African Thoughts: September 03, 2012

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Egypt:

Egypt, the market ended (Sunday) the week up 3.5% the +1.74% gain up until Thursday can be attributed to the positive news coming from the IMF, as the government announced that they agreed on the main points with the IMF. This gave investors a sense of optimism towards the recovery road ahead of Egypt. Adding to this Qatar deposited the first installment (USD500m) of the US2bil aid package. Another important piece of news was china agreeing for a USD4.5bil in FDI (foreign direct investment) in Egypt. Yesterday the market managed a +1.74% gain on the day. Yesterday COMI lead the market in terms of volume and performance, above average volumes were witnessed leaving the name to end the day up 5.02% to last print at EGP31.70. The driver here was a revaluation based on news regarding QNBK seeking controlling stake in NSGB. Please see below what has transpired in the mkt leading up to this such that the revaluation of banking names (specifically COMI) was so drastic:
•  SocGen receives EoI letter from QNB, which seeks CBE approval to start due diligence on NSGB
• Société Générale Group has announced that it has received an expression of interest from Qatar National Bank (QNB) in relation to a potential acquisition of its majority stake (77.17%) in National Société Générale Bank (NSGB)
•  In accordance with Egyptian law, an application has been filed yesterday, August 31st, 2012 with the CBE for the approval of commencement of due diligence on NSGB
•  The press release included a clause stating that discussions are preliminary and that no agreement is guaranteed. If a deal is consummated, we expect a moderate premium to current market price
•  Latest banking deals: We have looked at the latest closed banking transactions in the region, and we do not believe this is a good proxy for a potential QNB-NSGB deal. We recognize that market data on control premiums could be mostly stale or not meaningful, given the low deal turnover in MENA. Recent transactions’ P/B multiples (0.8-1.3x) are at a sharp discount to NSGB’s P/B 2012e of 1.67x
• BNP Paribas’ potential transaction: The potential deal’s implied P/B multiple of 1.14x (based on unconfirmed figures reported by different newswires) suggests a discount to NSGB’s current market price
• QNB’s recent bid on 100% of Denizbank is not relevant: Though Denizbank is comparable to NSGB in terms of growth prospects and profitability, we believe the difference in capital significance of the subsidiaries to the parents and the varying strengths of the parent’s balance sheets make use of Denizbank’s bid/deal prices hard to justify (see details below). QNB offered a 1.0x P/B multiple for Denizbank (Sberbank’s closing offer was 1.33x), which was at significant discount to its traded multiple when the offer was made. We do not believe this is a proper benchmark, though it does suggests that QNB is not in the business of overpaying for assets
• Qualitative factors: One should not ignore one key factor that should support a more premium offer: QNB’s entry to the Egyptian market would perfectly fit in with the bigger trend of increased Qatari interest/influence in Egypt, evidenced by, amongst others: the USD2.0 billion CBE deposits, EFG-Hermes-QInvest deal, Al-Masreyeen Steel license acquisition, the expression of interest to “diversify investments” in Egypt and the announcement that the Qatari investments in Egypt would exceed USD10 billion. In other words, a political side of the transaction could be considered, and we believe this could support a premium price.

Nigeria:

Nigeria, market sentiments remained optimistic as the positive outlook witnessed in all trading days of the week ensured the sustenance of the uptrend amid increased optimism while market breadth was relatively impressive. Activities in the week under review favoured mostly medium and large cap categories in construction like Dangcem, Wapco; Agriculture, Industrial and Banking stocks while it moved against Consumer goods, Conglomerate, Oil & Gas and Healthcare. Selling pressure was pronounced in these sectors. In the week under review, ASI inched up by +1.50% to close at 23,750.82. The total volume traded in the week closed at 1.46 billion units valued at US$67.59 million compared with 878.52 million units valued at (US$66.02 million) exchanged last week. The volume traded in the top ten most traded stocks for the week represented 60.92% of the entire market volume transactions and their total value accounted for 63.24% of the market value. The Financial Services sector emerged the most traded sector in the week in terms of volume closely followed by the Consumer goods sector. GTBank released impressive results. The market hits its year high in the week under review and as at time of writing the market was marginally higher today.

Kenya:

Kenya, the NSE 20 Index edged up 1%. The top gainers and movers list was dominated by small-caps. On Wednesday, the NSE 20 Index peaked at 3,878.13 points only 0.01% shy of 2012’s high (set on 26 July). Foreign investor participation fell to 30.6% from 49.6% as a result of improved trading from local institutions which are increasingly looking at equities. At the close of the week, Diamond Trust Bank announced a 86.2% oversubscription rate on its just concluded KES 2.1bn rights offer. Last week also saw trading of NIC’s rights commence. Investors have until 7th September to trade their rights. Two insurers announced results during the week continuing to show robust performance. Pan Africa Insurance saw its 1H12 EPS up 199%y/y. Newly listed CIC Insurance saw its 1H12 PAT reduce 11.6%y/y; EPS down 34.3%y/y on the back of one-off costs. CIC Insurance was the leading loser at -10.7%. August inflation figures were also released. Based on the data, inflation slid further to 6.09% from 7.74% the previous month. Following the release of the data, investors keenly await the action of the MPC meeting scheduled for Wednesday, 5 September 2012. We expect inflation to remain at single digit levels at least for the rest of the year. Results from the power sector, KenGen and Kenya Power are expected in the coming weeks but activity has been robust in Kenya Power which has seen foreign investors selling as local institutions pick up the stock. In the short term, we believe the market will maintain a bullish tone while on long term the outlook remains dim owing to the upcoming elections. We also believe that the current inflation rate (6.09%) levels will not be sustained going forward owing to rising international crude oil prices and low precipitation levels in most parts of the country.

Zimbabwe:

Zimbabwe, the industrial index gained a marginal 0.75%, this was on the back of increases in the prices of Delta (4.1%) to 71 cents; Econet (0.7%) to 418 cents and Innscor (1.1%) to 54.5 cents. These three counters were backed by strong foreign demand in the week and constitute 46% of the index. The resource index remained quiet again, closing flat at 89.04 for the second consecutive week as demand for mining stocks has wilted at least for now. This is most likely due to liquidity challenges in the market as well as idiosyncratic factors on the part of the respective mining companies. Foreigners were net buyers during the week; they purchased shares worth US$1.5 million and sold shares worth US$1.1 million in the week. AICO held its AGM where management hinted that the company is currently undertaking a series of transactions which will result in all its SBUs being adequately capitalized through a possible demerger of the group. Management also highlighted that the group had looked at all the options to recapitalize over the past few years (these included a rights offer, debt, quasi-equity instruments, self-recovery and seeking strategic partners), however none of these yielded the desired result to retire Cottco’s debt. The Company CEO also indicated that the finalization of the ongoing transaction will result in the demerger of key SBUs and subsequent separate listings on the stock market, the company subsequently issued a cautionary statement. Reporting season – the reporting season came into full swing this week with several companies releasing their results to 30 June 2012. The numbers that have been coming out are quite encouraging with most of them exceeding market expectations but a worrying trend is developing where the market does not seem to respond to good results anymore. The resistance of the market to respond to good earnings can be explained by the massive liquidity constraints on the market that have caused the majority of local institutional players to concentrate on the fixed income market for returns. This has left foreigners being the only ones to drive their market but their allegiance is limited to companies with strong fundamentals such as Delta; Econet and Innscor among a few others. Given the persistent liquidity challenges in the market, foreigners will continue to be the major drivers of the market in the coming week.

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Zambia:

Zambia, The All Share Index closed at 3,732.54 points down by -1.7% from 3,796.32 points, for week ending 31st August, 2012, and down -7.6% for the year. The major mover on the LuSE Index this week were Puma down by -13.25%, now with a capitalisation of 3.3% of the LuSE index, Zambia Sugar Down by -8.8% and now with a capitalisation of 10.3% of the LuSE index. Barti may increase the freefloat of Airtel from <3%. The small freefloat limits liquidity of Airtel to individual and small to medium sized institutional investors. However Larger institutional investors as well as foreign investors currently have low participation. This we believe is suppressing true price discovery of Zain. Earnings are up almost 50% but the share price has not changed.

Botswana:

Botswana, the first week of automated trading ended successfully, with overall market excitement boosted by increased hours of trading. The total turnover for the week was P11.1 million, anchored by Letshego which remains the most traded stock by volume. Weekly gains to keep the momentum on the DCI were recorded in Sechaba which put on 3.7% to close at 1400t, Choppies went up by 1.8% to settle at 168t and Engen put on 1.66% to end the week at 610t. Amongst the shakers were Primetime which shed 2.5% to close at 195t, FNBB lost 1.7% to settle at 290t and NAP gave away 1.4% to close at 217t. Going forward we expect the market to be driven by the first half earnings reporting season which has gotten into full swing, with announcements so far having been made by ABCH, Primetime, NAP, Sefalana and Imara amongst others. Insurance giant BIHL and most of the banks are expected to announce any time soon.

Ghana:

Ghana, the market continues to register unimpressive returns largely as a result of the high interest rates on money market instruments which attracts investors to the money market to the disadvantage of the capital market coupled with poor investor sentiments largely as a result of the perception of macroeconomic challenges associated with election years. Based on these, we anticipate a difficult period for the stock market from now to the end of the year. Both institutional and individual investors are realigning their portfolios in favour of the money market instruments to take advantage of the prevailing high interest rates. We therefore anticipate a further fall in the two key market indicators; the Composite and the Financial Index. On the performance of the local currency, do not be surprised if the cedi continues to record marginal recoveries against the major currencies for the short term. However, as the year gradually moves towards an end, a further loss in the value of the cedi especially against the US Dollar and Euro as merchants start to stock their warehouses and shelves with products including consumables for the yuletide will not be surprising.

BRVM:

BRVM, the market closed with marginal growth recorded of 0.49% this week. Five sectors recorded significant gains: distribution sector won 5.79%, brought upward by CFAO (+15.38%) favored by the merger with SARI, and TRATRAFRIC MOTORS CI (+7.50%). Tobacco sector rose by 2.74% with SITAB’s price increasing by 2.74% during the week, Among the losers were Banking sector (-0.79%) brought by the losses of BOA Côte d'Ivoire (-4.39%) on low volumes and SGBCI (-2.13%). The two most liquid securities were SONATEL and SGBCI representing respectively 48.02% and 26.41% of the total value traded. It is likely that the month of September will be the month of half year publication of most of the companies listed on the market. The general feeling is that the market will be dragged up by this results which will be better than H111’s results. Investors have shown most interest in companies in Petroleum, Infrastructure and Banking Sectors.