Monthly Highlights: March 2021

•  In West Africa, equity markets recorded negative returns amid broad-based weakness across the region
•  East African equities were dragged down by Kenya, Mauritius and Rwanda which were -3.2%, -2.1% and -1.1% lower, respectively; while Uganda closed positive and Tanzania remained flat
•  North African equities were mixed as Egypt and Morocco dragged the markets lower offsetting positive returns in Tunisia
•  In Southern Africa, equity markets recorded mixed returns with Namibia and Zimbabwe trading in positive territory, while Botswana, Malawi and Zambia were weaker
 


The majority of the African markets posted disappointing performance in March, with only Namibia (+8.8%), Zimbabwe (+5.9%), Tunisia (+3.3%) and Uganda (+0.2%) trading in positive territory in USD dollar terms whilst Egypt (-8.5%), Kenya (-3.2%) and Botswana (-2.4%) posted the weakest returns. Egypt witnessed an overall downtrend, with the political tensions surrounding the Renaissance Dam pressurising the market, alongside a significant profit taking from retail investors following the investigation into Dice Sport and Casual Wear (-54.4%) after the Financial Regulatory Authority demanded the company to hire an independent financial advisor (IFA) to arrive at the company’s fair value per share within a month from hiring another IFA.

In West Africa, equity markets recorded negative returns amid broad-based weakness across the region

In West Africa, equity markets recorded negative returns amid broad-based weakness across the region. In Nigeria, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) held the key interest rate unchanged at 11.5%. On the earnings front, Dangote Cement’s FY20 results were stellar (T/O: +16.0% y/y; PAT: +37.7% y/y) driven by an increase in both volumes and price in Nigeria as well as improving efficiencies across its subsidiaries. Cement sales volumes increased by +8.6% y/y and the average price per ton rose +6.8% to NGN 40,208/tonne. The company continues to see strong EBITDA margins gains which increased to 46.2% from 44.3% in FY19. Lafarge Africa also announced solid FY20 results (T/O: +8.3% y/y; PAT: +98.8% y/y) driven by satisfactory top line growth and a -51.9% y/y decline in finance costs. MTN Nigeria’s FY20 earnings were flat (T/O: +15.1% y/y; PAT: +0.9% y/y) as strong top line growth was offset by staff and finance costs which increased by +47.6% y/y and +17.1% y/y respectively. In the financial sector, we digested flat FY20 growth from Guaranty Trust Bank (GE: +4.6% y/y; PAT: +2.3% y/y) where moderate topline growth was offset by higher impairment charges of +298.5% y/y. Stanbic IBTC posted admirable FY20 results (GE: +0.27% y/y; PAT: +10.9% y/y) which we attribute to a +14.7% y/y increase in non-funded income coupled by a decrease in the effective tax rate to 12.1% vs.17.5% in FY19. United Bank of Africa released a solid set of FY20 results (GE: +8.8% y/y; PAT: 27.7% y/y) driven by strong growth in net interest income (+16.9%y/y) as well as non-funded income (+19.1%). FCMB Group released impressive FY20 results (GE: +10.0% y/y; PAT: +13.1% y/y) fuelled by a significant increase in net interest income of +19.5% y/y, on the back of a -2.0% y/y decline in interest expense, with interest income growing by +9.9% y/y. Shifting to the consumer sector, Nestlé Nigeria announced mixed results (T/O: +1.1% y/y; PAT: -14.2% y/y) where benign topline growth was hindered by cost pressures as evidenced by the higher cost of sales (+7.7%y/y) with gross profit margins contracting to 41.5% in FY20 from 45.1% in FY19. Dangote Sugar came out with commendable FY20 results (T/O: +33.0% y/y; PAT: +33.2% y/y) as gross profit margin increased to 25.1% from 23.8% coupled with EBIT margin expansion to 24.3% from 22.3% in FY19. In Ghana, GCB Bank posted relatively flat FY20 results (GE: +21.8% y/y; PAT: +4.0% y/y) as strong topline growth was counterbalanced by an increase in loan loss provisions of+190.8% y/y, and other operating expenses (+10.8% y/y). In economic news, Ghana’s parliament approved the nomination of Ken Ofori-Atta for a second term as Minister of Finance and the MPC held the benchmark interest rate at 14.5%. Senegal’s February 2021 inflation rate increased by 0.5% m/m, the biggest monthly change in years, with the annual inflation rate increasing to 1.7% y/y, with upward pressure mainly from food and non-alcoholic beverages which increased by 2.5% vs. 0.6% in January.

East African equities were dragged down by Kenya, Mauritius and Rwanda which were -3.2%, -2.1% and -1.1% lower, respectively; while Uganda closed positive and Tanzania remained flat

East African equities were dragged down by Kenya, Mauritius and Rwanda which were -3.2%, -2.1% and -1.1% lower, respectively; while Uganda closed positive and Tanzania remained flat. In Kenya, the Central Bank kept the interest rate unchanged at 7.0% for seventh straight meeting and Kenya’s March inflation inched higher to 5.9% from a year earlier as transport costs rose due to an increase in fuel prices. On the earnings front, Equity Group Holdings’ FY20 results were in line with our expectations (GE: +24.1% y/y; PAT: -11.6% y/y), where despite the challenging macro environment, solid top line growth was offset by a +402.2% increase in impairment charges. KCB Group posted mixed FY20 earnings (GE: +14.33% y/y; PAT: -22.1% y/y) as significant growth in net interest income (+21.0% y/y) was offset by a +209.5% y/y increase in loan loss provisions. Cooperative Bank of Kenya’s FY20 results were also mixed and in-line with our expectations (GE: +9.1% y/y; PAT: -24.4% y/y) as profitability was hindered by impairments which increased by +219.5% y/y. Stanbic Kenya reported uninspiring FY20 results (GE: -6.2% y/y; PAT: -18.6% y/y) driven by a decline in net interest income (-4.1% y/y) and non-funded income (-8.7% y/y). In Rwanda, BK Group reported relatively flat FY20 results (GE: +20.7% y/y; PAT: +2.9% y/y) as strong topline growth and cost efficiencies were counteracted by a +107.3% y/y increase in impairments. Bralirwa released impressive FY20 results (T/O: -0.2% y/y; PAT: +655.5% y/y) as EBITDA increased to RWF 19.8bn from RWF 10.7bn in FY19 driven by lower SG&A, mainly due to selling and distribution costs which declined by -59.5% y/y. In Uganda, Stanbic Uganda Holdings posted mixed FY20 numbers (GE: +4.1% y/y; PAT: -6.7% y/y) as growth in net interest income (+9.3% y/y) was offset by a +110.8% y/y increase in loan loss provisions. Umeme’s FY20 results were disappointing (T/O: -6.5% y/y; PAT: -69.0% y/y) as gross profit declined by -19.4% y/y with gross profit margin of 28.8% in FY20 compared to 33.4% a year earlier.

North African equities were mixed as Egypt and Morocco dragged the markets lower offsetting positive returns in Tunisia

North African equities were mixed as Egypt and Morocco dragged the markets lower offsetting positive returns in Tunisia. Egypt’s MPC kept the overnight deposit, lending rate, and the rate of the main operation unchanged at 8.25%, 9.25% and 8.75%, respectively. Egypt’s diaspora remittances grew +10.5% y/y to USD 29.6bn during the year 2020 as the remittances increased to USD 7.5bn from October to December 2020, from USD 7.0bn during the same period in 2019. On the earnings front, Commercial International Bank released uninspiring FY20 results (GE: -1.2% y/y; PAT: -13.3% y/y) despite strong growth net interest income (+16.7% y/y) which was dampened by an increase in loan loss provisions (+249.6% y/y). Ibnsina Pharma reported mixed FY20 results (T/O: +12.5% y/y; PAT: -31.6% y/y) as gross profit margin decreased by 82 basis points to 7.9% and EBITDA margin declined to 3.7% from 4.7% in FY19. Rameda released solid FY20 results (T/O: +7.4% y/y; PAT: +36.2% y/y) significantly outperforming the industry plagued by lower prescriptions due to Covid-19. The results were supported by a -65.0% y/y decrease in net finance costs. TMG Holding published mixed FY20 results (T/O: +20.0% y/y; PAT: -10.7% y/y) driven by a +45.0% y/y increase in development revenue growth (86% of revenue), offsetting the a -68.0%y/y decline in hospitality revenue (4% of revenue) along with a drop in all other leasing revenue during the year, while net new sales declined by -18.5% y/y. MM Group for Industry and International Trade’s FYT20 results were disappointing (T/O: -11.7% y/y; PAT: -22.1% y/y) fuelled by weak top-line, a +28.5% y/y increase in SG&A expenses, as well as an -91.0% y/y decline in investment income from associates (Ebtikar its payment platform business). In other corporate news, Eastern Company declined by -23.3% in the month of March on the back of an announcement by the Industrial Development Authority (IDA) that it was discussing bidding terms to launch a new licence to manufacture tobacco in Egypt, after decades of exclusivity by EAST, the license will include the production of cigarettes, e-cigarettes, and heated tobacco products. In Morocco, we digested mixed FY20 results from Hightech Payment Systems (T/O: +1.2% y/y; PAT: -18.4% y/y) on the back of weak topline growth with EBIT margin decreasing to 16.5% vs. 17.6% the prior year. In economic news, Morocco’s Central Bank maintained the key interest rate unchanged at 1.5%. In Tunisia, the central bank MPC decided to keep the key interest rate unchanged at 6.25% and the February 2021 inflation rate remained stable at 4.9% for the fourth consecutive month.

In Southern Africa, equity markets recorded mixed returns with Namibia and Zimbabwe trading in positive territory, while Botswana, Malawi and Zambia were weaker

In Southern Africa, equity markets recorded mixed returns with Namibia and Zimbabwe trading in positive territory, while Botswana, Malawi and Zambia were weaker. Zimbabwe’s Reserve Bank maintained the key interest rate at 40% and the medium-term bank accommodation facility rate at 30%. In Botswana, Letshego Holdings’ FY20 results were ahead of our expectations (GE: -9.4% y/y; PAT: -13.1% y/y) signalling a strong recovery in 2H20, fuelled by lower net interest income (-9.2% y/y), weak non-funded income (-14.7% y/y) and higher staff costs (+8.7%), which were partially offset by a significant improvement in loan loss provisions (-84.8% y/y). In Namibia, gross domestic product (GDP) contracted by a record 8% in 2020 compared to a 0.6% drop in 2019 on Covid-19 virus pandemic measures. The value of GDP in real terms was NAD 133.7bn compared to NAD 145.3bn registered in 2019. The sectors that were most affected were hotels and restaurants (-33.1%), transport and storage (-22.4%), administrative and support services (-14.5%), wholesale and retail trade (-11.7%), and financial and insurance services (-11.7%).

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