African Thoughts: November 05, 2012

Zimbabwe +1.33%:

Profit taking started setting in a number of heavy cap stocks – Delta, Econet, Innscor although it became short-lived as demand especially from foreign investors resurfaced driving prices higher up again. Approval of indigenization plans for mining house Unki and BAT clearly indicates that foreign companies are coming up with novel methods of meeting these regulations without given out ownership to connected politicians. The industrial index has recovered significantly over the last two months and is now 6.54% up YTD. In the month of October alone it gained 5.80% and was 1.33% up for the week. Delta is expected to release its interims to September on 7 November 2012. Performance is expected to improve over last year driven by higher volumes and improved efficiencies from the plants commissioned over the six month period. Delta is expected to commission a new $17m, 700 000 hectoliter lager bottling plant in Southerton. The ministry of finance is set to present the 2013 national budget on 15 November. The projected growth target may be difficult to achieve on the back of an anticipated poor agricultural season as weather experts have predicted below normal rainfall in most areas. Furthermore as we draw toward the elections companies will likely put on hold investment decisions due to the uncertainty that may prevail. With the second all-stake holders conference on the new constitution complete all attention shifted towards the resolution of outstanding issues which should pave the way for elections. Although the president is indicating that he wants the election to be held by end of March next year, the timeline that is supposed to be followed before elections are held suggests that elections are only possible after June. The fiscal environment remains tight with revenues continuously underperforming while government expenditure continues to balloon. We do not anticipate any major policy shifts in the forthcoming budget. With the election looming the environment under which the budget will be presented will obviously change depending on the political party that wins. Seedco and AICO interims are expected within the next few weeks. The first half is the cost accumulation phase hence we do not anticipate miracles on the bottom-line The envisaged restructuring of AICO’s debt is taking longer to resolve and therefore we anticipate its results to be weighed down by the significant interest bill and also reflect the drop in commodity prices. A number of AGM’s are lined up in the upcoming weeks including Innscor which seeks to approve a share-buyback, Afdis, Colcom, Border and Radar. The conclusion of the disciplinary process against the former ZSE Chief Executive is expected within the next few weeks. It should pave the way for the appointment of a substantive head which should bring certainty to the exchange and speed up the creation of the central depository system, demutualization of the exchange and automated trading. Year-end trading likely to lighten off. As we draw toward year-end we anticipate volumes to thin off as investors take a break for the year. Foreign participation is however expected to remain the major driver of both liquidity and market performance.

Ghana +0.07%:

There was a successful auction of 3 year bond on Thursday, the 22rd October. The GOG wanted to raise GHS 500 million but it was oversubscribed and government eventually made allotments to about GHS 1.4 billion at coupon rate of 21% . As the impending election continues to be of interest to investors, the Institute of Economic Affairs a local political/economic think tank in Ghana successfully organized a presidential debate for the various presidential candidates whose parties have representation in the current parliament. This was seen as a boost for Ghana’s democracy and therefore gives a signal to investors especially foreigners that Ghana will remain peaceful and stable after the elections. With regard to the capital market, SCB’s impending bonus issue is drawing investors’ attention to the stock. The bonus issue which will be effected on the 13th of November and will split every share held to 5. This will reduce the per unit price and thus make it affordable to retail investors. There has been a mad rush for the stock within the last week resulting in the price jumping by about 40% from about GHS 43.00 to GHS 60.00. The market is anticipated to end the week as one of the most successful weeks in terms of volume and value of trades and the return on the market. Over 25 million shares traded during the week with a value of about USD 5 million. This contrasts sharply with the average weekly value below USD 500k. Going forward even though the market is expected to remain largely dormant, the publication of the third quarter impressive results coupled with the corporate activity in SCB are expected to drive the market. CAL Bank, GCB, Ecobank Ghana and Total petroleum notably reported strong third quarter results. We expect these to generate some excitement in the market which will drive prices up. The 3 year bond issue saw strong foreign participation. This implied a lot of Dollar supply. Demand/supply dynamics is expected to help stabilize the cedi in terms of its exchange rate with the Dollar. We therefore expect the stability to boost investor confidence. The year to date return on the market is 16.73%.

Nigeria -1.17%:

The most topical issues in the market and the country over the last week were: the last of the results. These were largely in-line with expectations. Now that results season is over, the end of the year is approaching and with the continued global macro uncertainty we expect the market activity to be subdued for the foreseeable future. The aftermath of the floods and the impact on food prices and inflation. The Bureau of Public Enterprises (BPE) concluded its approval of the preferred bidders on the privatisation of The Electricity Generation and Distribution companies to succeed the government monopoly PHCN. The next stage is for the winners to post additional bid security within the next 15 business days from Monday (today). This sets the beginning of the efforts to resolve Nigeria's energy crisis. The Central Bank announced that restriction of cash withdrawals over the bank counters At N150,000 ($1,000) would go nationwide in January next year. The pilot phase has been run in Lagos for about 1 year. The policy is in place to help reduce cash transactions and allow transactions to be easily traceable, encourage mobile and electronic banking, combat money laundering and reduce the cost of reprinting cash notes. FCMB acquired FinBank to help kick off its retail penetration strategy. The NSE added 2 more stocks to its Market making stocks, 7up Bottling Company Plc and UAC-Property Development Company Plc. The most important things that may affect the market one way or the other in the medium to long term include; the planned introduction of the NASDAQ OMX x stream trading platform by Q3 2013 which is expected to herald online trading opportunities which could propel the market liquidity and turnover; it has been reconfirmed that The NSE plans to introduce derivatives in 2013 and expand the number of listed ETF’s in its ‘5 products in 5 years plan’. This potentially will increase the breadth of the market; with Market makers getting their feet wet in the business, the agreement of the rules and procedures of securities lending and possibly short selling will improve the depth of the market.

Kenya -0.2%:

The equities market eased this week on profit taking on some of the large cap counters which have rallied in the past few weeks. Equity turnover climbed 10% w/w to USD 35.14m, mainly driven by increased local investor activity. Foreign investor inflows touched a six week high edging up 74% w/w to USD 15m compared to USD 8.56m in the previous week. Foreign investor participation however plunged to account for 39.2% of trades compared to 57.8% last week. The most topical issue in Kenya is the upcoming elections, while in the mkt its been the Standard Chartered rights issue. The Inflation number was much better than expected. Consensus forecast was 4.85% against the actual figure of 4.14%. The transport and food components increased at a much slower pace than expected. We expect inflation to decline next month before its begins to rise in the subsequent months. The high global fuel prices poses a risk to inflation. We don’t expect much pressure on food prices as the short rains have started and this has ensured enough food. Third quarter earnings by banks will be released in the next couple of weeks, we expect the release of third quarter results by banks to spur activity in the market. The Central Bank’s Monetary Policy Committee will meet next week to review the Central Bank Rate. It is expected that Central Bank will cut interest rates during the meeting. Elections are on March the 4th. We expect trading volumes to decline and some investors to take profits as we approach the elections.

Botswana +0.37%:

The market has generally been quiet, with some of the highlights as follows. Letshego announced its H1 2013 results, and some of the salient features included amongst others, profit before tax increased by 24% to BWP 427.14m (H1 2012: BWP 343.45m). 39% of the profit before tax was generated outside of Botswana (H1 2012: 35%). The company has completed the Micro Africa Limited (MAL) transaction which contributed BWP 1.87m to PBT for the 2 months consolidated, and a gross dividend of 25% was declared amounting to BWP 84m. Aviva Corporation announced that following receipt of Kenyan Competition Authority approval, it has now completed the sale of Aviva Mining (Kenya) Limited to African Barrick Gold Plc. The initial AUD 20m received by Aviva for the sale of AMK equates to approximately 12 cents per issued Aviva share and reflects the net proceeds for this transaction. Hana Mining agreed to a CAD 0.82 per share all-cash acquisition by Cupric Canyon Capital, and have jointly announced that they have entered into a definitive agreement pursuant to which Cupric has agreed to acquire all of the issued and outstanding common shares of Hana. The midyear reporting season has ended, with most companies reporting average to near average results. The market is likely to keep chasing stocks. We believe activity is likely to improve in Choppies, Letshego and Stanchart, that is if supply for the stocks improve. YTD the market is +7.58%, the last month +1.22% and this week (+0.37%).

Francophone Region +2.22%:

The BRVM composite grew by 2.22% compared to last week. This growth was worn by most sectors that have naturally benefited from the attraction of investors following publication of the H112 results which contrasts markedly from those of the year 2011 which had been strongly affected by the post-election crisis. The Miscellaneous sector (+13.58%) led by SICABLE (+22.59%) and SIVOA (+5.23%) continuing both to benefit from the publications of their H112 results in strong growth. BOLLORE AFRICA LOGISTICS registered a growth of 16.67%, hoisting the Transport sector (+8.01%).

Tanzania +0.03%:

Turnover this week was slightly lower relative to previous week, however activity level as measured by volume, improved compared to last week’s levels. Both indices (DSEI and TSI) edged north. The DSEI appreciated by 0.03% to close at 1,458.27 points while the TSI (+0.14%) settled at 1,293.38 points. Week-on-week turnover dropped slightly to Tshs.196mn (-2.55%) from last week’s Tshs.201mn. Activity levels rose to 304,727 shares, an increase of 13.01% compared to last week’s performance where 269,543 shares exchanged hands. This week’s Treasury bond auction indicated improved liquidity conditions as investors showed appetite beyond the offered amount. We expect strong support from equities amid declining returns in the money markets. Looking ahead, we expect some activity in DCB after the rights issue closure. CRDB seems to remain attractive to foreign investors. Twiga, Simba and Swissport are counters that are likely to record more support in anticipation of the interim earnings.