Monthly Highlights: November 2018

•  All West African equity markets were lower led by the Francophone region and Nigeria
•  East African equities underperformed amid broad based weakness across the region
•  North Africa posted mixed performance as Egyptian and Moroccan equities rebounded from last month’s losses to post positive returns while Tunisia’s negative trend continued for the 4th consecutive month
•  SoutSouthern African equities were mixed as strong performance in Namibia and Botswana were offset by weaker returns in Zimbabwe, Malawi and Zambia
 

All West African equity markets were lower led by the Francophone region and Nigeria

All West African equity markets were lower led by the Francophone region and Nigeria. In Nigeria, the World Bank expects the economy to grow slightly less than 2% this year, largely driven by the non-oil industry and services sectors, as the approaching elections in February keeps foreign investment at bay. GDP grew by 0.83% last year after shrinking by 1.58% in 2016, the first annual contraction in 25 years. On the earnings front, we digested strong 3Q18 results from FCMB (G/E +18.5% y/y; PAT +129.2% y/y) mainly driven by higher non-interest income (-+182.9% y/y) offsetting a +172% increase in impairments. Access Bank plans to redeem the USD400m subordinated Eurobond due in 2021 two years early as it seeks to reduce funding costs. Prices on the notes rallied the most since August 2018, pushing yields lower. In Ghana, the central bank held the benchmark policy rate at 17% for the 3rd time after it was reduced to that level in May 2018.

East African equities underperformed amid broad based weakness across the region

East African equities underperformed amid broad based weakness across the region. In Kenya, we digested strong 3Q18 results from Kenya Commercial Bank (GE: +2.2% y/y; PAT: +23.2% y/y) as non-interest income rose +7.8% y/y and provisions were lower -13.6% y/y. On the contrary, Equity Bank posted weak 3Q18 results (GE: -4.5%% y/y; PAT -8.5% y/y) driven by lower non-interest income (-19.6% y/y) and higher operating expenses (+16% y/y). Telecoms operator Safaricom released strong 1H19 results (T/O: +7.6% y/y; PAT: +18.9% y/y) as non-voice revenue increased by +13% y/y to KES 70.5bn, primarily driven by MPESA revenues which grew +18.2%. In Tanzania, Vodacom Tanzania released impressive 1H19 (T/O +3.3% y/y; PAT +105% y/y) mainly driven by an increase in net financing income and a lower effective tax rate (32.9% vs. 39% in 1H18).

North Africa posted mixed performance as Egyptian and Moroccan equities rebounded from last month’s losses to post positive returns while Tunisia’s negative trend continued for the 4th consecutive month

North Africa posted mixed performance as Egyptian and Moroccan equities rebounded from last month’s losses to post positive returns while Tunisia’s negative trend continued for the 4th consecutive month. In Egypt, the government gave preliminary approval to a proposed amendment to the way bank taxes are calculated by scrapping a provision that lets local banks deduct taxes already paid on treasuries from their bottom-line income tax. If a final version of the measure is approved by parliament in the coming months as is widely expected, it would raise the cost of buying government securities and could induce banking entities to divert funds away from treasuries to other sectors. On the earnings front, Commercial International Bank of Egypt reported strong 3Q18 earnings (GE: +29.2% y/y; PAT: +24.4% y/y) driven by net interest income which rose by +52.9% y/y and a +13.6% growth in non-interest income. CIRA, the education provider, posted impressive FY18 results (T/O: +32% y/y; PAT: +98.7% y/y) on higher revenues and margin gains both driven by the higher education segment, and were broadly in line with our estimate (+4% y/y). EIPICO, posted weak 3Q18 numbers (T/O: +2.5% y/y; PAT: -42.8% y/y) as exports declined -11% y/y as two of the company’s main markets remained weak (Saudi Arabia, due to economic headwinds and competition, and Russia, due to issues with distribution via Turkey). IDH released positive 3Q18 results (T/O: +22.8% y/y; PAT: +15.4% y/y) driven by a combination of better pricing, increase in number of patients (+4% y/y) and higher test volumes (+2% y/y). Elsewedy reported disappointing 3Q18 (T/O: -10.9% y/y; PAT: -38.9% y/y) mainly driven by weaker-than-expected turnkey segment revenues (-29.3% y/y and lower-than-expected cable volumes (-10.9% y/y)

Southern African equities were mixed as strong performance in Namibia and Botswana were offset by weaker returns in Zimbabwe, Malawi and Zambia

Southern African equities were mixed as strong performance in Namibia and Botswana were offset by weaker returns in Zimbabwe, Malawi and Zambia. In Zimbabwe, Delta reported strong 1H19 results (T/O: +36.5% y/y; PAT: +79.3% y/y) on the back of margin expansion, improved sales mix especially in lager and sorghum beer, and higher net finance income (+195.4% y/y). Aggregate volumes remained increased by 13% y/y to 3.57m hl; sustained by a +54% growth in lager beer volumes. National Foods, issued a brief trading update for 1Q19 reporting that volumes expanded by 25.6% on firm consumer demand while profitability was within expectations. Volume growth was driven by the Maize Division which grew volumes by 55.0% y/y as deliveries to the Grain Marketing Board improved. In Zambia, we digested positive FY18 earnings from Zambeef (T/O: 9.6% y/y; PAT: +208.5% y/y) mainly on lower finance costs (-23.3% y/y) and improved efficiencies which saw gross profit margin increasing by 170bp to 34.5%.