Monthly Highlights: May 2020

•  West African equity markets were mixed as Nigeria and the Francophone region reported positive returns whilst Ghana was weaker
•  East African markets were broadly positive with Kenya the only market to report negative performance
•  North African equities were mixed as Morocco and Tunisia reported positive returns while Egypt was weaker
•  Southern African market performance was mixed as weakness in Malawi and Zambia was offset by strength in Zimbabwe, Namibia and Botswana
 

African markets were generally positive in May, with eleven posting positive performance in dollar terms led by Nigeria (+9.82%), Tunisia (+5.02%) and Morocco (+5.02%), whilst were the biggest losers were Ghana (-7.31%) and Egypt (-3.88%). The recovery in markets was due to growing optimism as more economies moved toward easing the Covid-19 lockdowns restrictions, as well as on hopes for a vaccine.

West African equity markets were mixed as Nigeria and the Francophone region reported positive returns whilst Ghana was weaker

West African equity markets were mixed as Nigeria and the Francophone region reported positive returns whilst Ghana was weaker. Economic news from Nigeria saw the MPC cut interest rate to 12.5% from 13.5%, to stimulate growth in the face of the coronavirus pandemic. Nigerian's inflation rate climbed to 12.34% y/y in April 2020 from 12.26% in March 2020 as the country battled the pandemic and plunging oil price, with Nigerian crude lower than 50% year-to-date. On the earnings front, Dangote Cement announced flat growth 1Q20 results (T/O: +3.8% y/y; PAT: +0.6% y/y) with profitability impacted by an increase in the effective tax rate to 31.2% compared to 23.7% in 1Q19. The company continues to see strong EBITDA margins (57.6%) from its Nigeria business, whilst the other African businesses remain under pressure with EBITDA margins less than half of Nigeria's. Dangote Sugar also exhibited flat FY19 growth (T/O: +7.1% y/y; PAT: +1.8% y/y) as satisfactory top line growth was weighed down by an increased in operating expense (+18.4% y/y) and a decrease in finance income (-81.6% y/y). Nestle Nigeria released poor 1Q20 results (T/O: -0.90% y/y; PAT: -12.9% y/y) as a result of growing operating costs (+14%y/y) in particular administrative expenses (+53.1% y/y) as well as marketing & distribution expenses (+6.5% y/y). We digested strong 1Q20 earnings from Lafarge Africa (T/O: +9.8% y/y; PAT: +28.0% y/y) driven by a decrease in finances costs (-69.1% y/y) as well as a tax credit of NGN 1.3bn vs. a tax expense last year. In Ghana, the inflation rate jumped to 10.6% in April 2020 compared to 7.8% in March driven by higher food prices. The Central Bank of Ghana left interest rates unchanged at 14.5% and said it had concluded a USD 1bn repo facility with the U.S. Federal Reserve to improve the country's foreign exchange liquidity. In the BRVM, we digested mixed 1Q20 results from Sonatel (T/O: +1.5% y/y; PAT: -6.8% y/y) as top line growth driven by growth in number of users, fibre, 4G+, 4G and 3G as well as mobile finance (Orange Money), was offset by significant increase in depreciation and financial charges. Ecobank Côte d'Ivoire released mixed 1Q20 results (GE: +2.4% y/y; PAT: -20.8% y/y) as relatively strong growth in net interest margin was offset by higher loan impairment charges (+63.8% y/y).

East African markets were broadly positive with Kenya the only market to report negative performance

East African markets were broadly positive with Kenya the only market to report negative performance. In Kenya, the MPC held the interest rate at 7.0% after four consecutive cuts. Kenya's annual inflation rate fell slightly to 5.5% y/y in May 2020 from 5.6% y/y in April 2020. In corporate news, Kenya's largest lenders including Equity Group, KCB Group, announced restructuring of loans worth KE 176bn, in order to cushion their customers from the impact of the coronavirus. With the reporting season in full swing, we digested a plethora of 1Q20 financial results. KCB Group (GE: +23.1% y/y; PAT: +4.9% y/y) released a healthy set of 1Q20 results with net income growing by +8.5% y/y, dampened by higher loan impairment charges (+149% y/y). Equity Group published mixed 1Q20 results (GE: +14.8% y/y; PAT: -14.1% y/y), as net interest income (+10.6% y/y) was dragged lower due to high loan impairment charges (+660.4% y/y) mostly on its real estate exposure. The Group reported that it has withdrawn the KES2.50 proposed FY19 dividend, citing the need to conserve cash in the wake of the pandemic. Cooperative Bank of Kenya published a benign set of 1Q20 results (GE: +8.8% y/y; PAT: -0.2% y/y) with net interest income growing by +8.6% y/y on the back of a +4.5% y/y rise in interest income and a -4.4% y/y decline in interest expense, was offset by disappointing cost control, mostly staff costs. Standard Chartered Bank Kenya reported poor 1Q20 results (GE: -4.9% y/y; PAT: -16.55% y/y) attributable to a decline in both interest income (-4.7% y/y) and non funded Income (-5.6% y/y). Absa Bank Kenya also reported weak growth in 1Q20 (GE: +8.1% y/y; PAT: +3.0% y/y) due to a +75.2% y/y increase in loan loss provisions. Stanbic Bank Kenya posted weak growth in 1Q20 (GE: -19.9% y/y; PAT: -33.5% y/y) as a result of a declined in net interest income (-11.0% y/y) and -29.2% y/y decline in non funded income. We digested disappointing FY19 results form Bamburi Cement (T/O: -1.3% y/y; PAT: 37.2% y/y) driven by a +668.8% y/y increase in corporate tax as investment deductions from capacity expansion projects in Hima, its Uganda based subsidiary, ceased to be applicable. In other news, East African Breweries issued a profit warning, cautioning a decline in PAT of approximately -25% y/y for FY 30 June 2020 in comparison to the previous year. In a separate call management stated that 97% of sales are on-trade which has been significantly impacted in the last quarter of its financial year due to closure of Horeca businesses as a result of Covid-19. In Rwanda, the annual inflation rate decelerated in April 2020 to 8.0% from 8.5% in March 2020. In Mauritius, March 2020 tourist arrivals fall -51.0% compared to previous year, this number is set to fall further as the country closed its airport in early April and has not yet reopened it. On the earnings front, Mauritius Commercial Bank reported uninspiring 3Q20 results (GE: +0.1% y/y; PAT: -67.4% y/y) driven weak top line growth and an increase in provisions (-585.5% y/y). In Tanzania, the April 2020 inflation rate declined to 3.3% from 3.4% in March 2020, as food and non-alcoholic beverage prices decreased to 4.6% vs. 5.3% in previous month. The Central Bank of Tanzania cuts interest rates for first time in two years to 5% from 7%. In Uganda, the annual inflation rate declined to its lowest in seven months to 2.8% in May 2020 from 3.2% in April 2020.

North African equities were mixed as Morocco and Tunisia reported positive returns while Egypt was weaker

North African equities were mixed as Morocco and Tunisia reported positive returns while Egypt was weaker. In Egypt, the inflation rate rose to 5.9% in April 2020 vs. 5.1% in March 2020 on the back of rising food prices. Moody's affirmed Egypt's long-term foreign and local currency issuer ratings at 'B2' with a stable outlook. On the earning front, we digested mixed 1Q20 from Commercial International Bank (GE: +4.5% y/y; PAT: -9.2% y/y) due to higher impairment charges (+332.1% y/y). Snack food producer, Edita Food Industries, released weak 1Q20 results (T/O: -1.8% y/y; PAT: -43.4% y/y) attributed to weaker volumes as well as higher SG&A expenses (+42.0% y/y) due to marketing expenses increase to support the new product launches in its cakes, bakery, and candy segments. Egyptian International Pharmaceutical Industries Company posted disappointing 1Q20 results (T/O: -15.9% y/y; PAT: -13.5% y/y) driven by a fall in local and export sales by -16.0% y/y and -23.0% y/y respectively. Speed Medical reported impressive 1Q20 numbers (T/O: +24.5% y/y; PAT: +22.4% y/y) fuelled by strong Lab revenue which grew +34.0% y/y, mainly driven by the opening of new labs. We also digested uninspiring 1Q20 results from El Sewedy Electric (T/O: -4.0% y/y; PAT: -58.2% y/y) on lower operating margins mostly on the back of the cables and turnkey segments. EBITDA also declined by -49.0% y/y on the back of a +22.0% y/y increase in SG&A expense. In other corporate news, Madinet Nasr for Housing and Development announced that it acquired 195,554 treasury shares as part of its program to buy up to 28.8m treasury shares.

Southern African market performance was mixed as weakness in Malawi and Zambia was offset by strength in Zimbabwe, Namibia and Botswana

Southern African market performance was mixed as weakness in Malawi and Zambia was offset by strength in Zimbabwe, Namibia and Botswana. In Zimbabwe, the inflation rate surged to 765.57% in April 2020 gaining 89.2 percentage points from the previous month as Zimbabwe begun printing new notes in $10 and $20 denominations. On the earnings front, Delta Corporation issued a poor FY20 trading update as lager beer volume declines by -42.0% y/y, sorghum beer volumes fell -27.0% y/y and sparkling beverages also declined by -17.0% y/y. Econet also reported a poor trading update for 1Q21 with voice, data and SMS traffic volumes declining by -5.4% y/y, -15.6% y/y and -6.2% y/y, respectively. Although data traffic has been increasing since the start of the lock-down with more people working from home and increased social media activity, the increase was not sufficient to offset the overall decline in real revenues. Padenga Holdings Limited, the leading supplier of crocodile skins and meat, posted weak FY19 results (T/O: -22.0% y/y; PAT: -8.3% y/y) driven by a -6.0% y/y decline in sales volumes to 41,450 skins. Innscor Africa published a disappointing 3Q20 trading update with Natfoods volume declining by -14.0% y/y, whilst the Group's businesses were classified as essential services during the Covid-19 lockdown, the restrictions on people movement and business trading hours resulted in a general decline in sales volumes across the group's network. In Namibia, the inflation rate declined to -1.6%, a fifteen year low, in April 2020. In Zambia, the Central Bank cut the key interest rate for first time in two years to 9.25% from 11.5% to help cushion the economy.