Monthly Highlights: June 2017

•  West African equities posted mixed performance as BRVM underperformed while Nigeria continued its upward trajectory
•  All the East African equity markets posted positive returns in June
•  North African equity markets outperformed amid broad-based gains across the region
•  In Southern Africa, Malawi, Zimbabwe & Zambia posted positive returns vs. negative returns in Botswana
 

West African equities posted mixed performance as BRVM underperformed while Nigeria continued its upward trajectory

West African equities posted mixed performance as BRVM underperformed while Nigeria continued its upward trajectory as foreign investors grow more comfortable with the Importers & Exporters Exchange rate mechanism (NAFEX). Volumes on the NSE have improved more than 3x from February's lows to an average daily trading volume for June of over USD15m. This coupled with new legislation from the CBN regarding the maximum spread on interbank FX transactions has witnessed improving FX volumes. On the earnings front, 7UP posted disappointing FY17 results (T/O: +26.4% y/y; PAT: n/a) as strong top-line growth was offset by a 1,700bps decline in gross margin and +12% growth in operating expenses. Conoil reported an improved set of 1Q17 (T/O: +28.5% y/y; PAT: n/a) as the company returned to profitability, mainly driven by gross margin expansion of 316bps. Nigerian Breweries announced plans to increase its local inputs from 57% - 60% by 2018, the company is looking to achieve this through increased investment into out-grower programmes in Nigeria. In the financial sector, United Bank for Africa successfully raised USD500m through a debut Eurobond placing, which was 240% oversubscribed. The global offering was a five-year senior unsecured benchmark bond at 7.5% listed on the Irish Stock Exchange and will further support the group’s strategic vision, as it continues to grow its franchise across the continent and client segments.

All the East African equity markets posted positive returns in June

All the East African equity markets posted positive returns in June. In Kenya, KCB Group announced that it had made an offer to the Treasury to acquire the majority state-owned National Bank of Kenya via a share swap, the acquisition will potentially increase KCB's share of the Government's banking business. In its proposal, KCB said it would initially acquire 70% of National Bank of Kenya, before announcing its offer for the remaining stake. Elsewhere, Kenya Power has launched a KES13.2bn project to lay underground cables in Nairobi, Kisumu and Mombasa, expected to stabilise electricity supply in the three cities. The underground cables will provide alternative supply to existing power substations. In Tanzania, the government announced that it would change regulations to open up IPO's in the telecommunications companies to foreign investors. Previously, Government had restricted participation in the IPO's of the telecommunications sector to Tanzanian nationals only. Vodacom, the country’s biggest mobile operator is in the process of listing a required 25% stake on the DSE, which stalled as local interest amount to approximately 60% of the issue. In Mauritius, inflation rose to 5.9% y/y in May, from 2.9% in April, fuelled by higher costs of food and non-alcoholic beverages.

North African equity markets outperformed amid broad-based gains across the region

North African equity markets outperformed amid broad-based gains across the region led by Tunisia as the Executive Board of the International Monetary Fund (IMF) completed the first review of Tunisia’s economic program supported by an arrangement under the Extended Fund Facility (EFF). The completion of the review allows the authorities to draw the equivalent of SDR 227.3m (about USD 314.4m), bringing total disbursements under the arrangement to the equivalent of SDR 454.6m (about USD 628.8m). In Egypt, the Central Bank has removed limits on international currency transfers; a move to ease capital controls is in line with a timeframe set out under an International Monetary Fund (IMF) program agreed to late last year. In the real estate sector, Palm Hills secured an approval from the New Urban Communities Authority (NUCA) for the co-development of a 3,000-feddan land plot (12.6m sqm) in West Cairo which is positive for the company as this is the largest land plot secured by Palm Hills and its peers in the recent history, increasing the company’s land bank to c40m sqm.

In Southern Africa, Malawi, Zimbabwe & Zambia posted positive returns vs. negative returns in Botswana

In Southern Africa, Malawi, Zimbabwe & Zambia posted positive returns vs. negative returns in Botswana. In Zimbabwe, Seedco reported FY17 results that showed impressive growth (T/O: +40.2% y/y; PAT: +41.4% y/y) driven by the Zimbabwean government’s Command Agriculture Program as maize volumes grew +41.6% y/y to 44.97k mt. Meikles posted an improved set of FY17 numbers (T/O: 0.5% y/y; PAT: n/a) with EBITDA growing by +104% y/y after margins improved to 5.4% from 2.7% in the prior year as the group managed to contained costs. TSL posted strong 1H17 results (T/O: +14.1% y/y; PAT: +138.5% y/y) as operating margins improved on cost containment to 11.7% from 7.7%. In Zambia, Zambeef posted mixed 1H17 numbers (T/O: +19.8% y/y; PAT: -91.3% y/y) as strong top- line growth was offset by increasing costs with gross margins shrinking to 32.5% from 39.8%. On the economic front, the World Bank expects Zambia's economy to grow by 4.1% in 2017 and 5% by 2019, but the global lender also warned that stricter spending controls were needed to ease the country's large debt burden.