Monthly Highlights: May 2014

•  West African equities rose as strength in Nigeria offset weakness in Ghana and the Francophone region
•  East African equity markets were broadly weaker as Kenya and Tanzania led markets lower
•  North African equities declined as elections in Egypt weigh on sentiment across the region
•  Southern African equities recorded gains amid strength in Zimbabwe and Botswana
 

West African equities rose as strength in Nigeria offset weakness in Ghana and the Francophone region

West African equities rose as strength in Nigeria offset weakness in Ghana and the Francophone region. In Nigeria, we digested lackluster 1Q14 results from Dangote Cement (T/O: +8.5% y/y; PAT: 11.4% y/y) as volumes at the Obajana and Ibese plants declined by -7.3% y/y and -6.1% y/y to 1.9mn tonnes and 0.69mn tonnes respectively. Gross margins fell to 64.2% in 1Q14 (from 69.2% in 1Q13) as the company was forced to rely more heavily on LPFO and diesel. Dangote Sugar posted mixed results (T/O: -6.4% y/y; PAT: +8.8% y/y) as gross margins expanded to 27.8% (up +159bps) on back of a -31% y/y decline in operating expenses. UACN released healthy 1Q14 results (T/O: +2.5% y/y; PAT: +27.8% y/y) amid strength in the company’s animal feed, edible oils and paints businesses. EBIT margins expanded to 15.7% in 1Q14 (from 11.6% in 1Q13) as the result of a +152.1% y/y rise in other income. Also of note, Heineken NV announced the proposed merger of its two Nigerian subsidiaries, Nigerian Breweries and Consolidated Breweries, in which it owns 54.1% and 53.9% respectively. The new entity will benefit from a broad product portfolio covering all of the major beer segments and provide Nigerian Breweries with exposure to the low-end value beer segment. Looking ahead, we anticipate wider profit margins at Nigerian Breweries on back of improved operational efficiencies as synergies from the merger (i.e. lower input costs, reduced cost of distribution, wider product penetration, etc.) take effect. Shifting to Ghana, the central bank is expecting the Cedi to stabilize in 2H14 when proceeds from the country’s USD 1.8 billion syndicated loan for cocoa purchases are received.

East African equity markets were broadly weaker as Kenya and Tanzania led markets lower

East African equity markets were broadly weaker as Kenya and Tanzania led markets lower. In Kenya, Safaricom released FY13 results that were in-line with our expectations (T/O: +16.4% y/y; PAT: +31.2% y/y) as strong growth in voice (+11.6% y/y) and non-voice (+27.8% y/y) fueled top-line performance. EBITDA margins expanded by to 42.1% (up +255bps) as costs were also well managed. Shifting to financials, Co-Operative Bank posted good 1Q14 performance (GE: +15.7% y/y; PAT: -5.6% y/y) although after-tax profit declined following expiry of the bank’s five-year tax benefit. The bank’s effective tax rate rose from 19.1% in 1Q13 to 28.9% in 1Q14 whilst interest income (+11.7% y/y, +19.2% q/q) and non-interest income (+20.8% y/y, +9.1% q/q) exhibited healthy gains. Standard Chartered Kenya posted strong 1Q14 results (GE: +11.1y/y; PAT +34.2% y/y) on back of +19.2% y/y growth in net interest income and an improvement in the bank’s cost-to-income ratio (from 44.7% in 1Q13 to 38.1% in 1Q14). In other developments, Equity Bank was formally awarded a Mobile Virtual Network Operator license by the Communications Commission of Kenya. In July, we expect Equity Bank to begin issuing SIM cards which will allow its customers to send money to any mobile phone or bank account (including non-Equity bank accounts) in Kenya. We view this is a positive development as Equity Bank plans to leverage its large deposit base when attempting to penetrate Kenya’s highly lucrative market for transaction banking. Shifting to Mauritius, MCB posted disappointing 1Q14 results (GE: +5.3% y/y; PAT -25.5% y/y) amid a +107.3% rise in provisions. SBM also released subpar 1Q14 results (GE: -1.7% y/y; PAT -16.6% y/y) as non-interest income fell by -11.4% y/y and impairments rose by +396.9% y/y.

North African equities declined as elections in Egypt weigh on sentiment across the region

North African equities declined as elections in Egypt weigh on sentiment across the region. Although al-Sisi will successfully ascend to the presidency following his landmark victory, poor voter turnout is likely to undermine his credibility at inception. On the corporate front, we digested better-than-expected earnings from CIB Egypt (GE: +12.6% y/y; PAT +22.5% y/y) amid declining provisions (-18.4% y/y) and higher net interest income (+20.4% y/y). Juhayna reported weak results (T/O: +13.3% y/y; PAT: -55% y/y) as the impact of rising raw and powdered milk prices continue to weigh on margins. The company’s operating margins came under pressure, falling by -510 bps to 15.2% in 1Q14 (from 20.3% in 1Q13). Arabian Cement successfully raised USD 110 million via initial public share offer, the first major listing on Egyptian Exchange since the overthrow of Mubarak and onset of Arab Spring.

Southern African equities recorded gains amid strength in Zimbabwe and Botswana

Southern African equities recorded gains amid strength in Zimbabwe and Botswana. In Zimbabwe, we digested relatively weak FY13 results from Delta (T/O: -0.9% y/y; PAT: +2.9% y/y) as deteriorating volumes reflect a decline in consumption amid tightening liquidity and softening demand. Shifting to the telecommunications sector, Econet reported mixed FY14 results (T/O: +8.2% y/y; PAT: -14.7% y/y) as revenue growth was anchored by a +307% increase in EcoCash revenue and a +62% increase in data. The operator’s weaker bottom-line can be attributed to higher net finance costs (+40.4% y/y), increased depreciation and amortisation charges and a higher effective tax rate. In Botswana, Letshego posted mixed FY13 results (GE: +10.8% y/y; PAT -2.4% y/y) as the lender’s +15.7% y/y rise in net-interest income failed to result in higher profits. It should be noted that Letshego’s cost-to-income ratio rose to 33.2% in FY14 (from 23.6% in FY13) on back of costs tied to investments in technology and the group’s ongoing expansion initiatives.