Monthly Highlights: September 2013

•  West African equity markets performed well amid broad-based strength across Nigeria, Ghana and the Francophone region
•  East African equities were broadly higher amid strength in Kenya and Mauritius
•  North African equities continued their ascent on back of strength in Egypt
•  Southern African equities rebounded as Zimbabwe recovers from August decline
 

West African equity markets performed well amid broad-based strength across Nigeria, Ghana and the Francophone region

West African equity markets performed well amid broad-based strength across Nigeria, Ghana and the Francophone region. In Nigeria, the CBN maintained its tight monetary stance by retaining the Monetary Policy Rate (MPR) at 12% in addition to the provision of a 12% cash reserve ratio (CRR) on private sector deposits and a 50% CRR on public sector deposits. On the earnings front, Guinness Nigeria released weak FY13 results (T/O: +4.1% y/y; PAT: -16.5% y/y) as capacity expansion has led to high gearing and a +138% rise in financial charges. UAC of Nigeria (UACN) has announced the sale of a 49% stake in UAC Restaurants to leading South African quick service restaurant franchise, Famous Brands. The deal is effective 1 October 2013 although management has yet to release the transaction terms and pricing. Nevertheless, this partnership is consistent with UACN’s growth strategy and we believe that management will benefit from Famous Brands’ experience across intellectual property, brand recognition and supply chain optimisation. It should be noted that although Famous Brands has been in Nigeria for 11 years (through a combination of master license and franchise agreements), this deal will enable the company to meaningfully expand its presence going forward. In other news, Transcorp announced the proposed development of Transcorp Hilton Lagos, a new 200-room full service luxury hotel located in the upmarket suburb of Ikoyi. By capitalizing on its successful partnership with Hilton Worldwide, management hopes to duplicate the success of its flagship Transcorp Hilton Abuja. Shifting to Ghana, the acquisition of International Commercial Bank (ICB) by FBN Holdings was approved by regulators and the Bank of Ghana. The takeover includes ICB’s subsidiaries in Gambia, Guinea, Senegal and Sierra-Leone, and requires that FBN list roughly 40% of ICB on the Ghana Stock Exchange. On the economic front, the IMF revised its growth estimates and expects the Ghanaian economy to grow by only 7% in FY13 – below the West African government's 8% forecast. We are not surprised as Ghana’s large current account deficit (12.1% of GDP) remains an ongoing concern and continues to weigh on monetary policy and the Cedi.

East African equities were broadly higher amid strength in Kenya and Mauritius

East African equities were broadly higher amid strength in Kenya and Mauritius. In Kenya, the central bank held its key benchmark lending rate at 8.5% as inflation remains relatively sanguine. On the earnings front, Nations Media posted healthy 1H13 results (T/O: +10% y/y; PAT: +21.8% y/y) as net profit margin improved by 200bp (to 17.6%) on back of effective cost management amid consolidation of the group’s operations. It should be noted that the company’s Rwanda subsidiary reported impressive performance as revenue and operating profit grew by +170% and +49% y/y respectively.  Uchumi Supermarkets also reported strong FY13 numbers (T/O: +3.2% y/y; PAT: +30.3% y/y) as gross profit margin improved by 300bp to 25.6%. We are encouraged by management’s discipline as finance costs declined by -36% y/y amid a reduction in the company’s outstanding debt. Shifting to the telecom sector, Safaricom has lowered charges on Lipa na M-Pesa, its newly launched mobile payment service. By reducing the percentage commission traders pay on the value of every transaction (from 1.5% to 1.0%), this service is now the cheapest means through which to make cashless transactions in Kenya. We suspect this will place additional pressure on the nation’s burgeoning card market where commissions presently range from 3 – 5%. In Mauritius, State Bank of Mauritius reported strong FY13 results (GE: +5.2% y/y; PAT: +20.6% y/y) as net interest income rose by +22.5% and the bank’s cost-to-income ratio improved to 31.8% in FY13 from 33.7% in FY12. By contrast, Mauritius Commercial Bank announced weaker-than-expected FY13 results (GE: +6.1% y/y; PAT: +4.8% y/y) as a +107.6% y/y increase in impairments weighed down overall performance.

North African equities continued their ascent on back of strength in Egypt

North African equities continued their ascent on back of strength in Egypt. Although unfortunate, Egypt returned US$2bn to Qatar as discussions aimed at converting the funds to three-year bonds broke down. It should be noted that Cairo's relations with Doha deteriorated after the Egyptian army deposed Islamist President Mohamed Morsi in early July. It should be noted that Qatar had been a firm backer of Morsi's Muslim Brotherhood and supplied US$7.5bn in support during the year they were in power. On the corporate front, GB Auto is attempting to grapple with the effects of political instability in its home market by exporting relatively inexpensive, locally-assembled Geely passenger cars into northern and sub-Saharan Africa. The company began assembling Chinese-manufactured Geely autos at its Prima factory in Cairo, where it also assembles Hyundai cars.

Southern African equities rebounded as Zimbabwe recovers from August decline

Southern African equities rebounded as Zimbabwe recovers from a -21.7% decline in August. On the earnings front, Innscor reported weak FY13 numbers (T/O: +4.7% y/y; PAT: +2.3% y/y) as gross margins deteriorated amid a number of cost provisions and restructuring charges relating to Colcom. By contrast, National Foods posted impressive FY13 numbers (T/O: +26.5% y/y; PAT: +76.5% y/y) on back of growth in flour and stock-feed volumes which rose by +44% and +38% y/y respectively. In Malawi, we digested strong 1H13 numbers from Pearl Properties (T/O: +6.87% y/y; PAT: +22.2% y/y) as average rentals climbed (by +7.3% y/y to $7.96/sqm) and EBITDA margins rose (from 46.1% to 47.5%) on back of softening property expenses. Shifting to Zambia, Copperbelt Energy Corporation released a mixed set of 1H13 results (T/O: +10.8% y/y; PAT: -3.9% y/y) as top-line growth was offset by a decline in profitability. Revenue growth was driven by higher sales volumes to the mining industry (production rose from 1,912 gWh to 2,133 gWh during the period) while increased financing costs weighed on overall profitability.