Monthly Highlights: October 2017

•  West African equities were mixed as weakness in the Francophone region was offset by strength in Nigeria as the MSCI announced that it will keep the country in frontier indexes and it is no longer under review for possible demotion
•  East African equities came under pressure amid continued weakness in Kenya as the country held a presidential election runoff that was characterised by low voter turnout
•  North African equities were mixed amid weakness in Tunisia versus strength in Egypt and Morocco
•  Southern African equities declined on back of weakness in Zimbabwe as the defacto currency devalued by a further –36% (-76.3% ytd) using the Old Mutual implied rate
 

West African equities were mixed as weakness in the Francophone region was offset by strength in Nigeria as the MSCI announced that it will keep the country in frontier indexes and it is no longer under review for possible demotion

East African equities came under pressure amid continued weakness in Kenya as the country held a presidential election runoff that was characterised by low voter turnout following the withdrawal from the elections of the largest opposition party, the NASA coalition. On the earnings front, Equity Bank released impressive 3Q17 results (GE: +6.4% y/y; PAT: +9.6% y/y) in light of the economic and regulatory climate on back of strong growth in non interest income (+44.8% y/y) and lower impairment charges (-26.7% y/y). In utilities, KenGen reported strong FY17 results (T/O: -8.2% y/y; PAT: +34.3% y/y) as weak top line performance was offset by lower geothermal costs (-11.7% y/y) and a reduction in the effective tax rate (21.5% in FY17 vs. 38.9% in FY16). In Tanzania, we digested weak 3Q17 results from National Microfinance Bank (GE: +5.3% y/y; PAT: -60.5% y/y) driven by higher than expected impairment charges (+447% y/y). In contrast, CRDB released strong 3Q17 results (GE: +4.0% y/y; PAT: +404.7% y/y) driven by higher non-interest income (+36.4% y/y) and lower provision charges (-22.2% y/y).

East African equities came under pressure amid continued weakness in Kenya as the country held a presidential election runoff that was characterised by low voter turnout

East African equities came under pressure amid continued weakness in Kenya as the country held a presidential election runoff that was characterised by low voter turnout following the withdrawal from the elections of the largest opposition party, the NASA coalition. On the earnings front, Equity Bank released impressive 3Q17 results (GE: +6.4% y/y; PAT: +9.6% y/y) in light of the economic and regulatory climate on back of strong growth in non interest income (+44.8% y/y) and lower impairment charges (-26.7% y/y). In utilities, KenGen reported strong FY17 results (T/O: -8.2% y/y; PAT: +34.3% y/y) as weak top line performance was offset by lower geothermal costs (-11.7% y/y) and a reduction in the effective tax rate (21.5% in FY17 vs. 38.9% in FY16). In Tanzania, we digested weak 3Q17 results from National Microfinance Bank (GE: +5.3% y/y; PAT: -60.5% y/y) driven by higher than expected impairment charges (+447% y/y). In contrast, CRDB released strong 3Q17 results (GE: +4.0% y/y; PAT: +404.7% y/y) driven by higher non-interest income (+36.4% y/y) and lower provision charges (-22.2% y/y).

North African equities were mixed amid weakness in Tunisia versus strength in Egypt and Morocco

North African equities were mixed amid weakness in Tunisia versus strength in Egypt and Morocco. The International Monetary Fund (IMF) arrived in Cairo to review the progress made on its economic reform targets before it disperses the third instalment of a USD12bn loan program. On the earnings front, we digested positive 3Q17 results from Juhayna (T/O: +33.8% y/y; PAT: +12.4% y/y) as gross profit margins expanded by 2 percentage points q/q to 29.9%. In other news, EK Holding announced the divestment of its 26% stake in Egyptian Hydrocarbon Company, a mining grade ammonium nitrate facility that has been struggling to commence commercial operations, at a total consideration of USD65m. This total consideration includes the repayment of a shareholder loan worth USD10mn that was granted by EK Holding.

Southern African equities declined on back of weakness in Zimbabwe as the defacto currency devalued by a further –36% (-76.3% ytd) using the Old Mutual implied rate

Southern African equities declined on back of weakness in Zimbabwe as the defacto currency devalued by a further –36% (-76.3% ytd) using the Old Mutual implied rate. On the corporate front, we digested strong 1H18 numbers from Econet Wireless (T/O: +17.0% y/y; PAT: +226.5% y/y) on the back of increased non-voice revenues, cost containment, lower depreciation & amortization costs. Profitability was also boosted by lower financing costs (-70.7% y/y) after the company paid off their debt with the funds raised from the Rights Offer. On the consumer front, Delta provided a trading update for the six-month period through 30th September with volume recovering for lager (+11% y/y) while volumes eased for sparkling beverages (-1% y/y) and sorghum beer (-3% y/y).