African Thoughts: July 09, 2012

Please see below for what happened in a selection of the markets that we cover last week, while negative sentiment from Friday's US non-farm payrolls miss lingers globally.

Nigeria:

Nigeria, improved market liquidity arising from rising investors’ appetite was evident. A strong rally in financials, Industrials and consumer goods sector buoyed the market; coupled with the turnaround in the oil and gas sector that has been witnessing losses in the previous weeks. Notably index moved above the psychological level of 22,000. YTD gain is 6.66%. Fed Govt announced that it has signed a MOU with a US based firm- Vulcan Petroleum Resources, to construct 6 refineries across the coastal regions in Nigeria. The first two will be built in the next 12 months at an estimated cost of 4.5 billion US dollars. AMCON may list nationalised banks instead of selling them to rivals, as it seeks to determine fair value for the banks. AMCON said the corporation would need to find financial advisers before finalising its decision on whether to list directly or sell to competitors. CBN issued competency framework for banks that will guide banking operations in the country. CBN orders reduction of forex sales to bureaux de change operators in the country by $25,000 per week. Interbank lending rates rose slightly last week to an average of 15.33 % as naira liquidity fell, on large outflows to foreign exchange purchases. Our expectations are that the equities market will start the week on a quiet note, with the likelihood of volumes growing as the week progresses. Insofar as locals are still inactive in the market, the level of foreign activity, to a large extent, will determine market direction. Not as though much is expected from this, due to happenings in the Euro zone, we believe that the market will assume a similar pattern from last week, with the banking and food & beverage sectors driving liquidity.

Kenya:

Kenya, the Monetary Policy Committee met during the week and lowered the benchmark rate, by 150bps to 16.5%, for the first time in eighteen months, citing lower inflation (towards the 9% target), stability of exchange and consistent fiscal policy in the June 2012 budget. This is the first step towards some element of monetary easing cycle, within our expectations. We think lower interest rates will take a little longer to filter through since the Central Bank is still very active mopping liquidity in the repo market. BAT, cigarette maker, eased 0.5% on Friday after releasing weaker than expected results with a 20.6%y/y increase in net profits. The company (which kicked off the 1H12 results season) attributed the performance to lower shipments of cut rag to Egypt-arising from lower demand. In addition, higher export volumes from cigarettes of 12% were offset by a stronger currency over the period. EABL was the week’s top mover accounting for 27% of trades and edging up 5.7% w/w (+39.5% YTD) to KES 240. The counter also recorded the highest foreign inflows (USD 4.0m). The brewer saw speculative interest building ahead of results announcement for FY12 due end of August/early September 2012. The results will have some one-off gains from the sale of TBL and a possible land disposal of 32 acres (the land is being used by Actis to develop one of the largest malls in Nairobi). KenolKobil issued an update on a previous restraining order obtained by some employees preventing management from implementing the transaction between Puma Energy and KenolKobil. The order was set aside. Although management is not party to the potential sale of shares, it has been directed by the board to engage employees across the group about the consequences of the potential change in shareholding and provide them comfort. KenolKobil has seen speculative interest building ahead of the takeover price by Puma Energy being announced.

Zimbabwe:

Zimbabwe, the industrial index rose by 1.37% to 133.77 points during the week under review. Counters which helped the index higher were Aico (+27.78%) to 11.5 cents; CBZ (+23.08%) to 11.2 cents and Delta (+1.54%) to 66 cents, these counters constitute 29% of the index. CBZ closed higher as a result of positive expectations that the bank will post good numbers expected anytime soon. The mining index also traded in the positive on the back of gains in the price of Rio Zim (+6.67%) to 32 cents albeit no changes in the fundamentals. The total market turnover for the week surged 59% to US$17.5 million from US$11.0 million in the prior week. A special bargain of 61,254,241 TPH shares at 11 cents each worth US$6.7 million was executed during the week and it accounted for 38% of the total week’s turnover. Foreign direct investment (FDI) inflows into Zimbabwe rose from US$166 million recorded in 2010 to US$387 million in 2011 spurred by increased inflows into Sub-Saharan Africa, according to the United Nations Conference on Trade and Development (UNCTAD). This signals the positive investor interest on Zimbabwe despite the uncertainties on the political front. The 2012 Mid-term fiscal policy is expected to be presented on the 12th of July.

Botswana:

Botswana, most stocks posted gains, but on thin volumes. Turnstar was the major mover for the week, putting on 3.03% on the back of 630k shares traded to close @170t. Appetite for stocks is quite high but supply is limited. Going forward we continue to see appetite mostly in banking stocks and a few other blue chips like Sechaba and BIHL, but there is little supply in the offing.

BRVM:

BRVM, four sectors recorded gains this week: the Packaging sector (+ 9.25%) driven by FILTISAC (+ 19.35%) with the positive outlook for 2012; the Distribution sector (+ 1.47%) thanks to SERVAIR ABIDJAN (+ 5.88%), SARI (+ 1.91%) whose shareholders are motivated by the next negotiation of rights attached to the operation of merger by CFAO CI, BERNABÉ (+ 1.11%); the Infrastructure sector (+ 0.90%) held up by CIE (+ 2.13%) and the Beverage sector (+ 0.16%) which saw SOLIBRA appreciate by 0.80% on low volumes. At the top of the losers is the Textile sector (-6.25%) which suffered from the decrease of UNIWAX (-6.25%) following the announcement of the probable delay in the execution of the plan to reduce the energy bill. The volume of activity is expected to decline further during the first two months of the third quarter. The market behavior over this period will be guided primarily by the distribution of final dividends not yet expired and the half year results publication. A strong recovery should be seen on Ivorian companies which represent approximately 80% of companies listed. Current low prices of Ivorian companies, besides the agro industry, whose prices are linked to the internationals commodity market, is the result of bad results in 2011 impacted by the post electoral crisis experienced by Côte d’Ivoire. 2012 should be a much better year than 2011 also thanks to the completion of the HIPC (Heavily Indebted Poor Countries) initiative. Strong growth is expected in the 2012 half year results. The third quarter should be a period of strong investments on the West African market.

Tunisia:

Tunisia, following three consecutive negative weekly performances, the Tunindex recorded an overdue positive weekly performance (+0.67% at 5016.93 points). Volumes usually drop during the summer time due to the shorter trading hours but even taking this into account, last week the activity levels were far from the 2010 and 2011 levels. Most of the volume was traded on newly listed AMS with 21.34% of the total weekly traded volume, which gained +11.99% over the week. All sectors were up this week with the exception of the leasing and distribution sectors, with the banking sector gaining +0.1%, car dealers up +2.1%, pharmaceuticals gaining also +2.1% and industry up +1.5%.