African Thoughts: October 08, 2012

Please see below for an overview of some of the African markets that we cover for the week ended Friday the 5th.

Zimbabwe:

Zimbabwe, the mainstream index closed the week 3.01% up maintaining the momentum set over the past weeks. Key drivers of market are a mismatch of demand and supply of scrip in a market where foreign interest for volumes has overwhelmed available scrip. Foreign interest is in big names Delta, Econet, Seedco, Innscor and retail stocks OK and Edgars while volumes have generally thinned off. Weekly volumes declined 63% while value traded dropped 28% ($3.84m). We believe the push in Delta, and Seedco is spurred by upcoming August interims while Econet is also expected to release August interims. We believe that another key driver of this momentum is exciting June numbers which have seen companies achieving growth and profitability despite expectation of slowdown in economic performance. On the political front the push for the holding of by elections has been deferred to the end of first quarter after ZANU PF applied for the extension, highlighting the fact that the government is not ready for polls (there were three former MPs who sued Mugabe in the courts seeking him to announce dates for by election in their constituencies. Since there are about 28 constituencies which are vacant the president was obliged to declare a mini general election for all the vacant posts. In august the high court gave Mugabe 14 days to declare election dates. Mugabe applied for an extension of time up to last week. Again Mugabe managed to get the courts to defer the by election until end of march next year saying that by then there will have date for hamonised election).

As the new improved prices do not seem enticing enough for sellers at the moment as indicated by the depressed volumes going through in some of the stocks we expect the bullish sentiment to persist into the coming week though this may be curtailed by a little bit of profit taking. We expect an improvement in the volumes and values of activity for the week as sellers are likely to start emerging in the wake of the price increases. Investors should look out for the following: The RBZ has recently introduced 91 Day treasury bills whose uptake was poor. This was directed at financial institutions only. We believe that the RBZ may extend the offer of TB to pension funds who may then be required to liquidate stocks to take these short term paper. Econet interims are expected to come out anytime while Delta and Seedco are expected end of this month. Political developments will be highlighted by the second stage of constitutional process (all stakeholders conference) expected to take place from 21-23 October.

Nigeria:

Nigeria, the consumer goods and banking sectors were the key market drivers, appreciating by 3.9% and 3.6% within the week. In the consumer goods basket, Nestle and Flour Mills were the top performers, appreciating 6% and 5.4% respectively. For the banking stocks, strong regulation of the sector as well as good corporate performances for nine months’ results will be essential for continued progress. Also, the inclusion of a number of banks in the market making basket during the week increased the returns potential for the sector. To a lesser extent, we think market making stocks have changed the dynamics of market returns over the past few weeks. Market making rules allow stocks included in the basket to move within a +/-10% daily band. Last week, the Nigerian Stock Exchange included 9 new stocks to bring the total number to 25 from 16. The stocks are, Union Bank, Access Bank, Academy Press, Custodian & Allied, First Bank, Dangote Sugar, Nascon, Nestle and AIICO. The market reacted positively to strong results from PZ and Union Bank of Nigeria. For PZ, Q1-13 results show a 50% y-o-y PAT improvement to N672 million on the back of relatively lower raw materials costs. As a result of these figures, shares of the company have appreciated 7.4% result to date. Although Union Bank’s gross earnings declined in H1-12, the bank returned to profitability, due to a 42% reduction in interest expenses to N9.7 billion from N16.7 billion, as it exited from expensive funding sources following the bank’s recapitalization in 2011. Also, the bank recorded a huge reduction in impairment charges of N1.3 billion in H1-12 vs. N45 billion in H1-11. This reflects an improved quality of its risk assets portfolio following the sale of NPLs to AMCON. Union Bank recorded H1-12 net earnings of N16 billion vs. a loss of N40 billion in H1-11. In Nigeria, the inflation rate has trended downwards over the last couple of months, but it is expected to rise in Q4-12 in anticipation of a rise in food inflation due to the flooding of millions of hectares of farmlands in the country. Foreign reserves have also increased by 27% this year to US$41.5 billion, which gives the Central Bank enough buffer to defend the local currency, hence we expect the Naira to be stable. For the rest of the year, we think negative earnings surprises if any, could impact adversely on stock performances. The country's entry into the JP Morgan Government Bond Index-Emerging Markets (GBI-EM) from October 1, 2012 could translate to at least USD 1.5 billion of inflows into the bond market.

Kenya:

Kenya, the NSE 20 share index went up by 3.76 points while the NASI edged up 0.16 points to close the week at 3975.79 points and 87.54 points respectively. KCB Group was the second biggest trader during the week, trading a total of 23.9 million shares. Bullish foreign buyers pushed the counter’s share price to the KES 28.00 level it closed during the week. KCB has also launched the search for a new CEO in time for the retirement of Martin Oduor-Otieno in April 2013. Equity Bank was the third biggest trader during the week. The week under review saw opportunistic local and foreign institutions come in after the price dropped to a low of KES 22.50 during the week. Safaricom was the highest traded counter of the week. The share price dropped by 1.2% w-o-w to close at KES 4.05. The week under review saw demand on the counter remain at the KES 4.00 and KES 4.05 level with block demand of the same at the KES 4.10 level. Heavy government borrowing has pushed the national debt to a critical level where it risks upsetting macro-economic stability and slow down growth. The CBK governor is particularly uncomfortable with the fact that much of the borrowing is being done to meet rising administrative costs, depriving the economy the growth momentum it needs to sustain the heavy debt load.

BRVM:

BRVM, the BRVM composite index increased +0.18% this week to stand at 148.53 points. The Infrastructure sector grew +3.34% pulled along by SODECI which gained +6.80%, benefiting from the investment programs in the sector since the beginning of the year; The Transport sector grew +1.80% driven by MOVIS (+2.56%) and BOLLORE AFRICA LOGISTICS CI (+1.04%) on low volumes. The only sector closing the week lower was the Distribution sector (-0.19%) which suffered from the losses in BERNABE (-7.49%). Most of the transactions concerned SONATEL and BOA BENIN which represented respectively 78.59% to 5.19% of the weekly value traded. The market remains stable in general while investors await the publication of the H112 results. The companies started issuing their half year results but most of them have not released yet.

Malawi:

Malawi, activity on the stock market was generally driven by foreign investors who took positions in NICO and PCL. There has not been much improvement in terms of volumes and turnover on the stock market but the current foreign investor participation is vital. It signifies the potential on the market, despite the price drops of MwK0.70 and MwK3.00 on NICO and PCL respectively. The downward trend on NICO may be justifiable when we consider the half year results. PCL’s downward trend on the other hand is as a result of ‘desperate selling’. Looking at the fundamentals of the stock, it not expected to remain on this path. The huge demand for Old Mutual shares was the key driver in its surge to MwK600.00/s. The market has lots of buyers of the stock but most investors have taken a ‘buy and hold’ strategy on it and hence the deviant supply. The market is still lacking unwavering participation that includes institutions, foreigners and retail clients. Going forward, we should see activity mostly driven by local institutions and some foreigners who will want to take positions in the ‘cheap’ stocks available. Activity from foreigners is however going to continue being constrained by availability of forex.

Ghana:

Ghana, The key drivers were SIC, SG-SSB, FML and GOIL mainly in terms of volumes. GGBL and PZC have both released FY,12. PZC made far lower profits due to exceptional items (lay off and restructuring) therefore no dividend declared. The market index made the downward move as a result of the decline in SCB’s share price. The vols traded were low compared to SIC, GOIL and CAL but it accounts for a significant portion of the FI which is the main driver of the market.

Mauritius:

Mauritius, indices ended the week on a negative note with the all-share index losing 0.3% to reach 1,697.71 points. The SEM-7 index gave up 0.4% to reach 327.51 points. Total turnover amounted to US$4.6m and foreign investors were net buyers to USD800k. The Semdex was marked by State Bank which experienced a loss of 0.6% on w-o-w basis. Hotel stocks picked up over the week with the main gainer being Lux Island Resorts which climbed by 6.7% to Rs16.00. NMH recouped part of last week’s losses and ended Friday’s session at Rs56.00 (+1.8%), while Sun Resorts remained level at Rs28.30. See below for some of the market related issues that were in the news during the week: The Mauritian Central Statistics Office revised the 2012 GDP growth down to 3.2% from 3.5% in June; Headline Inflation Rate reached 4.4% in September from 4.6% in August 2012; Rogers will be classified under the ‘Investment’ segment, as from 8th of October 2012; Preparation of IPO Listing of a pure property development group on the official market, Le Merrit Holdings Ltd ( Date TBC upon approval of SEM); The SEM-7 constituents for Q4 2012 were altered with the inclusion of Bramer Banking at the expense of IBL.