Monthly Highlights: May 2017

•  West African equity performance was mixed as weakness in Ghana was offset by strength in Nigeria
•  East African equities were mixed as Tanzania continued to underperform but was offset by positive performance from Kenya
•  North African equities rebounded on the back of strength in Egypt despite the CBE announcing a 200bps rate hike
•  Southern African equities continued their upward trajectory with broad-based gains across the region
 

West African equity performance was mixed as weakness in Ghana was offset by strength in Nigeria

West African equity performance was mixed as weakness in Ghana was offset by strength in Nigeria as foreign investor sentiments improve after the country introduced the NAFEX exchange rate window which is expected to help improve FX supply constraints. It is also widely speculated that this could lead to the convergence of the various NGN exchanges rates at the level of the NAFEX. On the earnings front, we digested impressive 1Q17 numbers from Presco (T/O: +125.4% y/y; PAT: +178.9% y/y) driven by 94% increase in average Crude Palm Oil (CPO) and Refined, Bleached and Deodorised Oil (RBDO) prices in the domestic market. This upward movement in prices was largely driven by the CBN ban on access for FX for importers of CPO and RBDO. Dangote Sugar also reported strong 1Q17 (T/O: +82.5% y/y; PAT: +42.5% y/y) driven by a +121% y/y increase in the selling price of sugar to an average of NGN17,010/bag in 1Q17 (NGN7,701/bag in 1Q16).Whilst, UACN has disclosed plans to raise NGN15.4bn via a rights issue with the funds intended for the reduction of debt and additional equity injection in some of its subsidiaries. Lafarge Africa also announced a rights issue of NGN140bn which would see the company reducing its shareholder loans of USD 593m at year end.

East African equities were mixed as Tanzania continued to underperform but was offset by positive performance from Kenya, Uganda, and Mauritius

East African equities were mixed as Tanzania continued to underperform but was offset by positive performance from Kenya, Uganda, and Mauritius. In Kenya, KCB posted weak 1Q17 numbers (GE: -4.8% y/y; PAT: -3.7% y/y) on back of lower net-interest income (-9.7% y/y) following the interest rate cap. Co-Operative Bank also posted unimpressive 1Q17 results (GE: -8.7% y/y; PAT: -10.8% y/y) as net interest income declined by -1.6% y/y and the bank’s provisions increased +20% y/y. Equity Bank’s 1Q17 also showed a decline in profitability (GE: -1.6% y/y; PAT: -5.6% y/y) as a 21.5% rise in non-interest income failed to offset a 14.8% drop in net-interest income. In the telecoms sector, Safaricom reported impressive FY17 results (T/O: +8.8% y/y; PAT: +27.1% y/y) on the back of strong non-voice revenue growth (+27.1% y/y), primarily driven by +38.5% y/y growth in mobile data revenue and +32.7% y/y growth in MPESA revenue. In Mauritius, MCB Group posted impressive 3Q17 results (GE: +11.3% y/y; PAT +16.4% y/y) as non-interest income rose by +39.9% y/y.

North African equities rebounded on the back of strength in Egypt despite the CBE announcing a 200bps rate hike

North African equities rebounded on the back of strength in Egypt despite the CBE announcing a 200bps rate hike. On the earnings front, we digested solid 1Q17 numbers from Eslewedy (T/O: +108.5% y/y; PAT: +99.2% y/y) helped by higher deliveries from turnkey projects and positive currency translation impact on FC revenues. A better-than-expected impact from low-cost inventory also contributed to improved profitability margins. Raya reported impressive 1Q17 results (T/O: +87.6% y/y; PAT: +401.3% y/y), primarily as a result of the devaluation of the EGP in November 2016 because the majority of RCC’s revenue is earned in foreign currencies while the majority of the company’s costs are incurred in EGP. Palm Hills delivered a sturdy 1Q17 (T/O: +48.2% y/y; PAT: +101.4% y/y) driven by increased execution, deliveries, and villa sales as well as increased selling prices. The growth momentum is expected to continue as the company launched new sales at two of its commercial projects in West Cairo (Palm Valley Mall, targeted completion: 2019; Office 8 building, targeted completion: 2018), for which management indicated demand was strong. Planned launches for the rest of the year include Hacienda West (North Coast), the Crown (West Cairo), as well as new phases at Palm Hills New Cairo and Capital Gardens. Shifting to the financial sector, Commercial International Bank continues to perform strongly as 1Q17 earnings (GE: +55.2% y/y; PAT: +35.7% y/y) were fuelled by non-interest income growth (+76.2% y/y) despite the cost to income ratio increasing from 28.9% to 30.7% y/y. HDB also reported impressive 1Q17 results (GE: +103.1% y/y; PAT: +204.5% y/y) driven by higher-than-expected net interest income, up +105% y/y, supported by a strong net interest spread expansion to 525bps and stronger associate income (+197% y/y).

Southern African equities continued their upward trajectory with broad-based gains across the region

Southern African equities continued their upward trajectory with broad-based gains across the region. In Zimbabwe, we digested subdued FY17 results from Delta (T/O: -10.3% y/y; PAT: -12.7% y/y) as depressed consumer demand, cash shortages, increased competition from imports (SBs), a shift by consumers to more affordable value products, and the heavy rains which reduced market access and outdoor consumption occasions. Econet also reported disappointing FY17results (T/O: -3.0% y/y; PAT: -10.0% y/y) as the performance was negatively impacted by the additional 5.0% excise duty on airtime, reduced MoU and increased depreciation & amortisation. Going forward we expect finance costs to reduce further (from USD26.7m in FY17) following the conclusion of the rights issue which paid off its USD127m foreign debt. OK Zimbabwe reported impressive FY17 results (T/O: -4.3% y/y; PAT: +800.8% y/y) with operating margins increasing to 1.8% from 0.3% in the prior year as the product mix shifted towards higher margin goods and as the group better managed mark-downs during promotions.