IAS_SSA_2011 Review and 2012 Outlook_10 Feb 2012

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Sub-Saharan Africa Stock Markets 2011 Review & 2012 OutlookFebruary 2012

Analysts:Addmore Chakurira Aobakwe Mokgethi Batanai Matsika Belvas [email protected] [email protected] [email protected] [email protected]

Brian Mugabe Farai Vengesai Jimmy Mwambazi Nontando Sibanda [email protected] [email protected] [email protected] [email protected]

www.imara.co


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Table of Contents

Executive Summary ...........................................................................................2

Botswana ......................................................................................................4

BRVM ...........................................................................................................7

Ghana ..........................................................................................................9

Kenya ......................................................................................................... 11

Malawi ........................................................................................................ 14

Mauritius ..................................................................................................... 17

Namibia ....................................................................................................... 19

Nigeria ........................................................................................................ 21

Rwanda ....................................................................................................... 24

Uganda ........................................................................................................ 25

Tanzania ...................................................................................................... 27

Zambia ........................................................................................................ 29

Zimbabwe .................................................................................................... 32

Imara Contact Details ...................................................................................... 35


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Q2

Sour ce: IAS/St ock Exchanges

After a solid recovery by the bulk of Africas majorfrontier markets in 2010, led by the Uganda StockExchange which returned 33.81% in USD terms, riskaversion were the buzzwords in 2011, as concernssurrounding the Eurozone debt crisis and the advent ofthe Arab Spring all led to foreign investors taking avery cautious view of the continent. Local investorswere also wary of equities, especially as monetarytightening in Nigeria and East Africa due to risinginflation and attempts by the central banks in thesecountries to shore up their currencies, meant thatfixed income securities were relatively more attractiveas the year progressed.

Of the twelve main indices covered in this report,(Rwanda is yet to introduce an index), just five closed theyear in the black in USD terms, two marginally so, whileseven closed weaker. Comparatively, eight exchangesclosed firmer in 2010.

The top performer was the Lusaka Stock Exchange, LuSE-ASI, which was up 15.79% in USD returns. Thisperformance was led by Puma Energy, Bata Shoe Companyand African Explosives, which all recorded USD price gainsin excess of 100% over the year. Tanzanias DSEI was thesecond best in USD terms, although some way behind the

LuSE with a 5.14% return, followed by Namibias NSX-Local with a 3.62% return. Both performed far better inlocal currency terms, with the DSEI up 11.97% and theNSX-Local up 28.06%, but dollar strength diluted the hardcurrency returns.

In a sharp reversal of fortunes, Kenya and Uganda were atthe bottom of the pile in 2011, having headed the table in2010. The NSE-20 shed 32.52% in USD terms, while theclosely linked USE-ALSI showed a very similar decline of32.17%. Politics and the impact of the drought in EastAfrica weighed negatively on sentiment in these marketsduring the year. Nigerias NSE-ASI was the third worst

performer, down 20.35% in USD terms. Politics againplayed a role, as Nigeria held its presidential electionsduring the year, while concerns around the resolution ofthe banking sector crisis also had a negative bearing.

With SSAs more liquid markets now driven to a largeextent by foreign investors (which unfortunately hassomewhat increased their correlation to developedmarkets), we expect the Eurozone debt crisis to play alarge role in determining risk appetite for emerging andfrontier markets. With low interest rates in the developedworld and quantitative easing still a reality, a resolutionof the Eurozone issues should see the search for yield findits way to SSA. Fundamentally, Africas prospects remainrelatively bullish, with the World Bank anticipating realGDP growth for the region of 5.3% and 5.6% for 2012/13respectively, against global forecasts of 2.5% and 3.1%.

EQUITY RESEARCH

AFRICA

FEBRUARY 2012

2011 REVIEW AND 2012 OUTLOOK

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Various S&P indices relative to S&P Africa Frontier Index 2011

S&P 500 S&P Euro 350 S&P Bric 40

S&P Latin America 40 S&P Asia 50 S&P Africa Frontier

Source: IAS/Stand ar d & Poors

Growth in SSA closes in on pre-GFC average

Source: Wor ld Bank

Index Open Close % Change (LC) % Change (USD)

LuSE - ASI 3 322.47 4 040.35 21.61% 15.79%

DSEI 1 163.89 1 303.23 11.97% 5.14%

NSX - Local 172.72 221.19 28.06% 3.62%

M SE-DSI 3 922.61 4 238.39 8.05% 0.35%

Semdex 1 967.45 1 888.38 -4.02% 0.09%

ZSE-Industrials 151.27 145.86 -3.58% -3.58%

BSE-DCI 6 412.94 6 970.94 8.70% -6.57%

GSE-Co mp osite 1 000.00 969.03 -3.10% -11.33%

BRVM -Co mpo site 159.10 138.88 -12.71% -14.85%

NSE-ASI 24 770.52 20 730.63 -16.31% -20.35%

USE-ALSI 1 188.07 864.45 -27.24% -32.17%

NSE-20 4 432.60 3 205.02 -27.69% -32.52%

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SSA Movers and Shakers 2011

TOP 20 GAINERS (USD Terms) BOTTOM 20 LOSERS (USD Terms)

Company Country % change Company Country % change

Fidelity Zimbabwe 700.00% Chemco Zimbabwe -93.33%

Pelhams Zimbabwe 466.67% Zeco Zimbabwe -93.33%

PBL Mauritius 443.23% Star Africa Zimbabwe -85.71%

TN Holdings Zimbabwe 421.57% Paints & Coatings Nigeria -85.30%

Cafca Zimbabwe 294.12% G4S Botswana -83.83%

Puma Energy Zambia 239.63% PZ Cussons Ghana -81.73%

Truworths Zimbabwe 179.41% Rio Zim Zimbabwe -81.58%

Roads Nigeria Nigeria 174.23% Bindura Zimbabwe -80.77%

Bralirwa Rwanda 140.20% Diamond Bank Nigeria -75.68%

Union Bank Nigeria 139.73% Fidson Healthcare Nigeria -75.48%

Bata Zambia 138.03% Gulliver Zimbabwe -75.00%

ZBFH Zimbabwe 135.29% Paladin Energy Limited Namibia -73.75%

Nictus Namibia 130.12% CCNN Nigeria -73.33%

RTG Zimbabwe 123.08% UBA Nigeria -73.11%

DCB Tanzania 114.11% Trust Bank Ghana -72.52%ABC Holdings Zimbabwe 111.11% Dangote Sugar Nigeria -72.10%

AELZ Zambia 110.42% Dangote Flour Mills Nigeria -71.73%

SOGB BRVM 96.09% DN Meyer Nigeria -71.04%

Capital Hotel Nigeria 95.15% Afribank Nigeria -70.81%

FBCH Zimbabwe 85.71% Bank PHB Nigeria -70.15%

TOP 20 VOLUME TRADED TOP 20 VALUE TRADED

Company Country Volume (m) Company Country Value (USD m)

Transcorp Nigeria 8,317 Zenith Bank Nigeria 589.16

Zenith Bank Nigeria 6,424 GT Bank Nigeria 446.69

UBA Nigeria 4,942 First Bank of Nigeria Nigeria 399.39First Bank of Nigeria Nigeria 4,880 Nigerian Breweries Nigeria 231.36

GT Bank Nigeria 4,460 Oando Nigeria 169.32

Access Bank Nigeria 3,331 UBA Nigeria 168.23

Safaricom Kenya 3,196 Access Bank Nigeria 154.56

Diamond Bank Nigeria 2,711 Safaricom Kenya 133.42

Fidelity Bank Nigeria 2,648 Vivo Energy Mauritius 131.73

Finbank Nigeria 2,523 MCB Mauritius 131.17

Oceanic Bank Nigeria 1,603 Guinness Nigeria Nigeria 130.72

Skye Bank Nigeria 1,470 Equity Bank Kenya 119.28

Unity Bank Nigeria 1,451 EABL Kenya 111.05

TNM Malawi 1,446 Nestle Nigeria Nigeria 107.12Intercontinental Bank Nigeria 1,357 Econet Zimbabwe 104.66

FCMB Nigeria 1,108 Flour Mills Nigeria 102.21

Bank PHB Nigeria 1,106 KCB Kenya 100.03

Japaul Oil Nigeria 1,105 Diamond Bank Nigeria 93.28

Sterling Bank Nigeria 1,077 Puma Energy Zambia 92.48

N.E.M Insurance Nigeria 1,065 Dangote Cement Nigeria 83.41

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A subsidiary of the Imar

On a y-o-y basis, Botswanas economy grew by 12.4%driven mainly by both the mining and non-mining sectors.It against this back drop that total credit extended bycommercial banks increased to USD 3.64bn from 2.83bnin the previous year, thus reflecting this recovery ineconomic performance. The market was largely driven bythe banking sector during the year, but despite this, thestock exchange ended the year with a negative return inUSD terms. However, in BWP terms, the stock exchangerecorded a positive return.

GDP figures for the 1

st

quarter ended June 2011 indicatedthat, q-o-q, the economy contracted by 2.2%, mainly due tolower output in the mining (-4.2%), financial and businessservices (-6.1%) and general government sectors (-7.6%).However, on a y-o-y basis, the economy grew by 6.4%,reflecting recovery of both the mining and non-miningsectors. Mining grew by 7.2%, while there was also stronggrowth in agriculture (+10.9%), construction (+25.8%) andtransport

and communication (+12.6%). The economypicked up pace in the 2nd quarter, with GDP figuresindicating that the economy expanded by 12.4% comparedto the same period in 2010, while output was also higherthan in the first quarter of the year by 9.6%. Overall growthwas driven by continued recovery in the mining sector,which grew by 23.7% y-o-y. But non-mining growth was alsorobust at 7.4%, led by expansion in manufacturing (+11.8%),water and electricity (+12.2%), construction (+28.3%) andtransport and communication (+12.5%). The World BankReport estimates that GDP growth for 2011 to Decemberwill be 6.8%.

As mentioned, the banking sector was the main marketdriver during 2011, as the four banks posted impressiveresults amidst an uncertain trading environmentcharacterised by increasing competition from unlistedentities. On average, the share price of the four banksincreased by 34.90% during 2011, making it the best

performing sector on the domestic board. Net interestmargins continued to grow although the main focus was oncost containment rather than purely balance sheet andmargin growth. Impairments growth for most commercialbanks has slowed and this will encourage banks to advancemore credit especially to the business sectors of theeconomy going forward.

BancABC continued on its retail expansion programme,opening 4 branches during 2011 in country, with plans toopen a further 5 during 2012. Barclays revamped itstechnological platform which has it put it on par with itsmajor competitors on the technological front. FNBB and

Stanchart focused on retail lending.

EQUITY RESEARCH

BOTSWANA

FEBRUARY 2012


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DCI relative to S&P Africa Frontier Index

DCI S&P Africa Frontier

Sour ce: IAS/S&P

Company (BW P m) (USD m) % of Total

FNBB 6 742.53 911.59 22.08%

Barclays 5 879.91 794.96 19.25%

Letshego 3 017.20 407.93 9.88%

BIHL 2 754.49 372.41 9.02%

StanChart 2 723.89 368.27 8.92%

Sechaba 1 602.83 216.70 5.25%

NAP 1 329.67 179.77 4.35%

FurnMart 952.12 128.73 3.12%

Wilderness 900.90 121.80 2.95%

Engen 880.07 118.99 2.88%

Source: BSE

Top Ten Shares by Market Cap.

Top 5 Gainers and Losers - 2011 Opening Closing % change % change

Company Price Price (LC) (USD)

DCI 6412.94 6970.94 8.70% -6.57%

G4S 3.19 6.00 88.09% 61.67%

ABCH 2.42 4.55 88.02% 61.61%

Barclays 5.55 6.90 24.32% 6.86%

FurnMart 1.31 1.60 22.14% 4.98%

FNBB 2.20 2.65 20.45% 3.54%

FSG 1.80 1.48 -17.78% -29.33%

Letlole 1.50 1.20 -20.00% -31.24%

Imara 3.25 2.10 -35.38% -44.46%

Cresta 1.50 0.79 -47.33% -54.73%

Olympia 0.45 0.23 -48.89% -56.07%

Source: BSE

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Market Review for 2011

During the year the market had 6 new listings, 2 through an IPOand 4 as secondary listings, while only 1 company delisted.Letlole and New Africa Properties listed on the domestic board

during the 2nd

and 3rd

quarter respectively through IPOs, bringingthe number of listed property companies to 5. The foreign boardsaw Botswana Diamonds and Firestone listed during the 2ndquarter, while Lucara and African Energy listed during the 3rdand 4thquarters respectively. IAMGold was the only counter thatdelisted on the foreign board during the Q4 2011.

The DCI started the year on a positive note, up 18.15% to end Q12011 at 6,938.33 points. The biggest gainers for the quarterwere ABCH (+38.78%), RPC Data (+20.00%) and FNBB (+19.46%).Volumes increased significantly in Q2 2011 to just above 2xthose witnessed in Q1 2011. The index experienced somevolatility during the quarter, edging up 0.45% to close the

quarter at 6,969.89 points on the back of increases in PrimeTime (+23.56%), G4S (+13.72%) and Stanchart (+11.24%). In Q32011, volumes and turnover pulled back significantly. The DCIclosed the quarter at 7,146.94 points representing a 2.54%increase from the Q2 2011 close. The biggest gainers for thequarter were ABCH (+50.29%), G4S (+36.07%) and Barclays(+12.20%). Volumes and turnover picked up in Q4 2012 althoughthe index closed the quarter in the red. The DCI was down 2.46%to close at 6,970.94 points weighed down mainly by Cresta (-21.00%), Letlole (-19.46%) and Sefalana (-14.85%). The DCI wasdown 6.57% in USD terms for FY 2011 but was up 8.70% in pulaterms, the biggest gainers being G4S (+61.67%), ABCH (+61.61%)and Barclays (+6.86%) in USD terms.

The FCI closed Q1 2011 up 7.67% at 1,802.41 points drivenmainly by A-Cap (+45.61%), Aviva (+7.69%) and African Copper(+6.06%). Volumes and turnover were marginally down during Q22011. Only two counters, Blue Financial (+37.93%) and Aviva(+1.43%) closed the quarter in the black. The FCI ended Q2 at1,802.74 points, representing a 0.02% increase. Market activitypicked up in Q3 2011, although A-Cap (+22.00%) was the onlycounter that registered positive growth. The FCI closed thequarter at 1,850.42 points representing a 2.64% increase. Theforeign board took a nose dive in Q4 2011 as the index lost7.92% to close at 1,703.91 points, weighed down mainly by A-Cap (-31.56%), Aviva (-26.19%) and Lucara (-17.71%). The FCIwas down 12.33% in USD terms for FY 2011, but was up 1.79% inlocal currency, the biggest gainer being Blue which gained56.67% in local currency terms and (+34.94%) in USD terms.

A total of 458.7m shares changed hands during the year,generating turnover of USD 133.95m, compared to 308.66mshares at a turnover of USD 149.5m in the previous year,representing a 48.62% increase and 10.41% decline respectively.Q2 2011 recorded the highest volume and turnover at 181.1mshares worth USD 47.38m. Letshego dominated the yearsvolume and turnover at 68.67% and 54.72% respectively. Themajor reason for Letshegos dominance was that one of itsmajor foreign shareholder was liquidating their position duringthe year. The total market PER stood at 10.16x compared to

10.77x in 2010, while the liquidity/turnover ratio stood at 3.42xcom ared to 2.06x in 2010.

10 most active stoc ks by volume

Company Vol (m) % of Total

Letshego 315.00 68.67%

Turnstar 33.48 7.30%

FNBB 26.93 5.87%

ABCH 15.07 3.29%

Sefalana 13.42 2.93%

Barclays 9.00 1.96%

BIHL 8.39 1.83%

RPC Data 6.84 1.49%

PrimeTime 6.00 1.31%

FSG 3.93 0.86%

Source : Cap i t a l Secur i t i es / B SE

10 most active stocks by value

Company Val (USD) % of Total

Letshego 73 301 739 54.72%

BIHL 12 150 190 9.07%

FNBB 9 519 948 7.11%

Barc lays 7 941 239 5.93%

ABCH 6 378 377 4.76%

Turnstar 5 988 525 4.47%

Sefalana 5 157 748 3.85%

Sechaba 3 466 111 2.59%

PrimeTime 1 574 729 1.18%

StanChart 1 309 183 0.98%

Source : Cap i ta l Secu r it i es /B SE

53%

9%4%

5%

19%

10%

Market Cap. Composition

Banking

Property

Hotel

Brewery

Financials

Other

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Market Outlook for 2012

According to the World Bank, Botswanas GDP should grow by6.8% in 2011, slowing to 6.2% in 2012 and 5.0% in 2013. Theforecasts for 2011 and 2012 are both higher than the projectedSSA averages of 4.9% and 5.3% for 2011 and 2012, respectively.

The economys projected growth in 2011 will be one of thehighest among sub-Saharan countries. Botswanas projectedGDP growth ranks 12thhighest in Africa after Ghana, Ethiopia,Angola, Cape Verde, Eritrea, Rwanda, Serra Leone, Tanzania,Zambia, Niger, Nigeria and Mozambique and at par withUganda.

Inflation continues to be above the central banks target rangeof 3% - 6%. Inflation rose from 7.9% in January 2011 to 9.2% inDecember 2011 driven mainly by upward pressures frominternational fuel and food prices, as well as increases indomestic electricity tariffs and other levies. As a result, thebank rate and the prime lending rate were maintained at 9.5%and 11% respectively for the year 2011. We are of the view thatthe bank rate will be maintained at the current rate during2012 as the central bank endeavours to bring inflation within itstarget range.

Looking ahead, we expect credit extension to the bankingsector to pick up albeit slowly in line with continueduncertainty in the local economic conditions. In November2011, the central bank reduced the amount of BoBCs issued inthe market by approximately BWP 3bn to about BWP 10bn,citing rising costs associated with issuing more BoBCs to mop-upincreased levels of excess liquidity. In light of this recentdevelopment by the central bank and the subsequent reductionof the BoBC rate, we expect to see some of the excess liquidity

directed in to loans and advances and subsequently into thestock exchange as institutional investors and large corporateslook for alternative investments.

It is for the reasons stated above, that we believe that weexpect the banking sector to continue dominating and drivingthe market in 2012. Although banking sector valuations may notbe as compelling when compared to some Pan-African peers,we believe they are still attractive when you consider the localmarket in isolation. We also expect mid-cap stocks of the likesof Choppies and some property counters to contribute positivelyto the market growth.

Top Picks for 2012

Choppies - The market leading mass grocery retailerin Botswana, and retails fast moving consumergoods, household goods, fruit and vegetables, meatproducts, dry, fresh and baked goods through its

stores in Botswana and South Africa; the Groupoperates 49 stores in Botswana, and 9 stores in SouthAfrica; the investment attraction for Choppies ismainly strong revenue, margin expansion growth,significant market share and attractive dividendpolicy.

G4S G4S is the countrys leading security solutionsgroup; just agreed, subject to regulatory approvals,to acquire the assets of Trojan Security Services.Trojan is the third largest security services providerin Botswana. Its primary operating areas are mannedsecurity; cash in transit and alarm and response; alsoset to acquire The Facilities Management Group(Pty) Ltd (FMG). FMG trades in three divisions:security, facilities management and cleaningservices. If approved, these transactions willsignificantly strengthen the strategic development ofG4S Botswana in terms of both footprint andcapability and allow the company to deliver a widerrange of outsourced solutions to both existing andnew markets.

ABCH The retail expansion has boosted profitabilityof the group; it has the potential to gain market sharefrom some players in the market who seem stagnant;regional presence and the continued recovery of

Zimbabwe should continue to bolster profits; merchantbusiness continues to be robust.

Barclays Botswanas largest bank in terms of loanbook and is the 2nd biggest company by market cap; hasthe biggest branch network and enjoys the largestmarket share; recently introduced new technology suchinternet and cell phone banking.

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Just like the year 2010, the focal point for the WAEMUregion was Cote dIvoire, as the country emerged out of itspost-election chaos.

Efforts to reinvigorate Ivory Coasts economy after thedisputed November 2010 elections took off in earnest in 2011,but the new President, Alassane Quattara, faced and continuesto face, a formidable task in re-building the nation. He facesthe twin challenge of hauling the conflict-crippled economy toits feet whilst fostering reconciliation. Quattara must healethnic divisions that were aggravated by the conflict. While hisgovernment is making strides on both fronts, the politicalenvironment remains strained. Inside the country, the forces

of former president Gbagbo have been all but defeated whilethe remaining threat from Gbagbo loyalists comes principallyfrom forces that fled to Liberia (and to a lesser extent Ghana).In July, and again in September 2011, raids from Liberia killedseveral dozen people in the tense western region.Nonetheless, the end of the post-electoral conflict hasprovided an opportunity to push democratisation forward andunify the country on the terms agreed in the March 2007 peacedeal. The interim unity government continues to function, andboth the incumbent regime and former rebels agree on theneed for economic reform in line with IMF and donorrecommendations.

Given the challenges experienced by Cote dIvoire during theyear, the latest World Bank estimates are that the countrysreal GDP shrank by 5.8%. However, a return to growth isexpected in 2012 and 2013, with forecast real GDP growth of4.9% and 5.5% respectively.

GDP growth rates in the other WAEMU countries for 2011 wereas follows:

o Benin 3.4%

o Burkina Faso 5.8%o Guinea Bissau -4.8%o Mali 5.4%o Niger 6.0%o

Senegal 4.2%o Togo 3.7%

Reflecting the dominance of Cote dIvoires economy in theregional body, is the fact that while the other seven memberstates had decent to very good growth numbers, the negativeout turn from Cote dIvoire diluted the aggregate forecast forthe region in 2011 to just 1.9%, as per the IMFs last regionaleconomic outlook.

While some sectors such as agriculture had a good year on theBRVM, the overall sentiment driven by Cote dIvoires travailswas negative, which saw the BRVM closing 2011 in the red.

EQUITY RESEARCH

BRVM

FEBRUARY 2012




BRVM-Composite 159.1 138.88 -12.71% -14.85%

SOGB 28 000 56 000 100.00% 95.09%

Servair 4 500 7 445 65.44% 61.38%

Sode 11 500 18 000 56.52% 52.68%

SAPH 27 000 40 000 48.15% 44.51%

Bernabe 19 345 25 500 31.82% 28.58%

Trituraf 1 600 1 000 -37.50% -39.03%

Unilever 60 000 38 000 -36.67% -38.22%

Safca 24 800 17 000 -31.45% -33.13%

Crown Siem 31 995 22 850 -28.58% -30.34%

Shell 18 000 12 960 -28.00% -29.77%

Sour ce: BRVM

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BRVM Composite relative to S&P Africa Frontier Index

BRVM Compos ite S&P Africa Front ier

Sour ce: IAS/S&P

Top 10 shares by market cap.

Company XOF (m) USD (m) % of Total

Sonatel 1 250 000 2 470.5 38.78%

Ecobank (ETI) 489 233 966.9 15.18%

SAPH 199 352 394.0 6.18%

Onatel 147 560 291.6 4.58%

Solibra 134 983 266.8 4.19%

SGBCI 121 333 239.8 3.76%

SOGB 120 970 239.1 3.75%

PALM-CI 115 945 229.2 3.60%

Unilever-CI 61 267 121.1 1.90%

SITAB 56 648 112.0 1.76%

Source : BRVM

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Our top stocks for 2012 are as follows;

SAPH- The largest rubber company in Cote dIvoire, with totalproduction capacity of rubber of c98,000 tonnes; internationalrubber prices have recovered; the risk of low rubber/tyredemand has also lessened given that the rebuilding exercise inJapan is expected to sustain rubber demand.

PALM CI- The bullish outlook on palm oil prices is likely to bethe main earnings driver.

SOGB-Engaged in the production of both rubber and palm oil,SOGBs key strength is that it has more attractive marginscompared with its peers given that its earnings come mainlyfrom its own plantations.

SONATEL- Our BUY recommendation is endorsed by the

relative resilience of the sector in general, the healthydividend yield of 11.5%, and the operators diversifiedrevenue streams (across various geographies) underpinnedfurther by VAS as a new revenue stream.

Along with Cote dIvoires political and economicchallenges, a major setback for the BRVM remained therelative lack of liquidity, with ETI and Sonatel dominatingstock activity by volume and value traded, respectively.

Looking at returns, the BRVM Composite declined 12.71%in XOF terms and 14.85% in USD terms to close at 138.88points. 14 counters closed the year in the black, against

25 in the red. The best performing sector was agriculture,led by SOGB (+100%). Other major gainers were Servair(+65.44%), Sode (+ 56.52%), SAPH (+48.15%) and Bernabe(+31.82%), which saw significant appreciation.

Notable on the losers were Shell (-28.00%), Crown Siem(-28.58%), Safca (-31.45%), Unilever (-36.67%) andTrituraf (-37.50%). Sonatel remained the most capitalisedcounter with 38.8% of the total, followed by ETI with15.2% and SAPH with 6.2%. However, Sonatel weighednegatively on the BRVM, as its stock fell 22.0% y-o-y. Thecounter was the most traded by value, constituting58.48%, well ahead of SAPH with 11.39%. Total value

traded for the year was USD 126.1m. Total volumes forthe year amounted to 18.1m shares, with ETI by far themost active contributin 90.09% of total volumes.



The World Bank predicts that Cote dIvoires economicgrowth will rebound to 4.9% in 2012. This recovery in theCote dIvoire combined with solid growth in the rest ofthe region (Togo with the lowest estimate of 4.0% andNiger the highest at 8.5%) will see the WAEMU registeringgrowth of an estimated 6.6% in 2012.

Despite the launch of a reconciliation commission,tensions may linger in Cote dIvoire. Some sections ofsociety strongly opposed Quattara (Gbagbo won 48.6% ofthe vote in the election) as they view him as a stooge ofthe French. There are also presidential elections set forGuinea Bissau, Mali and Senegal in 2012. The latter hasalready seen rising tensions, as the incumbent AbdoulayeWade seeks to run for a third term on a technicality. Hisrivals say his participation breaches rules setting a two-term limit, but Wade argues that his first term shouldnot be counted as limits were added after he had alreadybegun his time in power.

The Eurozone crisis also presents potential risks to theWAEMU region, with the AfDB estimating that over 36%of the regions exports are destined for Europe. Fallingdemand could thus have a negative impact, althoughgiven the CFAs Euro peg, a weakening Euro would tosome offset the fall in demand as WAEMU exportsbecame more competitive. Other major risks would bearound liquidity, given the dominance of foreign banks inBenin, Burkina Faso, Cote dIvoire and Niger inparticular, and higher cost of borrowings on repricedsovereign borrowing risk.

On the whole, given the lower base effects of GDPgrowth in 2011, we expect company results and byextension the BRVM to reflect the improved economicconditions in the region and record a positive outturn in2012.

Top picks for 2012

44.06%

24.78%

15.20%

7.94% 8.02%


Telecoms

Financial Services

Agro Processing

Food and Beverages

Others

Sour ce: BRVM

10 Most active stocks by volume

Company Vol % of total

ETI 16,286,748 90.09%

Sonatel 272,293 1.51%

Palm 234,071 1.29%

SAPH 188,360 1.04%

SOGB 71,372 0.39%

SGB 37,282 0.21%

Filtisac 30,272 0.17%

CIE 15,909 0.09%

BOA CI 15,274 0.08%

BOA BN 14,638 0.08%

Sour ce: BRVM

10 Most active stocks by value

Company Val (USDm) % of total

Sonatel 73.77 58.48%

SAPH 14.37 11.39%

Palm 7.13 5.65%

SOGB 6.69 5.30%

SGB 2.90 2.30%

Sitab 1.57 1.25%

ETI 1.53 1.21%

BOA BN 1.51 1.20%

Onatel 1.10 0.87%

BOA CI 0.96 0.76%

Sour ce: BRVM

8


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EQUITY RESEARCH

GHANA

FEBRUARY 2012


The rise of a Black Star. Ghana is not only making progressin the game of soccer with its so called Black Starsnational team, but is also scoring goals on various otherfronts. Forecast by the World Bank to have had by far thefastest growing economy in SSA and indeed, the world in2011 at 13.6%, the country continues to exhibit a solidmacroeconomic performance.

Oil, of course, was the key driver of this GDP growth, andthus as in 2010, was a key theme in the countrys economicmake up in 2011, as the country benefitted from thecommencement of oil exports. Given the discovery of newoil at the Jubilee Oil fields, it is estimated the country willaccount for approximately 1.6% of regional oil supply by2015. State-controlled Ghana National PetroleumCorporation (GNPC) currently operates in partnership withvarious international oil companies (IOCs), including TullowOil, Anadarko Petroleum and Kosmos Energy, in thedevelopment of the Jubilee oil field, which should reachplateau production of 120,000 bpd. The start-up of theJubilee oil field in December 2010 will transform thecountry into a net exporter.

In line with the positive reviews that its democracy hasreceived, Ghana has taken early measures to manage its

fledgling oil industry and the receipts thereof. Thegovernment and opposition parties in Parliament havepassed into law the Petroleum Revenue Management Act(Act 815), which makes it possible for the government toaccess the annual budget funding amount from oil proceedsand, also makes room for setting up Stabilization andHeritage Funds. Parliament has also passed the PetroleumCommission Act to regulate activities of the use ofpetroleum resources, with a goal of achieving optimalresource exploitation while ensuring high health andenvironmental standards.

Other positive economic news during the year included the

country achieving

its lowest inflation rate since June 1992s8.37%, when it recorded 8.39% in July.

Politically, the country was stable during the year, with thefight to see who would lead the various parties in the 2012presidential election done in the voting booth as it were.Following successful August primaries by the ruling NDC,incumbent President Mills successfully faced down aleadership challenge by Nana Konadu Agyemang Rawlings,the wife of Jerry Rawlings, former president and thefounder of the NDC.

Despite the general good news, Ghanas stock exchange had

a negative return for the year, with much of the oileuphoria possibly having already been priced in (tooaggressively perhaps?) into the exchanges very strong

performance in 2010.



GSE-Composite 1000 969.03 -3.10% -11.33%

Total 10 19.83 98.30% 81.46%

PBC 0.13 0.25 92.31% 75.97%

BOPP 0.75 1.1 46.67% 34.21%

Unilever 5.69 6.64 16.70% 6.78%

UT Bank 0.28 0.32 14.29% 4.58%

PZ Cussons 1.2 0.24 -80.00% -81.70%

TBL 1.33 0.4 -69.92% -72.48%

GSR 5.2 2.75 -47.12% -51.61%

Clydestone 0.07 0.04 -42.86% -47.71%

SPL 0.05 0.03 -40.00% -45.10%

Sour ce:GSE

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

01-Jan-11

31-Jan-11

02-Mar-11

01-Apr-11

01-May-11

31-May-11

30-Jun-11

30-Jul-11

29-Aug-11

28-Sep-11

28-Oct-11

27-Nov-11

27-Dec-11

GSE-CI relative to S&P Africa Frontier Index

GSE-CI S&P Africa Frontier

Sour ce: IAS/S&P


Company GHS (m) USD (m) % of Total

Tullow Oil Plc 28 019 16 421.6 59.19%

AngloGold Ashanti 12 963 7 597.4 27.38%

ETI 1 240 726.9 2.62%

Standard Chartered Ghana 886 519.0 1.87%

Ecobank Ghana Limited 727 426.2 1.54%

Golden Star Resources 702 411.7 1.48%

Ghana Commercial Bank 504 295.1 1.06%

Unilever (Ghana) 425 249.1 0.90%

Guinness Ghana Breweries 323 189.5 0.68%

Fanmilk Ghana 279 163.5 0.59%

Sour ce: GSE

9


11/36


The saying that trees do not always grow to the skymay be true for the GSE in the year 2011. While the mainindex gained 27.55% (USD terms) in 2010, it nose-dived11.33% (USD terms) in 2011. The extent of the declinecan to some extent be attributed to a weaker currency,given that the index lost 3.10% in local currency terms.Overall, we attribute the lacklustre performance todevelopments in the Eurozone that led to frontier market

redemption and less appetite for frontier marketequities, while the markets lack of liquidity also remainsa deterrent.

The main highlight on GSE, however, was the successfullisting of Tullow Oil, which had initially been slated forlate 2010. As a result, Tullow Oil now constitutes 59% ofthe entire market capitalisation of USD 27.7bn, followedby Anglo Gold Ashanti, which constitutes 27.7%. Giventhat these are listed across various exchanges and foreignowned, liquidity still remains a key constraint. The mostactive stock by value-traded was Fan Milk Ghana, whichconstituted 25.0%, followed by Ghana Commercial Bank(19.12%) and Standard Chartered Bank (10.36%). In termsof volume traded, the most active was CAL Bank, whichconstituted 22%, followed by PBC (20%) and UT Bank8.85% .

The following are our top picks for the year 2012;

Guinness Ghana Breweries Limited (GGBL) - The brewer

recently raised GHS 70.0m through a rights offer; optimalcapital structure (with manageable debt levels) will affordGGBL the flexibility to continue to grow its business in anexpanding economy; company plans to grow its market shareof the beer-market in Ghana by 9.0% over the next five years.

Fan Milk a producer of Fanyogo which is arguably Ghanasmost popular dairy product and also the producer of Fanice,is likely to continue benefiting from consumer-drivendemand. Definitely one for the long term.

ETI We like the groups pan-African expansion drive which isstill ongoing, strong technology platform and strong allianceswith international banking groups. Its local subsidiary

Ecobank Ghana is also one to watch, with the holdingcompany having just purchased Trust Bank of Ghana, whichwill be merged with Ecobank Ghana. Scale benefits should bevalue accretive.


The World Bank estimates real GDP growth of 9.0% in2012 for Ghana. The 2010 Oil & Gas Journal (OGJ)annual reserves and production survey attributes660.0m bbl of proven oil reserves to the country.Headline figures of revenue from the oil and gas sector

USD 1.97bn in 2011- look promising, as the offshoreJubilee Field is yet to reach planned peak production,which will make Ghana the sixth largest crude-oilexporter in Africa. We therefore expect the oil-ledgrowth spurt to have positive spill-over effects to non-oil sectors of the economy. Furthermore, as a leadinggold-producer, we expect the firm prices (cUSD1,600/oz) to also fuel growth in the West Africannation. The net effect of these positive economicdrivers should ultimately be an increase in disposableincomes, which will in turn drive the growth inconsumer demand.

Liquidity on the GSE is also set to improve on the backof new listings on the bourse. The GSE has recentlysigned an MoU with Fidelity Capital Partners Limited(FCPL) in which the two organisations intend to work topromote the growth and future listing of companies,especially SMEs on the exchange. Under the MOU, theexchange will be promoted to investee companies ofFCPL, thus enhancing the success of SME listings on theGSE.

Ghanas mandatory government pension scheme whichentails an injection of cUSD 400.0m/annum on localcapital markets through privately managed funds is alsoexpected to boost efficiency and liquidity on the GSE given that 25.0% of the funds will be invested in equities.The new reform is part of a 2008 law that created apension plan aimed at boosting savings in the country.

Top Picks 2012

59.92%

28.89%

8.26%

2.25% 0.67%


Petroleum

Resources/Gold

Financial Services

Consumer Goods

Others

Source: GS

10 most active stocks by volume

Company Vol (m) % of total

CAL Bank 52.08 22.29%

PBC 47.27 20.23%

UT Bank 20.67 8.85%

Fan Milk 14.59 6.24%

SIC Insurance 14.42 6.17%

ETI 14.34 6.14%

GCB 12.99 5.56%

Ayrton Drugs 11.10 4.75%

Enterprise Group 10.42 4.46%

Ghana Oil 9.28 3.97%

Sour ce: GSE


Company Val (USD m) % of total

Fan Milk 24.72 25.02%

GCB 18.89 19.12%

SCB 10.23 10.36%

CAL Bank 9.18 9.29%

PBC 7.74 7.84%

Ecobank Ghana 5.01 5.07%

SIC Insurance 3.84 3.89%UT Bank 3.61 3.65%

GGBL 2.92 2.96%

Unilever 2.70 2.73%

Sour ce: GSE

10


12/36

A year in which deteriorating economic conditions ledto the NSE being the worst performer in SSA

In 2011, inflation soared from 4.50% in December 2010 toa high of 19.72% in November 2011 before easing slightlyto 18.93% in December. This was mainly as a result of adrought which led to food shortages and a rise in theprice of oil due to the Arab Spring earlier in the year.The situation was further exacerbated by the CentralBanks reluctance to tighten monetary policy which ledto a plunge in the value of the Kenya shilling.

The shilling lost about a third of its value over the yearto October 2011, hitting a record low of 107:1 againstthe USD. This plunge was originally as a result of theEurozone debt crisis which led to a flight from emergingand frontier market currencies into the USD. It wasworsened by the Central Banks reluctance to raiseinterest rates in light of rising inflation, arguing that thecauses were purely external.

As macroeconomic conditions looked set to deterioratefurther, the Central Bank belatedly embarked on anaggressive series of interest rate hikes. This saw theCentral Bank Rate almost treble from 6.25% in

September 2011 to 18.00% at the end of November 2011.This helped the shilling to recover to c83 against thedollar by the end of the year with inflation seeming tohave peaked, as it eased for the first time in the year to18.93% in December.

The deterioration of economic conditions as the yearwent by was reflected in the downward trend ofquarterly GDP growth rates. In Q1 the economy grew at4.9% (4.3% in Q1 2010). This rate slowed to 4.1% in Q22011 (4.6% in Q2 2010) and 3.6% in Q3 2011 (5.7% in Q32010). We expect GDP growth rate to have remainedsubdued in Q4 2011 or even trended lower. In December,the World Bank downgraded its 2011 annual GDP growthforecast to 4.3% from 4.8%.

The Nairobi Stock Exchange went from hero in 2010 tozero in 2011, as the slowing economy as well high fixedincome rates led to poor returns for the local bourse,this despite a relatively stable political environment withthe fireworks expected come election time in 2013.

EQUITY RESEARCH

KENYA

FEBRUARY 2012


Top 10 stocks by market cap.

Company KES (m) USD (m) % of total

East African Breweries 139 967 1 601 16.01%

Safaricom 120 000 1 373 13.73%

Barclays Bank of Kenya 71 153 814 8.14%

Equity Bank 58 504 669 6.69%

Kenya Commercial Bank 49 280 564 5.64%

Standard Chartered Bank 46 219 529 5.29%

Bamburi Cement 45 370 519 5.19%

Co-operative Bank of Kenya 44 528 509 5.09%

KPLC 29 836 341 3.41%

BAT Kenya 26 300 301 3.01%

Sour ce: NSE



NSE - 20 4 432.60 3 205.02 -27.69% -32.52%

City Trust 160.00 280.00 7 5.00% 63.32%

Williamson Tea Kenya 185.00 282.00 5 2.43% 42.26%

Kapchorua Tea 100.00 125.00 2 5.00% 16.66%

Limuru Tea 300.00 335.00 11.67% 4.21%

CMC Holdings 12.25 13.50 10.20% 2.85%

Access Kenya 13.50 5.15 -61.85% -64.40%

Kenya Airways 46.00 20.75 -54.89% -57.90%

Housing Finance Co. 26.50 12.40 -53.21% -56.33%

Car & General (K) 47.00 22.75 -51.60% -54.83%

KenGen Co. Ltd 17.00 8.45 -50.29% -53.61%

Sour ce: NSE

0.5

0.6

0.7

0.8

0.91

1.1

1.2

1.3

1.4

1.5

01-Jan-11

31-Jan-11

02-Mar-11

01-Apr-11

01-May-11

31-May-11

30-Jun-11

30-Jul-11

29-Aug-11

28-Sep-11

28-Oct-11

27-Nov-11

27-Dec-11

NSE-20 relative to S&P Africa Frontier Index

NSE-20 S&P Africa Frontier

Sour ce: NSE/S&P

11


13/36


With the NSE-20 having been up 36.50% (localcurrency) and 27.70% (USD) in 2010, it was expectedto at best register a modest gain in 2011 if not a pullback. The deterioration in economic conditionscaused the equity market to come under pressure andthe surge in interest rates made investors shift awayfrom equities to the more lucrative fixed income

market. The benchmark NSE-20 index finally endedthe year 2011 as the worst performer in SSA, down27.69% (local currency) and 32.52% (USD). Likewise,the all-share index (NASI) shed 30.45% (localcurrency) and 35.10% (USD).

Annual market activity contracted to 5.72bn sharesworth USD 892.46m in comparison to 5.9bn sharesvalued at USD 1.15bn that changed hands in 2010.The telecommunication & technology sectoraccounted for 56.74% of total volumes mainly as aresult of Safaricoms dominance. The banking sectorwas the most active in terms of turnover, contributing

40.83% to the total. The turnover ratio slightlyimproved to 8.87% from 7.63% in 2010.

Foreign investor participation improved to KES39.86bn (USD 0.48bn) from KES 26.93bn (USD 0.35bn)in 2010. This represented 51.10% of 2011 turnover incomparison to 30.0% of turnover in 2010.

Market capitalisation shrank to KES 868.24bn (cUSD10.89bn) as at the end of 2011 from KES 1,166.99bn(cUSD 13.96bn) as at the end of 2010. Market PER alsocontracted to 8.35x at the close of 2011 from 14.71xat the end of 2010.

There were three new listings in 2011. CFC Insuranceand Trans-Century listed by introduction in April andJuly, respectively. Tough market conditions wereevident in British Americans IPO which only realisedsubscription levels of rate of 60%. We think thevaluations may also have been a bit rich on this IPO.

The NSE achieved a major milestone in Novemberwith the introduction of two FTSE backed tradableindices: the FTSE NSE Kenya 25 Index and the FTSE NSE

Kenya 15 Index.We believe this development will leadto increased visibility of the exchange amongstforeign investors, hence boosting liquidity. It alsocreates an opportunity for the development of indexbased products, e.g. exchange traded funds.

The exchange changed its name from the NairobiStock Exchange to the Nairobi Securities Exchange toreflect its position as a trading platform of othersecurities other than equities. It also reclassifiedlisted securities into twelve sectors to bring them inline with the various sectors of the economy.



Safaricom 3 195.65 55.87%

Equity Bank 456.46 7.98%

Kenya Commercial Bank 399.73 6.99%

KPLC 240.44 4.20%

Co-operative Bank of Kenya 222.66 3.89%

KenolKobil 185.86 3.25%

Mumias Sugar 161.02 2.82%

Barclays Bank of Kenya 146.32 2.56%

CMC Holdings 70.70 1.24%

KenGen 68.89 1.20%

Source : NSE



Safaricom 133.64 14.97%

Equity Bank 119.47 13.39%

East African Breweries 111.23 12.46%

Kenya Commercial Bank 100.20 11.23%

KPLC 57.92 6.49%

Co-operative Bank of Kenya 43.57 4.88%

Barclays Bank of Kenya 40.92 4.58%

KenolKobil 22.10 2.48%

Kenya Airways 20.47 2.29%

Scangroup 19.63 2.20%

Source : NSE

1.05%1.16%

36.52%

6.40%

7.97%7.63%

3.31%

2.09%

20.15%

13.71%


Agriculture

Automobiles & Accessories

Banking

Commercial & Services

Construction & Allied

Energy & Petroleum

Insurance

Investment

Manufacturing & Allied

Telcommunication & Technology

Sour ce: NSE

12


14/36

Kenya Commercial Bank - It is East Africas biggest bankby assets with the most extensive branch network,therefore best positioned to benefit from the regionsintegration and economic growth prospects. It is also thebiggest mortgage provider in East Africa, a region withrelatively low mortgage uptake and a housing shortage.Furthermore, its one of the cheapest in the sector on a

PER of 5.62x relative to a sector average of 7.22x. Its mainweakness has been its high cost to income ratio relative topeers but having started a restructuring process followingthe appointment of McKinsey to review its processes, weexpect the group to realise greater efficiencies.

Equity Bank The banks focus on the lower end of themarket has been a huge success leading it to be EastAfricas most profitable bank as at 9M 11. It now seeks toreplicate its Kenyan model across East Africa. We believethat microfinance still has huge potential in the region dueto the high number of unbanked people. Currently, tradingat a PER of 8.96x, were of the view that it offers anattractive entry point into this fast growing sector.

KenolKobil A fast growing oil marketer present in Kenya,Uganda, Tanzania, Rwanda, Zambia, Ethiopia, Burundi,Zimbabwe and Mozambique. It exhibits further regionalambitions and has been touted as a possible takeovertarget by global oil marketers. Its main drawback remainsfuel price controls in its key Kenyan market although fromits latest results, it seems to be weathering this well. It

currently trades at a PER of 8.58x.

We expect to see the effects of the difficult economicenvironment in 2011 reflected in upcoming companyresults. For example, banks results are expected totake a hit from the marking to market of their bondportfolios and a rise in NPLs. However, we believe thisinformation is already priced in most banking counters.

Inflation is likely to ease gradually as food prices dropand on the back of a stronger shilling. The Central Bankis therefore likely to hold the CBR at elevated levelswith slow easing. Developments in the Eurozone arealso likely to play a role in the countrys economicoutlook. This is mainly due to the fact that more than25% of Kenyas exports go to Europe.

Kenya is set to hold presidential elections later thisyear or in early 2013. The contest is likely to be astight as the 2007 elections which plunged the countryinto ethnic related chaos. Furthermore, two of thefrontrunners have cases pending at the International

Criminal Court, for their role in the 2007 post-electionviolence. Some glimmer of hope to avoid a repeat ofthe bedlam witnessed in the last election lies in theadoption of a new constitution in 2010. This new set oflaws is meant to devolve some resources away fromcentral executive control to the grassroots. It may helpto ease any desire by the different ethnic groupings towant one of their own to be in power.

On a more positive note, the NSE CEO, Peter Mwangihas said that eight new listings are expected in 2012,with three companies having already confirmed. Thedemutualisation of the exchange is also in the offing

and is expected to improve transparency and corporategovernance. An alternative exchange for SMEs; GrowthEnterprise Market Segment (GEMS); is also expected tobe launched soon.

There is no doubt that the NSE currently providesnumerous buying opportunities having closed the year2011 at a PER of 8.35x. However, we expect themarket to trade sideways mainly because the economyis expected to remain under pressure for a significantpart of the year. Additionally, political risk will beheightened by the upcoming elections with mostinvestors sitting on the side-lines. We believe that it

may be a good time for investors to start looking forgood entry points at the NSE, especially the closer weget to elections, in readiness for a possible bull run in

2013.

Market Outlook for 2012 Top Picks for 2012

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Top 5 Gainers and Losers Opening Closing % Change % Change


DSI INDEX 3 923 4 238 8.05% 0.35%

OML 28 000 42 600 52.14% 41.30%

REAL 100 120 20.00% 11.45%

NICO 920 1 100 19.57% 11.04%

ILLOVO 11 000 13 000 18.18% 9.76%

BHL 640 700 9.38% 1.58%

NITL 1 600 1 600 0.00% -7.13%

MPICO 310 300 -3.23% -10.12%

NBS 1 100 1 000 -9.09% -15.57%

NMB 5 865 5 250 -10.49% -16.87%SUNBIRD 890 700 -21.35% -26.96%

Source : MSE


Company MWK (m) USD (m)* % of Total**

Old Mutual 1 632 457.3 7 982.4 -

Illovo 92 747.8 453.5 41.77%

NBM 24 513.6 119.9 11.04%

Standard Bank 22 400.1 109.5 10.09%

PCL 21 646.0 105.8 9.75%

TNM 19 076.9 93.3 8.59%

FMB 16 353.8 80.0 7.36%

NICO 11 473.5 56.1 5.17%

NBS 5 207.4 25.5 2.35%

MPICO 3 447.1 16.9 1.55%

Source : MSE

*OMIR

** Local Index

0.5

0.60.70.80.9

1

1.11.21.31.41.5

01-Jan-11

31-Jan-11

02-Mar-11

01-Apr-11

01-May-11

31-May-11

30-Jun-11

30-Jul-11

29-Aug-11

28-Sep-11

28-Oct-11

27-Nov-11

-

-

DSI relative to S&P Africa Frontier Index

DSI S&P Africa Frontier

Sour ce: IAS/S&P

The market retreated on negative sentiment and shareoverhangThe MSE traded in negative territory, impacted indirectly bythe global financial crisis through foreign funds attempts toexit the market as risk appetite declined leading to anincrease in redemption calls. Coinciding with Malawis foreignexchange shortage and combined with the MSEs relativelylow liquidity, this meant sell orders remained outstanding,creating a share overhang in most counters.

The total market cap declined 20.1% in US dollar terms. The total market cap for the Malawi registered stocks

declined 20.1% to US$ 1.0bn using the OMIR* rate. Althoughthe market gained 8.05% in kwacha terms, real returns werenegatively impacted by the depreciation of the localcurrency. Only eight domestic counters (from a total of 13)registered positive returns in local currency terms.

Market activity was constrained during the yearAlthough both volume and value traded improved on 2010figures, they remained generally depressed with average dailyvalue traded of USD 0.2m or a market turnover ofapproximately 0.02%. The counters which were activeincluded TNM, NMB, Illovo, NITL and FMB.

Acute foreign exchange negatively impacted economicgrowthThe Malawi economy slowed down on acute foreign exchange,electricity and fuel shortages. This can be attributed to policyprofligacy and the fallout with donors who contributeapproximately 40% of the countrys national budget. Althoughthe RBM devalued the USD/MWK by 10% to 165 from 150 inearly August 2011, this failed to eliminate the forex shortagesas the devaluation remains insufficient and well below theparallel market rate of approximately MWK 260 : USD 1. Thefuel shortage impacted negatively on most industries with theagriculture, manufacturing and transport sectors the hardesthit. Although the Minister of Finance expects growth of 6.9%in 2011 and 6.6% in 2012, the IMF doubt these will beachieved due to a number of structural constraints e.g. fueland electricity shortages. Manufacturing capacity utilisationhas slowed to approximately 60% from highs of above 70%with the viability of most operations threatened. The WorldBank forecasts growth rates of 5.6% in 2011 and 5.0% for2012.

*OMIR: Average exchange rate calculated during thehyperinflationary era using the Old Mutual share price.

EQUITY RESEARCH

MALAWI

FEBRUARY 2012

2011 REVIEW & 2012 OUTLOOK

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Currency shortages to persistWith the authorities arguing that a devaluation wouldtrigger inflation and hurt the poor, a substantialdevaluation is unlikely in the short-term or at least before

the harvest. However, we believe the benefits of adevaluation far outweigh the negative repercussionsespecially given that the devaluation could pave the wayfor constructive dialogue between Malawi and the IMF aswell as other international lenders. Furthermore, theliberalisation of the FX market is also part of the IMFrequirements. Foreign reserves are at low levels ofapproximately USD 200.0m, equal to 1.5 months importcover from 3.4. Given the looming BOP deficit combinedwith escalating inflation, the MWK will remain underduress.

Inflation likely to soarWith food prices accounting for 58% of the consumer priceindex, weather conditions tend to influence the inflationoutcome. The current agricultural season has beenimpacted by the reduced government inputs (especiallyfertiliser which was cut to about a quarter) support due toforex shortages. Inflationary pressures are stillpredominantly driven by supply side factors, with food andfuel price increases accounting for most of the upwardpressure. With no IMF funds to shore up the currency in theshort to medium term and start restoring both internationaland local confidence, the pending BOP crisis will furthershake the currency and fuel inflation. On the groundanecdotal evidence suggests the inflation figure is runningat closer to 20%. Although the currency is pegged at USD

165: MWK, imported goods are priced at the parallel rate.In our view, the first quarter of 2012 is likely to becharacterised by skyrocketing consumer prices exacerbatedby the lower agriculture output. We expect the averageinflation rate for 2012 to be at least 15%.

Real assets well poised for upsideIn light of the spiralling inflation and the continuedcurrency weakness we believe it is a matter of time beforeinvestors move into real assets away from the negativereturns on the money market where yields for 91-day TBsare around 7.0% versus official inflation of 8.1%. This mighteventually push the demand for equities whose valuations

remain surprisingly low in light of the continued currencyweakness. The case for equities is further strengthened bythe generally good dividend yields with a market averagedividend yield of about 5.0%. The MSE (excluding OldMutual) is only capitalised at MWK 1.2bn (approximatelyUSD 1.0bn using the OMIR). Ratings remain attractive inrelation to Sub-Saharan Africa peers, in our view.Furthermore, the foreign exchange shortage is unlikely tolast into perpetuity, and once the share overhang hascleared, stock prices are likely to rebound fairly quickly.

Market Outlook for 2012 10 most active stocks by volume

Company Vol (m) % of Total

TNM 1 446.27 90.96%

NBM 43.15 2.71%

FMB 29.73 1.87%

NITL 16.78 1.06%

MPICO 15.43 0.97%

NBS 11.83 0.74%

NICO 10.44 0.66%

Illovo 8.56 0.54%

REAL 4.44 0.28%

Standard Bank 1.39 0.09%Source: MSE


Company Val (USD m) % of Total

TNM 16.56 36.27%

NBM 16.04 35.13%

Illovo 6.11 13.38%

NITL 1.67 3.65%

FMB 1.29 2.81%

PCL 0.98 2.15%

Standard Bank 0.91 1.99%

NBS 0.78 1.71%

NICO 0.78 1.70%MPICO 0.30 0.66%Sour ce: MSE

31.78%

5.30%

1.23%

8.59%1.55%

51.54%


BANKING

INSURANCE

TOURISMTELECOMS

PROPERTY

MANUFACTURING

Sour ce: MSE

15


17/36

Hist. T+1T+2 Hist. T+1T+2

FMB 650.0 8.6 6.7 5.3 2.0 1.7 1.4 BUY

MPICO 300.0 0.0 0.0 0.0 0.0 0.0 0.0 BUY

NBM 5,250.0 7.1 5.5 4.5 1.8 1.5 1.2 BUYNBS 976.0 3.6 2.5 2.1 1.4 1.1 0.8 BUY

NICO 1,050.0 3.7 3.1 2.6 1.2 0.9 0.7 BUY

Press Corp. 18,000.0 4.1 2.9 1.9 0.8 0.6 0.5 BUY

Std. Bank 10,600 15 14 12 0.8 0.6 0.5 BUY

NBS 976 3.6 2.5 2.1 1.4 1.1 0.8 BUY

Source: MSE

Company PricePER PBV

Recom.

We think the current market pull offers some buyingopportunities for long-term investors. Nonetheless,investing on the MSE is a long-term play given issueswith repatriation of currency for now, while there is thedevaluation risk to consider which can erode any gains

overnight.

However, earnings growth for most listed companies isgenerally expected to be weaker given the economicwoes. Deposit growth for banks has generally beenslower and most account holders are multi-banked asthey chase facilities. Provisions for banks are set toincrease given the economic slowdown, with those withsignificant exposures to tobacco, transport andconstruction likely to be the hardest hit. For banks,forex income has slowed and focus is on efficiency.However, we believe listed banks will weather thestorm given the generally solid balance sheets and

stringent credit control.

Top Picks for 2012

In our view, companies that rely on local inputscommanding a dominant market share do well goingforward, especially Press Corp andNICO.

The tourism sector has been negatively impacted by thefuel shortages and the reduced donor activities whichaffected the conferencing business. Furthermore, theovervalued local currency means that Malawi is, relatively,an expensive destination for international visitors.

Property companies should perform reasonably well andMPICO can potentially surprise on the upside.

We expect companies with significant export earnings andexternal links to perform strongly in light of the weakcurrency especially Illovoand Old Mutual and to a lesserextent Press Corp. Old Mutual with a large part of its

business external to Malawi will probably continue toreflect the street value of its external holding. Thecurrent Old Mutual price indicate an exchange rate ofabout MWK 230 : USD1, implying investors can bring in OldMutual shares and invest in other counters that offersignificant upside.

16


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Given its traditionally strong economic ties with theEurozone, the debt crisis on that continent continued

to weigh negatively on the economy, and by extension,

on the Stock Exchange of Mauritius.

In August last year, the finance ministry cut its growth

targets for the period from 2012-2014 to 4% from 5%, due

to declining tourism revenues from the crisis-hit

Eurozone. At the same time it announced a raft of

reforms that would look to favour growth, improve

welfare and reinforce crisis-prevention systems. The

important Mauritian tourism economy generates about

10% of the countrys GDP, and visitors from debt-mired

Europe traditionally account for around two thirds of

arrivals.

Thus the broader economy remained the major mover of

the exchange in 2011, with economic commentators,

including the African Development Bank, AfDB, noting the

need for the country to restructure its economy, saying

that future overall growth will rely in some part on

Mauritius tackling its fiscal and current account deficits,

high dependency on traditional export partners, high

import-dependence, and relatively poor infrastructure.

According to statistics published by the statistical office,

the economy ended up growing by 4.1% in 2011, with the

performance of the main industry groups as follows:

Sugarcane +0.6% compared to decline of 6.4% in 2010;

manufacturing +3.5% (+2.1% in 2010); construction -1.8%

(+4.3% in 2010), hotels and restaurants +4.0% (+6.0% in

2010); transport, storage and communications +5.5%

(+5.3% in 2010) and financial intermediation which grew

by 5.5%, compared to 4.3% growth in 2010.

Positively, Mauritius continued to score highly in the in

terms of ease of doing business indices, with the World

Economic Forums Global Competitiveness Report 2011-2012 ranking Mauritius second in Africa, (just 4 placesbehind South Africa), at number 54 in the world in terms

of its competitiveness.

Politically, the country was relatively stable, although

there was a slight wobble in July when the then finance

minister and five other members of his alliance partner

Militant Socialist Movement (MSM) party quit the

government in protest against the arrest of the health

minister by an anti-graft watchdog after she was accused

of inflating a government tender to acquire a private

hospital. The finance minister was subsequently replaced

and the cabinet reshuffled, with no real change in policy,

thus restoring any lost investor confidence.

EQUITY RESEARCH

MAURITIUS

FEBRUARY 2012


0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.41.5

01-Jan-11

31-Jan-11

02-Mar-11

01-Apr-11

01-May-11

31-May-11

30-Jun-11

30-Jul-11

29-Aug-11

28-Sep-11

28-Oct-11

27-Nov-11

27-Dec-11

Semdex relative to S&P Africa Frontier Index

Semdex S&P Africa Frontier

Sour ce: IAS/S&P

Sour ce: SEM/CIM

Top 5 Gainers and Lo sers - 2011 Open ing Clo sing % change % changeCompany Price Price (LC) (USD)

Semdex 1 967.45 1 888.38 -4.02% 0.09%

Gamma Civic Ltd 297 398 34.01% 39.74%

Innodis Ltd 31.8 39.8 25.16% 30.52%

Vivo Energy M auritius Ltd 137 161 17.52% 22.55%

MCFIndustry Ltd 38 43.3 13.95% 18.83%

Rogers & Co. Ltd 293 325 10.92% 15.67%

MSM 17.1 13.5 -21.05% -17.67%

United Docks 124 96 -22.58% -19.27%

Dale 20.5 15.8 -22.93% -19.63%

NM H 110 81.5 -25.91% -22.74%

Caudan 2.05 1.5 -26.83% -23.70%


Company MUR (m) USD (m) % of Total

M CB 41 812.70 1 486.47 24.38%

SBM 25 514.20 907.05 14.88%

NM H 13 156.00 467.71 7.67%

ENL Land 8 884.10 315.84 5.18%

Rogers 8 191.50 291.21 4.78%

IBL 5 572.20 198.10 3.25%

Sun Resorts 5 397.70 191.89 3.15%

Gamma Civic 5 303.40 188.54 3.09%

Omnicane 4 925.40 175.10 2.87%

Vivo Energy 4 720.90 167.83 2.75%

Sour ce: SEM/CIM

17


19/36

The Stock Exchange of Mauritius main board, the

Semdex, shed 4.02% in local currency terms to close at

1,888.38 points, while reflecting a flat return in USD

terms, as it put on a marginal 0.09%, thanks to the

currency strengthening against the dollar as at FY 2011.

The net result for the year was a disappointment after a

strong start to the year had seen the index hit a recordhigh of 2,113.61 points in May. Foreign investors were net

sellers to the tune of MUR 480m, inclusive of a 5.2%

disposal of shares in Rogers. Without that exceptional

sale, net outflows were MUR 117.0m.

Market capitalisation closed at USD 5.7bn, up 0.74% y-o-y,

while turnover increased by 32.99% to USD 499.1m.

Turnover by volume was 244.0m shares vs. 339.4m in

2010, a 28.11% decline. The market PER ended the year

at 11.29x, lower than 2010s 14.05x, while the dividend

yield was at 3.04% compared with 2.50% as at FY 2010.

There was one new listing on the exchange in 2011, with

Go Life International PCC being the first company to be

listed on the official market whose securities are traded

and settled in USD.

The company is structured as a

protected cell company and is regulated by the Financial

Services Commission. It was established to effect the

acquisition of 45% of the equity shareholding of Go Life

Health Products Ltd (SA).Go Life (SA) is involved in the

nutraceutical market. The term nutraceuticals refers

to extracts of foods having a medicinal effect on human

health. Having listed at US10c per share, the company

reached a high of US16c before eventually closing at US9c

per share.

In sympathy with the concerns around the Eurozone, the

market has opened the year on a weak note, shedding

3.19% to the end of January 2012, with the Sem-7 down

2.66% as SBM and NMH in particular have started poorly.

Looking at the economy as a whole, the Central Statistics

Office expects GDP to grow by around 4.0% in 2012,

slightly lower than the 4.1% registered in 2011. Exclusive

of sugar, the growth rate would be 3.9% compared to4.2% in 2011. The key tourism sector is expected to grow

by 3%, with tourist numbers which grew to 964,642

against a forecast 980,000 in 2011, expected to increase

to 1.01m in 2012 as the country continues to increase its

marketing efforts towards Asia.

The World Bank has the same estimate growth rate for

2011 of 4.1%, but is rather more negative on the outlook,

forecasting real GDP growth of 3.3% in USD terms for

2012, before recovering to 4.3% in 2013. The sooner the

Eurozone crisis is resolved, the better for Mauritius, but

given the relatively cautious GDP outlook, we think themarket will reflect the same chariness in 2012.


Top picks for 2012


MCB - Our preferred banking stock on the Mauritianbourse; earnings growth expected to be fairly mundane

in 2012, but longer term fundamentals are sound;Growth to be driven more by product diversification andregional expansion.

LUX Island Resorts (formerly Naiade Resorts) Thetourism sector has lagged in terms of performance overthe past couple of years, saddled by poor demand fromits key European market as well as high indebtedness asexpansion capex was pursued just as the GFC hit in2008; in our last sector report we had Lux as a hold, atits then price of MUR 29 per share. It has since droppedto MUR 23.20. While 2012 is likely to prove challengingonce more, we think long term investors should look to

accumulate shares at current levels.

Source: SEM/CIM

Source: SEM/CIM

43.75%

12.91%

8.25%

13.08%

12.77%

8.05%

0.95%0.24%


Banks&Insurance

Commerce

Industry

Investments

Leisure &Hotels

Sugar

Transport

Foreign

Source: SEM/CIM


Company Vol % of total

MDIT 42 248 066 17.31%

ENL Land 25 987 774 10.65%

VIVO Energy 22 614 974 9.27%

MCB 21 222 117 8.70%

ENL Land (P) 18 342 422 7.52%

Caudan 15 839 346 6.49%

NMH 10 763 420 4.41%

SBM 9 021 668 3.70%

Lux Island Resorts 8 711 415 3.57%

Air Mauritius 8 629 606 3.54%

10 most active s tocks by value

Company Val (USD) % of total

VIVO Energy 131 727 318 24.77%

MCB 131 169 237 24.66%

ENL Land 41 166 074 7.74%

NMH 38 740 928 7.28%

ENL Land (P) 30 055 299 5.65%

SBM 29 539 100 5.55%Lux Island Resorts 9 166 238 1.72%

MDIT 8 610 886 1.62%

Air Mauritius 5 341 924 1.00%

Caudan 996 434 0.19%

18


20/36

EQUITY RESEARCH

NAMIBIA

FEBRUARY 2012


The next hot spot for oil exploration? In a positivedevelopment for Namibia, the Ministry of Mines and Energyannounced last year that an estimated 11.0bn barrels in oilreserves were found off Namibia's coast, with firstproduction planned within four years. The find could putNamibia on par with neighbouring Angola, whose reservesare estimated at around 13.0bn barrels and whoseproduction rivals Africa's top producer, Nigeria. Thesepotential crude oil resources will have a considerableimpact on the country.

Having a strongly mining biased economy, Namibia haslargely benefited from the boom in commodity prices andGDP growth has been strong in the past five years (4.4% onaverage). However, the reliance on mining (41% of goodsexport earnings in 2010 and 9.0% of GDP) renders theeconomy vulnerable to external shocks.

Like other countries in the region, Namibia has sought tocash in on historically high commodity prices. In August2011, the Namibian government decided not to implementits plan to raise the corporate income tax rate for the non-diamond mining sector from 37.5% to 44%, followingconcern from the industry. The finance ministry hasinstead proposed a formula-based surcharge to capture

additional mining revenue during better economicperiods. The government is also pushing throughparliament plans for the state-owned Epangelo MiningCompany to be assigned all mining and exploration rightsfor strategic minerals, which include zinc, copper, coal,uranium and gold, but not diamonds.

Amidst positive news was the potentially investorunnerving situation involving Walmarts takeover MassmartHoldings and its African operations, including Namibia. TheNamibian Supreme Court ruled on appeal that the decisionby competition authorities to impose conditions onWalmart's purchase of Massmart, which has three local

subsidiaries, should stand, setting aside a High Court rulingfrom earlier in the year that had scrapped the conditionsimposed by the Competition Commission.

The ruling alsogives Trade and Industry Minister Hage Geingob a final sayover whether conditions attached to the deal by theCompetition Commission are adequate. As was the casewith South Africa, there are concerns that too manyconditions applied to such transactions interfere with thefree market and could dissuade FDI.

Politically, the country remained stable, no surprise reallygiven the massive dominance of President HifikepunyePohamba and the ruling South West Africa Peoples

Organisation (SWAPO) party.

The local index seemed to take a cue from the positiveeconomic developments and was the third best performingin SSA in 2011.



NSX - Local 172.72 221.19 28.06% 3.62%

Nictus 1.05 3.00 185.71% 131.18%

Nambrew 7.86 12.00 52.67% 23.53%

Shoprite 99.85 136.20 36.40% 10.37%

Old Mutual 12.98 17.06 31.43% 6.35%

Oceana Group 38.5 48.00 24.68% 0.88%

Paladin Energy 33.57 10.94 -67.41% -73.63%

Afrox 20.65 16.20 -21.55% -36.52%

Investec 55.98 44.07 -21.28% -36.30%

Anglo-American 345.43 296.40 -14.19% -30.57%

Standard Bank 107.55 99.25 -7.72% -25.33%

0.5

0.6

0.7

0.8

0.9

1

1.11.2

1.3

1.4

1.5

01-Jan-11

31-Jan-11

02-Mar-11

01-Apr-11

01-May-11

31-May-11

30-Jun-11

30-Jul-11

29-Aug-11

28-Sep-11

28-Oct-11

27-Nov-11

27-Dec-11

NSX Local relative to S&P Africa Frontier Index

NSX Local S&P Africa Front ier

Sour ce: IAS/S&P

Sour ce: NSX


Company NAD (m) USD (m) % of Total

Anglo-American plc 399 910 50 239 35.63%

Standard Bank Group 157 683 19 809 14.05%

Firstrand 117 720 14 789 10.49%

Old Mutual Plc 98 953 12 431 8.82%

Shoprite Holdings 74 022 9 299 6.59%

Nedbank Group Limited 73 577 9 243 6.56%

Sanlam Limited 60 585 7 611 5.40%

Truworths 33 888 4 257 3.02%MMI Holdings Limited 25 673 3 225 2.29%

Barloworld Limited 17 385 2 184 1.55%

Source: NSX

19


21/36

GDP growth which has largely been propelled byinvestment in mining is expected to average between

4.0% and 5.0% through to 2015. Growth in the miningsector should continue in 2012 owing to significantinvestments. Namibia was the worlds fourth largestproducer of uranium in 2010 after Kazakhstan, Canadaand Australia. Several new large-scale projects shouldsignificantly increase production in the medium term.

We opine that Pohamba is likely to maintain SWAPOsbroadly pro-business policies to ensure Namibiacontinues to attract sizeable FDI inflows, particularlyinto the mining sector. FDI expanded 147% between2005 and 2010 to USD 858.0m and inflows are set tocontinue growing in 2012, with investments in uranium,gold, manganese and marine phosphates projects andassociated industrial projects associated industrialdevelopments. We also expect external debt liabilitiesto remain relatively modest with little risk of externaldebt servicing problems.

Namibias outlook is closely tied to that of South Africa,which may suffer from its relatively close connection tothe sputtering developed markets in Europe. Given thefact that the NSX comprises mostly dual-listed shares(FTSE or JSE/FTSE) and that the NAD is pegged, one-to-one against the ZAR (under the CMA agreement),

prospects on the NSX overall are also hinged mainly onglobal factors. With the JSE expected to have a strongyear given its performance thus far, we expect the NSXto follow suit.


Our recommended strategy for investors on the NSX would

be to focus on local equities;

We like FNB Namibia given its consistency in earningsgrowth (CAGR of c13% over the past decade), a lucrativedividend payout ratio of 40% that is often augmented byspecial dividends (NAD 1.70 per share in FY 11), as well asstable and consistent growth in valuation.

Nambrew is also unique in that is has penetrated regionalpremium markets in countries such as South Africa andAngola. Furthermore, it has managed to launch products inthe UK, Cameroon, Kenya and Uganda through a globaldistribution, brewing and licensing agreement with Diageo

Plc for some of its brands. At a forward PER of 12.0x,Nambrew definitely looks undemanding compared with itspeers in SSA. While the share price has galloped to historichighs, we still see value in the stock.


The NSX local index was one of the few indices thatended the year on a positive footing. The index gained28.06% in local currency terms and 3.62% in USD terms toclose the year at 221.19 points. On the other hand, theNSX overall index lost 3.34% in local currency terms toclose at 838.42 points.

The key point, however, is the fact that the NamibianStock Exchange (NSX) comprises mostly JSE dual-listed

shares, with Anglo-American representing 36% of thetotal market capitalisation. Other big constituentsinclude Standard Bank (14%), First Rand (10.5%), OldMutual plc (8.8%) and Shoprite Holdings (6.6%). The sevenlisted local Namibian companies constitute less than 1.0%of total market capitalisation. The NSX local index istherefore less exposed to global market influences.Furthermore, local stocks have largely benefited fromregulation forcing local asset managers to hold 35% oftheir portfolios in domestic companies. Thus, the NSXoverall index tends to move in line with the JSE.

Looking at performances, the top gainers in 2011 were

Nictus (+185.71%), Nambrew (+52.67%), Shoprite(+36.40%), Old Mutual (+31.43%) and Oceana (+24.68%).Anchoring the losers were Standard Bank (-7.72%), AngloAmerican (-14.19%), Investec (-21.28%), Afrox (-21.55%)and Paladin Energy (-67.41%). Anglo American was themost active in terms of value traded as it constituted20.29% of the total, whilst Old Mutual was the mostactive by volume, contributing 25.07% to the total.

Top Picks 2012

50.57%35.63%

9.63%

1.55% 2.63%


Financials

Industrial Metals

Retailers

Industrials

Others

Sour ce: NSX



Old Mutual Plc 24.80 25.70%

Firstrand 16.16 16.74%

MMI Holdings Limited 15.14 15.69%

Bidvest Namibia Limited 5.66 5.87%

Afrox 4.99 5.17%

Investec Limited 4.97 5.15%

Sanlam Limited 4.44 4.60%

Standard Bank Group 3.79 3.92%

Barloworld Limited 2.81 2.91%

Anglo-American plc 2.08 2.15%

Sour ce: NSX



Anglo-American plc 92.53 20.29%

Standard Bank Group 52.16 11.44%

Old Mutual Plc 49.04 10.75%

Firstrand 44.68 9.80%

MMI Holdings Limited 35.50 7.78%

Investec Limited 34.34 7.53%

Nedbank Group Limited 28.80 6.31%

Barloworld Limited 26.86 5.89%

Sanlam Limited 17.37 3.81%

Truworths 16.67 3.65%

Sour ce: NSX

20


22/36

With the banking sector expected to have stabilised in

2011 following the passing of the AMCON Bill andsubsequent mopping up of NPLs from the sector to thetune of an estimated NGN 2.8tn or (cUSD 17.4bn), theNSE seemed set for a recovery, with the only caveatseemingly likely to arise from what was set to be ahighly charged political environment with presidentialelections set for 2011.

The election, finally held on 16 April afteradministrative delays, was conducted relativelypeacefully and saw the incumbent, Goodluck Jonathan,garner 59% of the 38.2m votes cast, against 32% for hismain rival, Muhammadu Buhari, a former military ruler

from the countrys arid north. The conduct of theelection was generally hailed as a big improvement on thepolls held in previous years, and with the result meaninga continuation of the ruling PDP/Goodluckadministrations policy reform agenda, the plebisciteshould have proved market positive, but it did not providethe spark required.

All hope for the market then turned once again to thebanking sector, as AMCON went about the business ofcleaning up NPLs from the banking sector. With the mopup operation targeted for 31 October 2011, AMCONs CEOMustafa Chike-Obi estimated that all in all the company

would have purchased NGN 2.8tn (cUSD 17.4bn) in NPLsfrom 21 banks at a cost of about NGN 1.2tn. Aside fromthe NPL purchases, Bloombergquoted Chike-Obi as sayingAMCON had also bought loans that while performing wereconsidered a risk to the sector, with 3 companies (ZenonPetroleum, Seawolf and Geometric) in particular owingvarious banks a combined NGN 275bn alone.

Along with the AMCON clean-up, the Central Bank ofNigeria, CBN, also required that the rescued banks berecapitalised by 30 September 2011. Wema Bank andUnity Bank were successfully recapitalised, while fivebanks entered into different M&A deals. Union Bank

shareholders approved a USD 750m injection by a group ofprivate equity investors led by African Capital Alliancewho now own 60% of its equity; Intercontinental Bank Plcmerged with Access Bank; Oceanic Bank was recapitalisedby Ecobank Transnational Inc and was to be merged withits Nigerian subsidiary Ecobank Plc; FinBank was takenover by FCMB and Equitorial Trust Bank was to be mergedwith Sterling Bank. In August, the CBN revoked thelicenses of three banks for failing to show ability torecapitalise ahead of the deadline, for all intents andpurposes nationalising Bank PHB, Afribank and SpringBank. The assets of these banks were transferred to threenewly created entities: Keystone Bank, Enterprise Bankand Mainstreet Bank, respectively.

EQUITY RESEARCH

NIGERIA

FEBRUARY 2012


0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

01-Jan-11

31-Jan-11

02-Mar-11

01-Apr-11

01-May-11

31-May-11

30-Jun-11

30-Jul-11

29-Aug-11

28-Sep-11

28-Oct-11

27-Nov-11

27-Dec-11

NSE-ASI relative to S&P Africa Frontier Index

NSE ASI S&P Africa Frontier

Sour ce: IAS/S&P



NSE ASI 24 770.52 20 730.63 -16.31% -20.35%

Roads Nigeria 3.01 8.69 188.70% 174.76%

Union Bank 4.20 10.60 152.38% 140.20%

Capital Hotel 3.30 6.78 105.45% 95.53%

Champion Breweries 2.23 4.03 80.72% 71.99%

Okomu Oil 15.20 23.10 51.97% 44.64%

Paints & Coatings 3.36 0.52 -84.52% -85.27%

Diamond Bank 7.50 1.92 -74.40% -75.64%

Fidson Healthcare 3.06 0.79 -74.18% -75.43%

CCNN 15.49 4.35 -71.92% -73.27%

Dangote Sugar 16.00 4.70 -70.63% -72.04%

Sour ce: NSE

Top 10 stocks by market cap.

Company NGN (m) USD (m) % of total

Dangote Cement 1 716.27 10 762.08 26.24%

Nigerian Breweries 714.06 4 477.58 10.92%

GT Bank 419.39 2 629.86 6.41%

Zenith Bank 382.41 2 397.94 5.85%

Guinness Nigeria 368.73 2 312.17 5.64%

Nestle Nigeria 353.26 2 215.13 5.40%

First Bank of Nigeria 290.43 1 821.15 4.44%

Stanbic IBTC 155.63 975.86 2.38%

Lafarge Wapco 129.82 814.05 1.99%

ETI 129.80 813.95 1.98%

Sour ce: NSE

21


23/36

Other positive developments that should have boostedmarket sentiment during the year included ongoingexchange reforms such as directing all stockbroking firmsto segregate their accounts from those of clients, a newcode of corporate governance for operators, theenforcement of minimum capital requirement forstockbroking firms, a commitment to push for theadoption of IFRS by all listed firms and active discussionsaround the demutualisation of the exchange.

Despite the progress made towards resolving the bankingsector crisis, as well as the aforementioned marketreforms, the banking sector and the broader NSE indexstill closed the year in the red. We believe the mainreasons for the market reticence in 2011 were reducedrisk tolerance from foreign investors to frontier andemerging market equities because of Eurozone debtconcerns as well as tight liquidity in Nigeria for much ofthe year as banks remained cautious with regards lendingwhile the increase in the Monetary Policy Rate by the CBNfrom 6.25% in January to 12% in December made fixedincome securities relatively more attractive versus

equities, adding further downward pressure on the NSE.

Given the above, the NSE All Share Index shed 16.31% toclose at 20,730.63 in 2011, (2010: +18.93%). The declinein USD terms was approximately 20.35%. All four quartersrecorded negative returns during the year, with Q3 inparticular taking the biggest hit, the market shedding17.51%. The Q3 performance was precipitated by thethree bank nationalisations, the 30 Septemberrecapitalisation deadline, further monetary tightening bythe CBN with new prudential guidelines being issued and

political instability due to an escalation in Boko Harambomb attacks, including an attack on the UN compound inAbuja in August. All four main NSE sector indices closedthe year in the red, namely the Food & Beverage(-24.26%), Banking (-31.28%) and Oil & Gas (-35.04%),while the Insurance sector lost 14.73%.

Total equity market capitalisation closed at NGN 6.54tn(cUSD 40.87bn) compared with NGN 7.92tn (cUSD 51.6bn)in 2010. There were no new listings in 2011, where 2010had seen market behemoth Dangote Cement coming tomarket. The banking sector sub index, following its poorperformance, lost its status as the most capitalised,

contributing 28.16% (2010 34.20%) to the total equitymarket capitalisation and was overtaken by theadmittedly Dangote Cement skewed building materialssector with 28.97%, (2010 - 26.00%). The breweries sectorremained in third place, although with an increasedcontribution from 11.10% to 16.85%. Financials remainedthe most traded, with 61% of volumes and 58% of value.

Looking at market activity, aggregate stock marketturnover by volume between January and December 2011was 89.6bn shares (2010 - 93.3bn shares), a 3.97%decline, while value traded at NGN 634.9bn (2010 - NGN797.6bn) fell by 20.40%. In USD terms, value traded in

2011 equated to approximately USD 4.1bn compared withUSD 5.4bn in 2010. Q1 was the most active quarter byvolume and Q4 the most active by value.


The turnover ratio deteriorated to 8.36% from 12.51%.

Foreign portfolio investment amounted to a net inflow of

NGN 177.1bn, (2010 - NGN 171.0bn), or circa USD 1.2bn,

with inflows amounting to NGN 511.7bn and outflows to

NGN 334.6bn (2010 - NGN 350bn and NGN 178.8bn,

respectively). Average volumes per day were 364.15m,

while average value traded was approximately USD

16.99m (2010 - 377.9m shares and USD 21.1m

Documents

IAS_SSA_2011 Review and 2012 Outlook_10 Feb 2012