African Thoughts: June 16, 2012

It was another mixed week globally with light volumes as investors battle to find direction amidst the lack of any proper catalysts. As much as we all want to see some signs of recovery, the continuing concerns over the Eurozone as well as some pessimism over the upcoming US earnings season was tempered by China’s better than expected Q2 GDP which came out on Friday afternoon and provided some strength to global markets. We are now fully into the northern hemisphere summer holiday season and hence African volumes continue to be low. It is also reporting season for 2012 H1 for the Nigerian banks so a lot of focus is centered on these.

On the positive side:

Zimbabwe Mining:

Zimbabwe Mining (+17.3%): A massively strong week for the Mining index in Zim, driven north by Falgold (+61.29%, $0.25, investors increasing their target prices in anticipation of a rights issue as well as improving fundamentals after a successful 3-phase restructuring of its operations) and RioZim (+25%, $0.40, the new investors GEM reported that positive performance is now expected to be forthcoming after the restructuring).

Nigeria:

Nigeria (ASI +2.37%): Although volumes were extremely low, we saw buying interest across most sectors in Lagos. Consumer goods (+1.42%) led the way followed by the BNK10 (+82bps) as the banks started their reporting season with UBA and Diamond the first banks to report and both reporting good numbers. In the consumers, Nigerian Breweries saw a lot of buying action with the name closing the week up 4.08% at N110.01 while Guinness, although much quieter, closed the week at N228. The biggest gainer for the week was Dangote Cement which closed up 7.41% at N116. As mentioned, banks started their reporting for H1 2012 last week with UBA and Diamond both reporting good numbers. Skye Bank reported over the weekend with in line results. We expect more earnings to come out this week and much of the focus and market sentiment will depend on how these come out.

Tanzania:

Tanzania (+0.3%): Foreign activity was almost 80% of the weekly turnover, almost exclusively on the buy side. TBL was the most active with “foreigners” (in this case, East African) trading actively as well as some action on the banks, NMB and CRDB.

While on the weak side:

Zimbabwe Industrial:

Zimbabwe Industrial (-1.7%): Some softness was recorded in Dawn (-25%), Nicoz (-25%) and some other smaller cap names. Among the large cap names, Delta seems to have stabilized at 66c while Econet was slightly softer closing the week at $4.20 although volumes in the name were low. Of note, the following AGMs are due next week: Delta (25 July), OKZim (27 July) and Econet (27 July). Another interesting aspect to note is that while volumes globally and especially in Africa continues to dry up, volumes in Zimbabwe are actually increasing……volumes in USD for H1 ending 30 June 2012 were up by approx. 15% from $223.71mill to $257.48mill from the corresponding period in 2011.

Kenya:

Kenya: The NSE All-Share closed down 73bps while the NSE20 closed down 12bps. While we have seen foreign participation returning in recent months, last week the foreign action all but dried up, dragging overall volumes down with it. Foreign participation was only 39% of the turnover while they are still mostly on the buy side. EABL was the most notable loser, which was not unsurprising after some unusually strong buying action the previous week where the name reached a record high of KES242. The name fell 7.08% for the week to close at KES223. The banking sector was mixed with EqBnk closing slightly up and KNCB unchanged. The banks reporting season is due soon and as always, a lot of the Nairobi focus is around these.

Egypt:

Egypt: Some profit taking evident in Cairo. With Egypt still very much undergoing a transition, and critical decisions/verdicts yet to be taken, we remain skeptical of a short term miracle. Clinton's visit seemed to have lessened liberals support of the US democratic/economic support, but with minimal impact. Aside from that we anticipate the verdict of the 2nd Constituency Assembly on Tuesday which again will be closely watched. With a back-drop of SCAF and MB leading the way, there are a number variables in play and we believe that investors will still remain cautious.

Morocco:

Morocco: An absence of any real news in Morocco. Local participants talk of a “fragile” market, which was evident in some profit taking as well as softness if any bad news comes out. Seasonality is also a factor which the market taking a breath after the 30 June half year end.

Mauritius:

Mauritius (Semdex -1.1% and Sem7 -90bps): A soft week in Port Louis. In the banking sector, MCB saw active trading although the name lost favour and closed down 1.8% at Rs167 while SBM was in demand and closed up 60bps at Rs82.50. The hotel sector struggled yet again closing in the red by 1.1% dragged down by Lux Island (-2.1%) and Sun (-3.4%) while Air Mauritius also struggled closing down 1.8% at Rs10.70.