Monthly Highlights: September 2015

•  West African equity markets exhibited mixed performance
•  East African equities were lower amid broad based weakness throughout the region
•  North African equities remain under pressure as Egypt prepares for its long-anticipated parliamentary elections
•  Southern African equities retreated on back of weakness in Botswana
 

West African equity markets exhibited mixed performance

West African equity markets exhibited mixed performance. In Nigeria, JP Morgan announced that the nation would be phased out of its Government Bond Index due to poor FX interbank liquidity and limited trading activity. Although we have not experienced any difficulty in repatriating money out of Nigeria, we were not surprised by the move as Nigeria had been on JP Morgan's watch list since January. In other action, the Central Bank of Nigeria (CBN) reduced the cash reserve ratio (CRR) for banks by 6% from 31% to 25%, but maintained its hawkish bias by leaving the Monetary Policy Rate (MPR) unchanged at 13%. On the earnings front, PZ Cussons released weak 1Q16 results (T/O: +4.1% y/y; PAT: -16.5% y/y) as rising operating expenses and a significant increase in net finance charges offset the 68bp y/y improvement in gross margin. United Bank for Africa released strong 1H15 results (GE: +20.7% y/y; PAT: +39.7% y/y) on back of strong top-line growth as Net Interest Income and Net Interest Revenue rose by +18.9% y/y and +26.3% y/y respectively. Dangote Cement, Africa’s largest cement manufacturer, slashed Nigerian cement prices in an attempt to boost consumption and bring prices in-line with neighbouring countries. The move ought to better enable Dangote to increase export sales to neighbouring nations. In Ghana, the Bank of Ghana unexpectedly raised its main policy rate by 100bp to 25% so as to offset the rising risk of inflation. It should be noted that Ghanaian rates are the highest in over a decade as the West African nation positions for a three-year aid program with the International Monetary Fund (IMF). In the Francophone region, we digested impressive 1H15 results from SOGB (T/O: -8.53% y/y; PAT: +17.5% y/y), the Ivorian palm and rubber company, as strong cost cutting measures offset the impact of declining commodity prices.

East African equities were lower amid broad based weakness throughout the region

East African equities were lower amid broad based weakness throughout the region. In Kenya, the Central Bank of Kenya held its key benchmark lending rate at 11.5% as inflation continues to fall towards its medium-term target. On the earnings front, Mumias Sugar reported weak FY15 results (T/O: -57.7% y/y; PAT: n/a) as losses widened amid a decline in revenue and rising finance costs (+106.8% y/y). Shifting to the financial sector, Equity Bank announced that it had successfully completed its acquisition of ProCredit Bank, the niche SME-focused lender located in the Democratic Republic of Congo (DRC). As management continues to expand the bank’s regional footprint, we are encouraged by this acquisition as it provides Equity Bank with a foothold into the DRC and access to its 68 million citizens. In Mauritius, MCB announced positive FY15 results (GE: +9.2% y/y; PAT: +29.6% y/y) as a generally solid performance and a -43% y/y decline in impairments fueled overall performance.

North African equities remain under pressure as Egypt prepares for its long-anticipated parliamentary elections

North African equities remain under pressure as Egypt prepares for its long-anticipated parliamentary elections. The elections have been delayed since March and are now scheduled to take place in mid-October with a second phase occurring in late November. On the economic front, Egypt aims to generate roughly US$12.6 billion of additional revenue on back of improved economic legislation and financial reforms highlighted by the implementation of a value-added tax (VAT). It should be noted that the Egyptian government projected FY16 full-year revenue of US$78 billion albeit with a sizable budget deficit amounting to 8.9% of GDP. The Bank of Egypt maintained its dovish bias as benchmark interest rates were left unchanged in an effort aimed at further inducing economic growth.

Southern African equities retreated on back of weakness in Botswana

Southern African equities retreated on back of weakness in Botswana as the government revised its FY15 GDP growth estimate from 4.9% to 2.6% amid reduced diamond demand. In Zimbabwe, we digested weak FY15 results from National Foods (T/O: -8.5% y/y; PAT: -24.1% y/y) as a -39% y/y decline in maize volumes weighed on top-line performance. By contrast, Colcom posted impressive results (T/O: -3% y/y; PAT: +20.1% y/y) as operating margins improved on back of improved commodity procurement and improved operational efficiency. In Malawi, the IMF expects the country’s economic growth to slow as severe flooding has damaged crops and is resulting in an accentuated food crisis. Shifting to Zambia, Moody's downgraded Africa's second-biggest copper producer from B1 to B2, citing slower economic growth, depressed commodity prices and rising power outages.