Monthly Highlights: September 2020

•  West African equity markets were mixed as Nigeria and Ghana reported positive returns whilst the BRVM was weaker
•  North African equities were all weaker, led by Morocco (-2.8%) and Egypt (-2.6%). In Egypt, the MPC reduced the overnight deposit rate and the overnight lending rate by 50 basis points to 8.75%, and 9.75% respectively
•  East African markets recorded mixed performance as strength in Kenya, Uganda and Tanzania was offset by weakness in Mauritius and Rwanda
•  Southern African equities were mixed as Zimbabwe, Namibia and Malawi reported positive returns while Zambia and Botswana were weaker
 

In September, the African markets were mixed with eight posting negative performances in dollar terms led by BRVM (-5%), Mauritius (-4.7%) and Zambia (-3%), while Zimbabwe (+21.6%), Nigeria (+6.9%) and Namibia (+5%) were the biggest gainers. In the Francophone region we saw anticipated weakness ahead of the coming up elections in Cote d'Ivoire and Guinea this month, alongside the continued political unrest in Mali. Zimbabwe’s positive performance was driven by a +2.3% appreciation of the ZWL against the USD for the first time in September since the reintroduction of the auction system in June 2020.

West African equity markets were mixed as Nigeria and Ghana reported positive returns whilst the BRVM was weaker

West African equity markets were mixed as Nigeria and Ghana reported positive returns whilst the BRVM was weaker. In Nigerian economic news, the Central Bank cut the key interest rate to 11.50% from 12.5% to stimulate growth in the face of the coronavirus pandemic. On the earnings front, we digested a plethora of 1H20 earnings from the financial sector, Guaranty Trust Bank released mixed 1H20 results (GE: +1.1% y/y; PAT: -4.9%% y/y) in-line with our expectation as net interest income increased by +9.7% y/y, driven by an impressive -20% decline in interest expenses as cost of funds improved to 1.7% vs. 2.5% in 1H19, however impairments charges increased by +209.7%. Zenith Bank reported commendable 1H20 earnings given the tough environment (GE: +2.8% y/y; PAT: +16.8% y/y) driven by an impressive -17.4% decline in interest expenses as cost of funds improved significantly to 2.3% vs. 3.4% in 1H19. United Bank of Africa published mixed 1H20 results (GE: +7.6% y/y; PAT: -2.2% y/y) driven by +150.2% increase in loan loss provisions. Access Bank also published mixed 1H20 results (GE: +22.3% y/y; PAT: -1.4% y/y) as top line growth was offset by a +237.4% increase in impairment charges. Stanbic IBTC Holding’s 1H20 results were impressive (GE: +7.8% y/y; PAT: +24.7% y/y) where despite a decline in interest income (-9.3% y/y) but improving other income (+27.2% y/y), profitability increased fuelled by a decline in interest expense (-18.1% y/y) and operating expenses (-3.1% y/y). Fidelity Bank posted strong 1H20 results (GE: +2% y/y; PAT: +33% y/y) as net interest income rose by +31% y/y on the back of a -19.7% y/y decline in interest expense. In the Francophone region, we digested poor 1H20 results from NSIA Banque (GE: -6.2% y/y; PAT: -52.2% y/y) with slow top line growth driven by an increase in impairment charges of +86.2% y/y. The Central Bank of Ghana maintained its benchmark interest rate unchanged at 14.5%, citing improved outlook to growth and inflation.

North African equities were all weaker, led by Morocco (-2.8%) and Egypt (-2.6%). In Egypt, the MPC reduced the overnight deposit rate and the overnight lending rate by 50 basis points to 8.75%, and 9.75% respectively, citing exceptionally low inflation provided room to help boost the economy

North African equities were all weaker, led by Morocco (-2.8%) and Egypt (-2.6%). In Egypt, the MPC reduced the overnight deposit rate and the overnight lending rate by 50 basis points to 8.75%, and 9.75% respectively, citing exceptionally low inflation provided room to help boost the economy. On the results front, Palm Hills Developments released disappointing 2Q20 results (GE: -43.9% y/y; PAT: -74.1% y/y) as gross profit margin decreased by 200bp to 41% on the back of the delivery of lower margin units and slower standalone sales. Eastern Company reported FY20 results which showed weak growth (T/O: +3.1% y/y; PAT: +1.6% y/y) driven by a +2.5% y/y growth in local sales value despite a -1.8% y/y drop in volumes sold. Heliopolis for Housing and Development posted uninspiring FY20 results (T/O: -10.5% y/y; PAT: -1% y/y) due to the slowdown in real-estate market operations impacted by the COVID-19 pandemic, which resulted in slower demand for real estate units. Integrated Diagnostics Holdings announced poor 2Q20 (T/O: -12.6% y/y; PAT: -23.5% y/y) driven by weak top line growth and a 7 percentage points y/y drop in EBIT margin to 26.2% as management booked higher impairment of receivables due to delays in collection of receivables. Cleopatra Hospitals Group’s 2Q20 results were disappointing (T/O: -16.8% y/y; PAT: -43.2% y/y) driven by a -37% y/y drop in number of served cases to 145k patients, the drop in patient volumes, which started in mid-March and continued until April as a result of disruptions at the hospital’s operations following the COVID-19 outbreak. In other news, Cleopatra, signed a business transfer agreement (BTA) to transfer the assets and operations of Bedaya for Medical Services under a new joint venture (JV), it announced. Bedaya specialises in invitro fertilization (IVF) and is led by Dr. Ismail Aboul Foutouh. Under the BTA, CHG will hold a 60% stake in this JV with the remaining 40% to be held by Dr. Aboul Foutouh. Commercial International Bank received approval from the Egyptian Exchange to increase its paid-in capital to EGP14.78bn, from EGP14.69bn, via the issuance of 8.6mn shares at a par value of EGP10.00/share. This will amount to EGP85.9m, paid in cash, the capital increase shares will be allocated to the bank’s employee stock ownership plan.

East African markets recorded mixed performance as strength in Kenya, Uganda and Tanzania was offset by weakness in Mauritius and Rwanda

East African markets recorded mixed performance as strength in Kenya, Uganda and Tanzania was offset by weakness in Mauritius and Rwanda. In Kenya, we saw the MPC leaving the interest rate unchanged at 7% for the fourth time in a row noting that the current accommodative monetary policy stance remains appropriate. Kenya extended the Covid-19 curfew for another two months, but relaxed the starting time by two hours to 23h00 to 04h00. On the economic front, Kenya extend Covid-19 tax relief to support small businesses as VAT, PAYE and corporate tax were retained at 14%, 25% and 25% respectively, until 1 January 2021. In Mauritius the central bank also maintained its benchmark interest rate at 1.85% but lowered its forecast of economic growth this year to a contraction of -13% vs. -12.5%, its July forecast. On the earnings front, MCB Group published mixed FY20 earnings (GE: +8.5% y/y; PAT: -16.2% y/y) despite strong top line growth, earnings were offset by higher impairments charges (+217.8 % y/y). In Rwanda, we digested impressive 1H20 numbers from Bralirwa (T/O: -5.4% y/y; PAT: +70.6% y/y) driven by efficiencies in selling and distribution costs (-25.7%y/y), administrative expenses (-15.6%y/y) and net finance costs (-17.3%y/y).

Southern African equities were mixed as Zimbabwe, Namibia and Malawi reported positive returns while Zambia and Botswana were weaker

Southern African equities were mixed as Zimbabwe, Namibia and Malawi reported positive returns while Zambia and Botswana were weaker. In Zimbabwe; although we provide prior year comparatives caution on interpreting the financials is warranted due to the change in functional currency; we digested mixed 1H20 results from African Sun (T/O: +200% y/y; PAT: n/a) with gross profit margin reducing to 66.6% from 79.6%.. Top line growth was offset by a +481.1% y/y increase in operating expenses and occupancies declined by -23 percentage points to 23%. African Sun also published a circular relating to a proposed acquisition of Dawn Properties Limited by share swap. Dairibord Holdings posted 1H20 results (T/O: +535.6% y/y; PAT: +224.3% y/y) with higher revenue driven by Liquid Milks, Foods as well as a Beverages. Innscor Africa reported FY20 results (T/O: +768.1% y/y; PAT: +1,660.7% y/y)driven by double digit volume growth across all categories, gradual removal of subsidies on most products, well-priced raw material pipeline, margin distortions from replacement cost pricing, improved sales mix and factory efficiencies as well as the lag in inflation on opex. NMBZ Holdings announced mixed 1H20 results (GE: +453.9% y/y; PAT: -64.7% y/y) as inflationary top-line growth was driven by interest income increase of +548.2% y/y, however was offset by an increase of +879.9% y/y and 539% y/y in administration and staff costs respectively.Airtel Network Zambia reported mixed 1H20 results (T/O: +16% y/y; PAT: n/a) mainly as a result of unrealized exchange loss on the foreign currency denominated liabilities resulting from the devaluation of the Kwacha by ~40% y/y. In Malawi, the annual inflation slowed to 7.6% in August 2020 prices of food items went up by +11.3% y/y and non-food prices increased by +4.4% y/y.