Monthly Highlights: November 2016

•  All West African equity markets retreated led by weakness in Nigeria as the economy plunged deeper into recession
•  East African equities were broadly weaker as Mauritius, Uganda and Tanzania led markets lower
•  North African equities performed poorly as the EGX30 lost -31.95% in USD terms after the CBE allowed the currency to float
•  Southern African equities were mixed with Zimbabwe continuing its upward trajectory by gaining a further +13.5%
 


All West African equity markets retreated led by weakness in Nigeria as the economy plunged deeper into recession

All West African equity markets retreated led by weakness in Nigeria as the economy plunged deeper into recession with GDP contracting by -2.24% y/y in 3Q16. The production of oil, the nation’s main export, continued to fall and the manufacturing sector witnessed further output declines. On the earnings front, we digested mixed 1H17 results from International Breweries (T/O: +33.1% y/y; PAT: n/a) primarily driven by a +672% y/y increase in net finance costs. Lafarge Africa posted weak 3Q16 results (T/O: -14.6% y/y; PAT: n/a) as gross margin contracted by 2,243bps y/y to 5.5% and other expenses grew +589% y/y driven by an NGN 3.4bn exchange rate loss following the 10% depreciation of naira over the June-September period. Ashaka Cement also reported unimpressive 3Q16 results (G/E: -16% y/y; PAT: n/a) as lower sales and higher cost of goods (+10% y/y) resulted in a negative gross profit margin of -1%. The decline in sales was driven by the combination of a -7% y/y decline in volumes to 0.15m metric tons and a -9% y/y reduction in average realised prices to NGN 27,808 (US$89) per ton. Shifting to Ghana, the central bank cut its benchmark interest rate by 50bps to 25.5%, the first cut in more than five years after inflation slowed to the lowest rate since 2014. Following the cut, the GHS weakened, falling 9.3% to close at GHS4.36:USD at the end of the month.

East African equities were broadly weaker as Mauritius, Uganda and Tanzania led markets lower

East African equities were broadly weaker as Mauritius, Uganda and Tanzania led markets lower. In the Kenyan financial sector, we digested strong 3Q16 results from Equity Bank (GE: +6.1% y/y; PAT: +42% y/y) on back of higher net-interest income (+10.1% y/y) and a reduction in expenses (-9% y/y) as the bank’s cost-to-income (CTI) ratio improved from 55.6% in 3Q15 to 48.5% in 3Q16. Similarly, Kenya Commercial Bank posted sturdy 3Q16 results (GE: -4.6%% y/y; PAT +22.7% y/y) as net interest income increased (+52.7% y/y). Co-operative Bank also posted good results (GE: +10.7% y/y; PAT: +23.5% y/y) as net-interest income rose +41.8% y/y, while provisions were -25.5% lower y/y. Shifting to telecoms, Safaricom released strong 1H17 results (T/O: +5.0% y/y; PAT: +32.4% y/y) as service revenue increased by +15.43% on back of strong growth in mobile data (+46.3% y/y) and M-Pesa (+33.7% y/y). We also saw improved cost efficiencies as the operator’s EBITDA margin improved by 605bp to 49.8%. In Tanzania, Tanzania Breweries (TBL) released disappointing 1H17 results (T/O: -6.6% y/y; PAT -16.9% y/y) as volumes declined by -8% y/y whilst gross margins contracted by 309bps to 45.96% as customers downgraded to more affordable products.

North African equities performed poorly as the EGX30 lost -31.95% in USD terms after the CBE allowed the currency to float

North African equities performed poorly as the EGX30 lost -31.95% in USD terms after the CBE allowed the currency to float. The EGP plummeted from EGP8.8:USD to EGP 17.95:USD at month-end. A week later the Executive Committee of the IMF approved a long-awaited USD12bn loan for the country, in a move intended to stave off economic collapse in the Arab world’s most populous nation. In the 3 weeks post devaluation, the optimistic atmosphere has been strongly evident, from senior management to the average man in the street. The crippling FX shortage that Egypt was experiencing (less than USD1m/day in the banking system) has dramatically improved with the banking system seeing flows of over USD300m/day and improving on a daily basis. On the earnings front, Commercial International Bank of Egypt reported strong 3Q16 earnings (GE: +27.7% y/y; PAT: +28.9% y/y) driven by net interest income which rose by +21.5% y/y coupled by a 21.5% growth in non-interest income and lower provisions (-84.4% y/y). Edita posted mixed 3Q16 results (T/O: +14.5% y/y; PAT: -47.2% y/y) as top-line performance was offset by higher FX losses & provisions (cEGP34mn vs. cEGP5mn) and taxes as 3Q15 included the retroactive adjustment to reflect the reduction of Egypt’s tax rate to 22.5% from 30% (tax charge of EGP18mn in 3Q16 vs. a reversal of EGP6mn in 3Q15). Egyptian cheese and juice producer, Domty, also posted mixed 3Q16 numbers (T/O: +36.4% y/y; PAT: -72.6% y/y) as top-line growth was driven by cheese revenue (c87% of total) which rose +47% (driven by volume growth of 30% plus 15% price increase) offsetting a decline in juice revenue (-7%) on severe competition. Bottom-line was also severely impacted by FX-related margin pressures as well as a +59.4% increase in sales and marketing costs as the company felt it necessary to defend its brand relative to a strong marketing campaign launched by its closest competitor. IDH released mixed 3Q16 results as top-line grew but again the bottom-line was impacted by FX losses of EGP17mn for the quarter (T/O: +16.8% y/y; PAT: -2.2% y/y). MHND reported impressive 3Q16 (T/O: +307% y/y; PAT: +317% y/y) driven primarily by an increase in contracted sales (+812% y/y), as well as revenues realised from Capital Gardens deliveries.

Southern African equities were mixed with Zimbabwe continuing its upward trajectory by gaining a further +13.5%

Southern African equities were mixed with Zimbabwe continuing its upward trajectory by gaining a further +13.5% as the government introduced the bond note during the last week of November. On the earnings front, the beverages company, Delta reported 1H17 results (T/O: -8.3% y/y; PAT: -13.3% y/y) that were in-line with our estimates as they continue to face headwinds in a difficult consumer environment characterised by liquidity constraints and depressed consumer spending. Consumers continue to down-trade to cheaper, lower margin alternatives within Delta's product offering. Aggregate volumes remained flat at 3.2mn hl; sustained by a 6% growth in sorghum beer volumes (1.9mn hl in 1H17 vs. 1.7mn hl in 1H16). White goods retailer, logistics & distribution group, Axia, issued a brief trading update for 1Q17 reporting that revenue for the group would be +12% y/y higher driven by a +30% growth in revenues at TV Sales & Home and a +17% in top line growth at Distribution Group Africa offsetting poor growth reported at Transerve. In Zambia, we digested positive FY16 earnings from Zambeef (T/O: 52.8% y/y) with the company returning to profitability as PAT rose to ZMW 157m vs a loss of ZMW -54.6m in FY15.

contacts
  • Bermuda +1 441 278 7610
  • UK +44 20 7101 9290
  • South Africa +27 11 243 9054

© Altree Capital ("ACL")

   Terms and Conditions