African Thoughts: August 13, 2012

The South African market opened the week stronger following global markets as Germany backed the ECB’s plan to buy government bonds but it was sideways from there. Please have a look below for some insight into the key drivers in some of the markets.

Kenya:

Kenya, the NSE 20 extended its losses from the previous week easing 0.3% w/w. This was despite foreign investor inflows continuing on an upward trend, jumping more than 300% w/w to USD 5.52m. Equity Bank recorded the highest foreign inflows (USD 1,950k), while KenolKobil recorded the highest outflows ahead of a takeover offer expected from Puma Energy as an ongoing due diligence concludes. There were a number of results announcements; StanChart posted an impressive 1H12 EPS growth of 81.5%y/y; although EPS declined 3.8%q/q. Kenya Re also released robust numbers, up 37% y/y in net profits for 1H12 as investment income and underlying business continued on a growth trajectory. The week also saw the announcement of a New York-based HR & A Advisors as winners of a contract to manage and develop the planned Konza technology city located 70km out of Nairobi. Ahead of listing, Deacons entered into a joint venture with Woolworths, moving away from a previous franchising arrangement. In share price performance, EABL recouped losses it made in the previous week, gaining 5.0% w/w to KES 231 ahead of FY12 numbers expected on 24th August.

Mauritius:

Mauritius, both Semdex and SEM-7 index lost 0.9% to reach 1,732.63 and 335.80 points. The main losers for the week were Go Life International and NMH which tumbled by 44% and 8.8% to close at USD 0.05 and Rs62.00 respectively. To note the quarterly results of some companies were released and amongst them Rogers and NMH Q3 2012 accounts. Rogers reported an attributable earnings of Rs484.4m for Q3 2012 compared to Rs12.6m for the same period last year. The group’s accounts was boosted up by exceptional profits of Rs422m resulting from the profit on amalgamation of the insurance and investment activities with those of Swan Group. As for NMH, it booked higher losses of Rs172m in Q3 2012 compared to Rs124m in 2011. The largest hotel group’s operations were affected by unfavorable exchange rates, increased expenses and losses booked by associates. Foreign investors were less active on the SEM. Nonetheless investments outweighed disinvestments by Rs15.5M. Net purchases were registered on MCB and SUN to the tune of Rs12M and Rs6M respectively, while net selling was noted on ROGE and TERRA to the tune of Rs1M and Rs3M respectively. As for SBM, foreign crosses totalling Rs3M were recorded. Going forward, quarterly results of remaining companies will be coming out this week. Investors should look at stocks like State Bank, Innodis, Phoenix Beverages, Terra and Omnicane. Trading is likely to remain speculative/reactionary amid reporting.

Morocco:

Morocco, the southern Europe debt crisis and the sluggish local economy have both affected the general business environment. The GDP growth is expected to drop, for the first time since the financial crisis of 2008, to 2.1%. Morocco has been granted an optional L.O.C by the IMF in case the kingdom faces severe conditions within the coming months. On top of what has been stated above, bear in mind that morocco suffers liquidity and FX shortages, and if it gets worse, then the IMF assistance will come into play.

Nigeria:

Nigeria, the market was down by 1.2% last week driven largely by Dangcement which shed 2.95% given its weight of c.27% in the index. The performance of Dangcement may be linked to investors taking profit as the stock had rallied ahead of the release of the H1:12 numbers. Management postponed the investors presentation that should have taken place last week to this week. The presentation date was changed after it had been announced at least twice during the week. This, in our view, could also have weakened investors' interest in the stock during the week. The performance of the banking sector was +0.08% during the week driven largely by Tier II banks. In our view, investors are still happy with sizable exposure to the banking sector driven by relatively robust liquidity and strong H1:12 numbers. We expect this momentum to continue over the coming weeks particularly as Access and GTBank are expected to publish their numbers during the week. Both banks outperformed the market last week with upticks of +0.8% in Access and +0.6% in GTBank. The movement in interest rates last week was positive for the big banks with growth in interest income as a result of the higher rates (the big banks, Tier I banks in this case, have the biggest deposits in the sector, many of them are able to generate these deposits at relatively low costs. Thus, a rise in interbank rates put them at an advantage as they are in a more liquid position to lend to the Tier II and other banks). Overnight interest rates rose to a record high of 40% last week underpinned by the squeezed liquidity that resulted from the CBN's hike of the CRR to 12% from 8% at the last MPC meeting. Thus, local PMs found money market instruments more attractive last week compared to the previous week. The biggest pension fund manager in the country gave us some colour on this. While we expect interest rates to remain high through H2:12 we believe that investors will still cautiously buy stocks with strong fundamentals and be more focused on companies with good corporate governance. Tier I banks and consumers with foreign parents and affiliates are the stocks to watch in this regard.

Zimbabwe:

Zimbabwe, the reporting season kicked off on Thursday and going forward we expect companies posting good numbers to have a minimum impact on prices due to the persistent liquidity challenges and general weak sentiments while companies reporting below expectations will be penalized. Foreigners continue to be key players in the market, having contributed about 50% of the total market turnover last week and we expect them to continue driving the market going forward. The industrial index retreated by -0.19% to close at 133.19 points during the week under review as a result of losses in the prices of Innscor (-3.45%) to 56 cents, Econet (-2.45%) to 418 cents and Seedco (-4.75%) to 80.01 cents. The mining index also shed 15.61% on the basis of losses in the price of Falgold (-42.86%) to 20 cents. The softening in the price of Falgold comes after a series of gains in the past six weeks hitting a peak of 35 cents.

Uganda:

Uganda, The Stanbic Bank bonus shares were listed on the market; it was in a ratio of a 4:1, this caused increased activity on that counter. We also witnessed increased institutional interest and trades on the DFCU Limited stock, which has not been traded actively due to the scarcity of the stock. It traded over Ugx 42m (around 16,000USD). Bank of Baroda also kept at a price of UGX 250 (a 25% increase in the price around 3 weeks ago). This rise is attributed to the expected bonus cutoff date. The bonus was approved at the AGM but cut off has not yet been given. There has been consistent demand on the NVL and BATU counters. Investors should lookout for the effect of the bonus cut off for the Bank of Baroda shares on the market once announced, the real effect of the crediting of the Stanbic Bank bonus shares into shareholders accounts, NVL end year results, BATU half year results and likelihood of the Initial Public Offer of UMEME Ltd, the sole power distributor of hydroelectric power in Uganda in the next two months.