Monthly Highlights: September 2011

•  West African equities retreated with Nigeria leading the way lower
•  East African equities suffered large losses amid currency-related weakness
•  Southern Africa declined on back of weakness in Zambia & Botswana
 

West African equities retreated with Nigeria leading the way lower

West African equities fell sharply with the NSE ASI (Nigeria), BRVM Composite (Francophone) and GSE Composite (Ghana) declining by -10.84%, -10.15% and -8.51% respectively. The Central Bank of Nigeria (CBN) raised its benchmark rate by 50bp to 9.25% in an effort aimed at curbing inflation amid higher wages as the monthly minimum wage more than doubled last month to NGN 18,000. We expect further tightening in the months ahead as AMCON continues to inject liquidity into the commercial banking sector through its ongoing recapitalization efforts. On the corporate front, we digested healthy FY11 results from Guinness Nigeria as net income rose +31.0% y/y. In other action, the Nigerian banking sector announced several consolidations with local banks offering to acquire the three “failed” banks. In each instance, the CBN agreed to inject additional liquidity in order to bring the NAV of the acquired bank to zero. We are watching cautiously as these acquisitions carry substantial consolidation risk given varying degrees of headcount, platform diversification, IT and infrastructure. Yet for those banks that emerge successfully, Nigeria remains a compelling opportunity with only 20 million accounts across a population of nearly 160 million people. Shifting to the Francophone region, we met with the management team of Sonatel so as to more completely gauge the impact of the government’s recently imposed $0.10 surcharge on incoming international calls. Yet while this newly imposed surcharge will negatively impact the company’s top line, we do not envisage the revenue decline others are forecasting. In Ghana, Fitch reaffirmed the nation’s B+ rating as 2Q11 growth rose +33.5% despite the Cedi retracing to a 17-year low. We expect continued US Dollar demand over the coming weeks as Ghanaian importers purchase finished goods ahead of the year-end shopping season. In other action, GGBL received exchange approval to raise USD 45 million in equity for the purpose of paying down debt and investing in new projects.

East African equities suffered large losses amid currency-related weakness

East African equities came under continued pressure with the NSE 20 (Kenya), USE ASI (Uganda), SEM-7 (Mauritius) and DSEI (Tanzania) shedding -11.59%, -10.99%, -6.65% and -1.93% respectively. In a special meeting at mid-month, the Bank of Kenya hiked rates by 75bp to 7.0% in an effort aimed at restoring investor confidence. Yet despite its best efforts, the Shilling fell by -6.79% on the month as inflation accelerated to 17.3% – its 11th consecutive monthly increase. On the corporate front, Safaricom increased call rates by KES 1.00 per minute in its first hike in more than 11 years of operation. Of note, shares of British American Investment Co., the Kenyan holding company which listed on the NSE earlier this month, fell -26.25% by month-end. Shifting to Mauritius, inflation fell to 6.5% in August as the Bank of Mauritius kept its benchmark lending rate on hold at 5.5%. On the earnings front, the Mauritian banking sector reported strong FY11 results led by Mauritius Commercial Bank (PAT: +32% y/y) and State Bank of Mauritius (PAT: +8.3% y/y) Of note, Naiade Resorts returned to profitability as the third largest hotel operator by market capitalisation posted a +23% y/y rise in 2Q11 revenue. Elsewhere, Precision Air Services, Tanzania’s largest airline, received regulatory approval to list its shares on the Dar es Salaam Stock Exchange as the company attempts to raise USD 28 million via IPO.

Southern Africa declined on back of weakness in Zambia & Botswana

Southern Africa performed poorly as the LuSE ASI (Zambia), Gaborone DCI (Botswana) and ZSE Industrial Index (Zimbabwe) declined by - 9.97%, -9.63% and -2.93% respectively. In Zambia, the election of Michael Sata has brought increased uncertainty to the nation’s political landscape given his pledge to share a greater percentage of the country’s mineral wealth and perhaps nationalize foreign mining companies. While the current tax and regulatory regime is likely to tighten in response, we do not view nationalization as a risk given Zambia’s reliance on foreign investment. On the corporate front, Zanaco reported healthy 1H11 results which exhibited a +14.0% rise in PAT. By contrast, CEC reported lacklustre 1H11 results which exhibited little change in y/y earnings. Looking ahead, global growth is expected to moderate and declining copper prices could cause the Kwacha to depreciate further. Shifting to Botswana, we saw strong earnings from across the banking sector as Barclays and StanChart each delivered strong half-year results. We also saw healthy results from Letshego as the June strikes did not materially impact 2Q11 earnings. Looking ahead, we contend that recently proposed changes to payroll deduction legislation in Botswana are political in nature and the result of souring relations between labour unions and the government. Nevertheless, we remain quite cautious as the aforementioned legislation can have a material adverse impact on Letshego’s existing business. In Zimbabwe, Innscor reported strong FY11 results as Revenue and PAT rose +28.0% y/y and +51.4% y/y respectively. Shifting to Malawi, the MSE DCI rose +2.38% while Press Corporation posted a +43% y/y rise in 1H11 profit.