Monthly Highlights: March 2012

•  West African equities rose on back of strength in Nigeria & Francophone region
•  East African equity markets exhibited broad-based strength across the region
•  North African equity markets remain volatile
•  Southern Africa underperformed on back of weakness in Zimbabwe
 


West African equities rose on back of strength in Nigeria & Francophone region

West African equities rose on back of strength in Nigeria and the Francophone region as Ghana retreated amid continued currency weakness. In Nigeria, we continue to digest FY11 results with Guaranty Trust Bank (GE: +22.7% y/y; PAT: +37.3% y/y) and Nigerian Breweries (T/O: +23.8% y/y; NI: +25.4% y/y) reporting healthy performance. Shifting to the Francophone region, we were encouraged by Senegalese President Wade’s decision to concede defeat as the nation’s Eurobonds rose +7.2% following the successful political transition. Looking ahead, we will certainly revisit Senegal’s medium-term prospects as incoming President Macky Sall has an outstanding reputation for tackling difficult issues with the potential to achieve measured success in curbing government spending and corruption. In Ghana, investor sentiment has grown increasingly hawkish as the Central Bank stepped up US dollar buying in an attempt to support short yields and defend the cedi. We remain cautious following last month’s unexpected 100bp rate hike as the cedi has since depreciated by -4.2% with 3mo yields rising by +16.0% to 13.213%.

East African equity markets exhibited broad-based strength across the region

East African equity markets exhibited broad based strength across the region. The key announcement came from Kenya as Tullow reported that the first well tested as part of its multi-well drilling program across East Africa intersected over 20m of net oil in Turkana. The company is describing this as a major de-risking event with the potential to advance exploration activities across the region. It should be noted that the Ngamia-1 well is located on Block 10BB, jointly owned by African Oil, and situated next to Afren’s Block 10A. On the earnings front, we digested stronger-than-expected FY11 results from KCB and Equity Bank as after-tax profit rose +53.0% y/y and +44.8% y/y, respectively. Performance at KCB was driven by a surprising jump in recoveries amid a continued decline in staff costs and generally healthy loan growth whereas Equity Bank benefited from higher NIMs and improving cost controls as well as declining gross NPLs. In other action, TransCentury (T/O: +57.5% y/y; PAT: +31.6% y/y) exhibited healthy results on back of gains in its power infrastructure division as FY11 net earnings at East Africa Cables rose +71.2% y/y.

North African equity markets remain volatile

North African equity markets remain volatile as markets retreated amid increased profit-taking as investors look to cash in on this year’s exceptional performance. On the earnings front, we digested lackluster performance from Orascom (Revenue: +12.4% y/y; NI: +13.9% y/y) as the result of several one-off items, including: reclassification of investments in Gavilon & Notore Chemicals, restructuring charges on its debt facility, and charges relating to the company’s ESOP which will be amortised across four quarters going forward. Although 4Q11 margins for Orascom’s construction business fell as the result of a larger contribution from BESIX, the fertilizer business operated at full capacity and the outlook for ammonia looks strong heading into FY12. Looking ahead, management confirmed that the company’s backlog of projects grew +7.7% q/q to USD 6.4 billion with a well diversified pipeline across the Middle East, Africa, Asia and Europe.

Southern Africa underperformed on back of weakness in Zimbabwe

Southern Africa underperformed on back of weakness in Zimbabwe despite strong FY11 results from a number of companies, including: CBZ, NMBZ and Lafarge Zimbabwe. In Botswana, rough diamond prices continue to climb despite the revelation that majors Rio Tinto and BHP Billiton are exploring options to divest of their diamond mining operations. On the earnings front, BancABC released a strong set of FY11 results (Revenue: +21.0% y/y; NI: +24% y/y) although a BWP 35 million charge for fair value loss and additional interest on the bank’s IFC loan masked some of the group’s operational improvements. In Zambia, Zanaco announced generally uninspiring FY11 results (Revenue: +10.0% y/y; NI: +7.0% y/y) despite an improvement in impairment charges as the bank struggled to manage costs amid a higher headcount.

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