African Thoughts: May 14, 2012

The same global issues persist, Greek uncertainty, weak European industrial production figures, European political uncertainty, China stopping short of a full-blown rate cut.

Top performers:

Egypt +2.2% in USD terms and +2.2% in local terms:

There were no really big stories out last week in Egypt. The market traded low volumes with the main focus of the market being HRHO news; the merger between Qinvest and HRHO was expected to be a positive yet the name witnessed selling pressure from international investors. The reason behind the gain is that the army successfully ended the sit-in in Abbasseya with further political activists condemning the sit-in. The return of the Saudi ambassador to Egypt was also positive for the market. The market is currently trading sideways as many investors (international) have continued to be bystanders who are opting to decrease their level of activity until further clarity has been shed regarding political stability ahead of the presidential elections. The elections has already started for Egyptians who reside abroad and local expectations are for the 23rd of May and the results should be out by 1st of June. Many international investors will remain bystanders until there is a sitting president one would imagine.

Tunisia +1.6% in USD terms and +2.1% in local terms :

After two weeks in the red the Tunisian market turned the corner. Tunisia’s second largest private bank, Amen bank, announced that a foreign investor will buy a significant stake in the bank as a technical partner. The bank announced a rights issue and a whole buying spree on banking stocks was triggered.

Zambia +1.6% in USD terms and +1.9% in local terms:

There was very little of interest in Lusaka last week. The Market move was almost entirely as a result of +21.15% increase in the value of Stanchart and with a market cap of 13.7% of the LuSE it is easy to see why the market moved as it did. Nothing fundamentally seems to have changed with regards to Stanchart meaning that the spike is just irrational exuberance. The same thing happened in 2011 when the ex-bonus issue share price rose 48% or so before reverting back within 2 months.

Top performers:

Malawi -33.6% in local terms and +1.4% in USD terms:

The activity in Malawi has been subdued, even more so than usual, subsequent to the devaluation of the local currency with investors taking more of a wait-and-see approach as they wait for the dust to settle. The more popular names such as Illovo, Old Mutual and Nico have plenty of support but there just isn’t any supply around. Most of the stock is held by the local institutions and they are not in the habit of adjusting their portfolios very often so a dearth of supply is evident. There are more foreign investors around looking at valuations and enquiring about ‘cheap stocks’ but the likelihood of being able to pick-up any decent sized blocks without paying a significant premium to existing prices is remote. Local investors have a keen eye on the money market rate to see if there is an increase there.

Zimbabwe mining index -5.6% in USD terms and -5.6% in local terms:

The mining index was dragged lower by Bindura which fell -30%. This is probably due to profit taking after the counter rallied +5c from 1.7c after the company had announced that a strategic partner had been found to capitalize their operations. There was little action in the main index, it drifted flat for the week. Delta did announce their results but the price remained unchanged at 70c.

Namibia -3.6% in USD terms and -0.3% in local terms:

Namibia is almost perfectly correlated to South Africa’s mkt. The SA market was dictated by the goings on in Europe and the miners. Local economic data was not great either (unemployment and manufacturing). Everything got smacker barring gold meaning a flight to safety was prevailing. The currency also took a beating late last week – probably also to do with the flight to safety.

Top performers:

Nigeria:

Nigeria softened last week in both local and USD terms. Profit taking was the name of the game especially in the banking sector where limit-up gains were common just prior to the profit taking. Speculators who had made entries into stocks based on impressive results commenced exiting those positions to lock-in profits. However, towards the end of the week, we began to see price recoveries in some securities. The likes of FBN which closed at N11.62 on Monday and had declined as low as N10.93 on Wednesday, we saw a recovery to N11.30 by Friday. Now that results season is practically over, we are expecting to see prices stabilize with less volatility across board. Tiger brands announced last week that they are in talks with Dangote Industries Ltd regarding their stake in their flour unit, Dangote Flour Mills Plc. Tiger Brands did not give further details, saying developments will be reported to shareholders. The market reacted positively to this news and Dangote Flour went on bid throughout last week, practically gaining 5% every trading day of last week. Dangote Sugar released their Q1, 2012 results last week. We saw a 24% rise in topline earnings and a 101% increase in PAT. The market reacted positively to this and Dangote Sugar subsequently went on bid with bid strength as high as 15m units. We also note that the Chairman of the Group, Aliko Dangote has stated his intention to sell up to 80% of his holdings in his food businesses to foreign investors. However potential acquirers for his sugar and salt businesses are yet to be identified. Going forward the market is likely to be subdued for the foreseeable future but the Nigerian market is dynamic and volatile so anything is possible.

Kenya:

Kenya lost ground last week too and much like Nigeria this was due to profit taking although the volatility and price swings were not as wild as they were in Nigeria which is usually the case. As a generalization I think that the general economic sentiment is positive with Tullow Oil finding more oil in a well it is drilling in Kenya and plans to drill another well in an adjacent block later this year. On the flip side there is likely to be some risk aversion in the run-up to elections. Scom and KCB were the two large caps to feel the brunt of the change in sentiment after the rally. What is also worth noting is the drop in primary yields -484bps and 170bp for the 364 day and 182 day T-bill respectively. As a strong sign that rates will continue sliding, the government announced plans to issue a 5 year paper – this is the longest paper to be issued in close to 6 months. In this regard we expect to see more allocation by local funds into equities.