation’s progress following Banda’s unprecedented 33% devaluation of the kwacha. In Zimbabwe, we digested generally uninspiring FY results from AICO (Revenue: +30.5% y/y; PAT: -15.4% y/y) as the company’s shareholders voted against a USD 50 million rights issue. By contrast, OK Zimbabwe announced strong numbers (Revenue: +60.3% y/y; PAT: +140.5% y/y) despite a challenging operating environment where local manufacturing suffers from capacity constraints and its foreign supply base is limited due to quotas on imported products.