africa 2010 outlook & strategy

7/30/2019 Africa 2010 Outlook & Strategy

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Refertoimportanttermsoruse,disclaimersanddisclosuresonbackpage.

Africa 2010 Outlook and StrategyInvestment Strategy

Equity research | Africa

A PROMISING YEAR FOR AFRICA

Despite the impact of the global recession and the financial crisis on African

economies and financial markets, we believe that the continent is better

positioned than many other regions in returning to high growth and

profitability.

Bankingsectortobenefitfromgrowthandincreasedfundingneed.TheAfrican banking sector is set to continue on its growth path that was

curtailed by the global financial crisis. The borrowing capacity of

individuals,corporates

and

governments

is

still

largely

intact.

Indeed, as

global banks look to curtail some of their business, the opportunity for

local banks seems to be even stronger. We believe that the Nigerian

bankingsectoroffersgoodvalueaftertheshakeupof2009. Ourtoppicks

are Access Bank, FBN and Diamond Bank (Zenith a Speculative BUY) in

Nigeria,andKCBandStandardCharteredinKenya.

Telecomssectorshowswavesofgrowth. Industryprofitabilityhascomeunderpressureasaresultofincreasedcompetitionbetweenexistingand

new market entrants. However, improving economies of scale, cost

innovation and new, potentially higher margin, lines of business (mobile

broadband) will prop up and in some case improve profitability. In

addition,

it

is

expected

that

new

operators

will

limit

initial

promotionalactivityoncetheyhaveaccumulatedsomemarketshare,andreturntoa

strategy of achieving sustainable average revenue per user (ARPU). Our

toppicksinthesectorareCeltelZambia,Sonatel,andMarocTelecom.

Brewing and beverages companies show attractive growth potential.Africa is the sixthlargest beer market in the world, yet it has low per

capita beer consumption. Rising income levels and urbanisation are

leading to increased per capita consumption and a growing consumer

base.Companiesareadoptingstrategiestoexploitthis,includingcapacity

expansion and distribution alliances across countries as well as rapidly

diversifying product portfolios. We are positive on Guinness Nigeria and

NigerianBreweriesduetotheirearningsgrowthprospects,strongbrand

loyaltyand

sustained

focus

on

premium

brands.

Underlying fundamentals in the cement sector still there. Despite theglobal economic slowdown, we still believe that the sector offers solid

longterm investment potential, underpinned by the significant

infrastructuredeficitandhousingshortfallonthecontinent.However,we

are cautious about the outlook over the medium term due to slowing

activity inkeyconstructionmarketsandmoredifficultaccess to finance,

coupled with expected surplus production capacities. As a result, we

expectpricingpressuretooccurinsome markets.Ourtoplargecappicks

inthesectorareBenueCementandLafargeWapco.Oursmallcappicks

includeEAPC,LafargeZambiaandAthiRiverMining.

18 JANUARY 2010

REAL GDP GROWTH RATE (% PA)

2

1

0

1

2

3

4

5

6

2 00 8 2 00 9 2 01 0 2 01 1 2 01 2 2 01 3

Afri ca World

Source:IMF

AA AFRICA INDEX (USD)

55

65

75

85

95

105

115

Ja n08 Jul08 Jan09 J ul09 Jan10

Source:AfricanAlliance

Analyst:

MaciekSzymanski

+27

11

214

8338

[email protected]

Analyst:

JaredJeffery+27112148376

[email protected]

HeadofInternationalSalesandTrading:

RobBrownlee+27112148463

[email protected]

AfricanAllianceResearchisavailabletoour

clientsathttp://research.africanalliance.com

orthroughBloomberg(AARD),

ThomsonReuters,Factset,TheMarket.com

andCapital

IQ.


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2 | A frican A lliance Pa nA frican Se curit ie s Re se arch 18 January 2010


TABLE OF CONTENTS

Macroeconomic overviewReview of 2009 42010 Macro outlook 5Equity market performance in 2009 7

Key marketsKenya 8

Nigeria 14

Other markets

Botswana 18

Egypt 20

Ghana 22

Lesotho 24

Malawi 26Mauritius 29

Morocco 31

Namibia 37

Rwanda 40

Tanzania 42

Tunisia 44

Uganda 48

Zambia 51

Zimbabwe 55

Notes 59


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About this reportThis

report

provides

coverage

of

companies

listed

on

African

stock

exchanges.

Most

of

the

companies

covered

in

this

reportformpartofnormal,fulltime,coverageuniverse.Weprovideratingsforthesecompaniesonthebasisofdetailed

historicalfinancialanalysiscombinedwithtopdownforecasts.

Unlessotherwisenoted,financial information issourcedfromsubjectcompanyfilings,marketdata issourcedfromthe

relevantexchanges,andforecastsandanalysisarepreparedbyAfricanAllianceanalysts.

Wewouldliketoacknowledgeandthankourstockbrokingpartnersfortheirinputwitheconomicandcompanyanalysis

in their respective markets: CIM Stockbrokers (Mauritius), Integra Bourse (Morocco), IJG Securities (Namibia), Tunisie

Valeurs(Tunisia)andEFESecurities(Zimbabwe).

AfricanAlliancehastakencareinpreparingallinformationcontainedinthisreport,butdoesnotacceptliabilityforerrors

orout

of

date

information.

Allsharepricesareasat13January2010.


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Africa 2010 Outlook and StrategyMacroeconomic overview

REVIEW OF 2009

In

2008

Africa

entered

the

financial

crisis/global

recession

in

a

strongposition, having benefited in the lastdecade from debt forgiveness, larger

foreignexchangereserves (2008commoditiesboomandrecentstrongFDI

and portfolio inflows), economic and political reforms, improved

productivity as a result of the mobile phone revolution as well as more

responsiblefiscalandmonetarypolicies.Thishasallowed thecontinent to

escape toshacklesof loweconomicgrowth andachieveanannualgrowth

rateexceeding5%perannum.

Theinitialreactionstotheeventsoflate2008suggestedthatthecontinent

might escape the brunt of the excesses seen elsewhere in the developed

world:Africanfinancialmarketsbeingquitedisjointedfrom therestof the

world, bankingstill relyingondeposit takingand lowrisk loans,as wellas

decouplingtheories

which

suggested

that

Africas

shift

in

outlook

from

the

West to the East are likely to protect it to a large extend from developed

marketproblems.

However, this proved not to be so. Weaker demand from key export

markets,withdrawalordelayinforeigndirectandportfolioinvestment,fall

in taxation revenues (especially tradebased) and fall of the dollar (and

appreciation of African currencies) meant that African leaders had their

handsfullrespondingtotheincreasingneeds,andoftendesperation,ofthe

continentspoorandbusinessesalike.

Asaresult,Africaseconomicgrowthratefellfrom5.2%in2008to1.7%in

2009,according

to

the

IMF.

Nevertheless,

this

positive

growth

rate

was

one

of the highest regional growth rates in the world (notably only India and

China are expected to have grown faster in 2009, at 5.4% and 8.5%

respectively),withthedevelopedworldslumpingintorecession.

Howevertheaggregatefigurehidesthedisparitybetweencountries.South

Africa,thecontinentslargesteconomy,slumpedintoarecessionduringthe

year,havingrecordedacontractioninitseconomyestimatedbythe IMFat

some2.2%.Resourcedependentcountriesalsosawaslump inbothprices

and demand for their products: Botswanas real GDP is estimated to have

shrunkby10.3%astheshuttingdownofdiamondproductiontookitstollon

government revenues,exports andemployment.Nigeria,Angola, Namibia,

Swaziland

and

Senegal

were

also

strongly

impacted.

Overall,thegrowthrateshaveheldupwellasglobaldemandstabilisedand

started to recover. Countries like Zambia have weathered the storm quite

wellduetothecurrencyactingasashockabsorber;thekwachadepreciated

strongly when copper prices fell, but recovered most of the losses when

theybouncedbacksharplyin2009.

Judgingfromthisandotherexperiences,thisposesinterestingquestionsfor

thecontinentaboutthechoiceofeconomicpoliciesandthewaythatfuture

regionalintegrationislikelytobehandled.


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2010 MACRO OUTLOOK

Recovery

in

the

global

economy,

from

a

negative

1.1%

in

2009

to

3.1%

in2010, is expected to drive economic resurgence in Africa during the year.

IMFexpectstherealGDPgrowthratetoattain4%,acceleration fromaslow,

butpositive,1.7%lastyear.

Most of the economic powerhouses on the continent are expected to

registerahighergrowthratein2010thenlastyear:SouthAfricaisexpected

tobouncedbackfromtherecession lastyearandgrowby1.7%,Nigeriato

achievea5%growthrateonthebackofstrongerdomesticnonoileconomy

aswellasapotentialboost inoilproductionafteraceasefire in theNiger

Delta, Egypt to record a marginally higher growth rate (5%) after being

shieldedfrommostoftheimpactoftheglobalrecessionandKenyatofinally

startrecoveringfromtheaftereffectsofits2008postelectioncrisis.Among

the

top

economies,

onlyMorocco

is

expected

to

have

aslower

growth

in

2010(3.2%)thanin2009(5%).

Factors expected to influence African economic performance this year

include:

Globaleconomicconditions.Theeconomicenvironmentintherestofthe developed world will drive theAfrican export volumes as well as

foreignaidandinvestmentintotheregion.Somecountriesandmulti

lateral institutions have frontloaded aid meaning that less might be

availableinthenexttwotothreeyears,strainingfiscalbalances.

Commodity

prices.

Recovery

in

global

commodity

prices

has

beensupportive of African growth in 2H09. Improved export earnings will

aidbothfiscalrevenuesaswellascompanyprofitability.MostAfrican

countrieswillalsosettleforthecurrentlyhigh,butstableoilprice;this

refersbothtooilexporters(intermsofrevenues)aswellasimporters

thathavebeennegativelyimpactedthroughhighimportedinflation.

Weather pattern. Regions such as East Africa have been ravaged bydroughtinrecentmonths,quicklybeingreplacedbyfloods.Stable,and

adequate,rainfallwillgoalongwaytoallowagriculturetobethemain

growthgeneratorthisyearandthenext.

We

believe

that

currently

as

things

stand

the

prospects

for

the

above

factorsarefavourableandsupportiveof4%realGDPgrowthin2010.


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REAL GDP GROWTH (% PER ANNUM)

Region/country 2008 2009 2010 2011 2012 2013

NorthAfrica

Morocco 5.6 5.0 3.2 4.5 5.0 5.0

Tunisia 4.6 3.0 4.0 5.0 5.6 5.8

Egypt 7.2 4.7 5.0 5.0 5.5 6.0

WestAfrica

Nigeria 6.0 2.9 5.0 5.2 5.9 6.2

Ghana 7.3 4.5 5.0 22.5 7.1 5.3

Senegal 2.5 1.5 3.4 4.4 4.8 4.9

Coted'Ivoire 2.3 3.7 4.0 4.5 5.1 5.7

EastAfrica

Kenya 1.7 2.5 4.0 5.0 6.3 6.5

Uganda 9.0 7.0 6.0 6.8 7.0 7.0

Tanzania 7.4 5.0 5.6 6.7 7.5 7.5

Rwanda 11.2 5.6 5.8 5.9 6.1 6.1

SouthernAfrica

Angola 13.2 0.2 9.3 8.4 5.4 6.5

Botswana 2.9 10.3 4.1 8.5 13.8 8.9

Lesotho 3.5 1.0 3.1 4.8 4.8 4.6

Namibia 2.9 0.7 1.7 2.2 2.7 3.0

Malawi 9.7 5.9 4.6 3.2 3.2 3.2

Mauritius

6.6

2.1

2.0

4.7

4.2

4.2

Swaziland 2.4 0.4 2.6 3.1 2.6 2.5

Zambia 5.8 4.5 5.0 5.5 6.0 6.1

Zimbabwe 14.1 3.7 6.0 6.0 6.0 6.0

SouthAfrica 3.1 2.2 1.7 3.8 4.3 4.5

Africa 5.2 1.7 4.0 5.2 5.3 5.3

Brazil 5.1 0.7 3.5 3.5 3.5 3.7

Russia 5.6 7.5 1.5 3.0 3.7 4.2

India 7.3 5.4 6.4 7.3 7.6 8.0

China 9.0 8.5 9.0 9.7 9.8 9.8

UnitedStates 0.4 2.7 1.5 2.8 2.6 2.5

EuropeanUnion 1.0 4.2 0.5 1.8 2.3 2.4

Japan 0.7 5.4 1.7 2.4 2.3 2.0

World 3.0 1.1 3.1 4.2 4.4 4.6

Source:IMFOct2009WorldEconomicOutlook


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EQUITY MARKET PERFOMANCE IN 2009The firstquarterof2009wasredacross theboard,as the flight toquality(i.e. developed markets) was in the full swing. Africa, together with other

emerging markets bore the brunt of the flow of funds and local markets

wereseverelypunishedbyforeigninvestorsliquidatingpositions,withmost

ofthemarketsendingdeepinthered.

The situation improved in 2Q09 when some of the larger African markets

benefited from the changing sentiment (improved perception of emerging

marketscomparedtolowgrowthdevelopedmarkets):EGX30surged36%,

Nigeriagained25.3%,Morocco11%andSouthAfrica8.3%.MSCIFrontierex

SA gained 32%, compared to MSCI World index gain of 19.7% during the

period.Itwasinthisquarterthatmostofthegainsfor2009weremade.

Therestoftheyearwasmixed,withSouthAfricarecordingtwosuccessive

quarters of teen returns, Egypt followed up in 3Q09 with 18.6% return

beforelosing8.2%in4Q09,whilelossesinNigeriaacceleratedasaresultof

thelocalbankingcrisis(down33.8%fortheyear).

Index Country 1Q09 2Q09 3Q09 4Q09 2009

BSEDomestic Botswana 8.3 3.4 10.8 4.9 2.9

BRVMComposite CotedIvoire 16.3 3.4 6.1 2.4 25.9

EGX30 Egypt 8.8 36.0 18.6 8.2 35.1

Ghana

ALSI

Ghana

11.4

41.3 16.0

11.4

46.6Nairobi20 Kenya 20.3 17.5 8.8 8.1 7.8

MSEALSI Malawi 18.2 0.6 0.2 3.9 15.4

SEMDEXALSI Mauritius 9.4 32.2 16.8 0.3 40.4

MoroccoNewALSI Morocco 5.3 11.4 7.1 3.0 4.9

NamibiaLocal Namibia 1.5 0.5 3.1 0.1 2.0

NigeriaALSI Nigeria 36.9 35.3 17.9 5.6 33.8

SwaziALSI Swaziland 0.3 0.4 2.0 1.3 4.1

DSEALSI Tanzania 0.7 0.0 0.8 2.4 3.8

TunisALSI Tunisia 7.4 18.4 10.5 5.6 48.4

UgandaALSI Uganda 16.6 21.0 8.2 1.2 6.3

LuSEALSI Zambia 14.0 25.8 2.3 0.4 10.1

ZSEIndustrial Zimbabwe 32.3 128.0 2.4 10.4 41.6

FTSE/JSEALSI SouthAfrica 5.3 8.3 13.0 11.1 28.6

FTSE100 UnitedKingdom 11.5 8.2 20.8 5.4 22.1

Nikkei225 Japan 8.5 22.8 1.8 4.1 19.0

S&P500 UnitedStates 11.7 15.2 15.0 5.5 23.5

ShanghaiComposite China 30.3 24.7 6.1 17.9 80.0

MSCIWorld 12.5 19.7 16.9 3.7 27.0

MSCIFrontierexSA 19.4 32.3 1.8 5.1 3.1

MSCIEM 0.5 33.6 20.1 8.3 74.5

Source:AfricanAlliancedatabase


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Africa 2010 Outlook and StrategyKenya

ECONOMIC ACTIVITY REAL GDP GROWTH (% PA)

The

slow

recovery

in

Kenyan

economic

activity

continued

during

2009

as

theGDPgrowthrateacceleratedtoanestimated2.5%from1.7% in2008. If it

was not for adverse weather conditions that hampered agriculture and

electricity generation, the growth rate could have been closer to the 4%

mark. The IMF expects this growth rate to be achieved in 2010, and a

recoverytothepotentialgrowthrateofaround6%by2012.

Sectorswhichshowamarked improvement includehotelsandrestaurants

(recovering fromthedamagecausebythepostelectionviolence in2008),

as well as financial intermediation, real estate and renting, and business

services.Expansionary fiscalpolicyandincreasedinfrastructurespendaugur

wellforeconomicgrowthin2010andbeyond.

0

1

2

3

4

5

6

7

8

2000 2003 2006 2009 2012

Source:IMF

POLITICAL CLIMATEIn 2009 there was an uncomfortable truce due to the grand coalition

government making constructive policymaking all but impossible. Tussles

over President Kibakis appointment of Justice Ringera to the Kenya Anti

CorruptionCommittee(andhiseventualresignationunderpublicpressure)

andoverwhoshouldbeleaderofgovernmentbusinessinparliamentwere

hot topics during the year. Thus, a year that had started with promises of

constitutional reformandthebringingtobookofthoseresponsibleforthe

2008postelectionviolence,endedwithlittleprogressbeingmade.

Thelackofprogressinbringingjusticetothevictimsof2008promptedKofi

AnnantohandoveralistofperpetratorstotheInternationalCriminalCourt

(ICC)in

June.

The

ICCs

chief

prosecutor,

Luis

Moreno

Ocampo,

announced

that he would begin formal investigations into the violence in December

2009. Suspects could then be brought to trial at the Hague for crimes

against humanity. Both main parties reluctance to act on the issue has

broughtaccusationsofsupportforacultureofimpunity.

Constitutional reform,vitalforlongtermstabilityinthecountry,didstartto

moveintherightdirectioninthelate2009.Adraftconstitutionwrittenbya

Committee of Experts was released in November 2009. After public

comments,thedocumentwashandedtoaParliamentary SelectCommittee

for further revision and comment on 7 Jan 2010. The draft constitution

seeks to shift away from the current, presidentdominated, system toone

moreparliamentaryinnature,withaprimeministerwiththerealpoweras

headofgovernment.

MONETARY SECTOR CONSUMER INFLATION (% Y/Y)Despitethedroughtconditionsputtingupwardpressureonfoodprices,the

highbaseeffectresultedininflationslowlyfallingduringtheyear fromthe

near 30% level to high teens. Core inflation, however, fell below the

monetarypolicytargetof5%allowingthecentralbanktoadoptarelatively

loosemonetarypolicy.TheCentralBankofKenyakeptitsCentralBankRate

(CBR)unchangedforawhileat7.75%followingthreeconsecutivecutsfrom

8.50%inMarch;howeveritreducedtherateby75bpto7%inNovember.

0

5

10

15

20

25

30

35

Ja n08 Jul

08 Jan

09 Jul

09

Ari th me ti c Ge om et ri c


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Starting inOctober, the inflationmethodologyused by theKenyaNational

Bureauof

Statistics

was

also

changed

from

arithmetic

to

geometric

mean.

Thisimmediatelycausedtheinflationtofallfrom17.5%y/yinOctobertoa

revised figure of 6.6% y/y. Further revisions to the CPI calculation are

expected in February 2010 which will see the weighting for food decline

significantly.Thisshould lead to the inflationrate falling further.However,

therisingcostofpower,asthermalpowergenerationincreasesduetorising

demand,willcounterthisfall.

In other news affecting the financial sector, CBK licensed Credit Reference

BureauAfrica(CRBAfrica)asKenyasfirstcreditbureau.Twomorebureaus

arelikelytoreceivelicensesinthenearfuture.

FISCAL SECTORDuring2009thegovernment launchedaKES22.5bn(USD300m)economic

stimulus plan. Some of the new investment is being targeted at growing

foodproduction,mostlyviaconstructionof irrigationschemes. Inorder to

meet funding shortfalls, the government launched infrastructure bonds

raising KES 37bn for the exclusive use for infrastructure development. In

addition,Kenyaspowergenerationutility,Kengen,raisedKES25bnthrough

itsownbondoffering.

In1H10toDec09theKenyaRevenueAuthority(KRA)collectedKES260.8bn,

falling shy of the budget target by KES 1.3bn, but still 13% y/y. The KRA

hopes to raise KES 545.2bn for FY10, 13% higher than the KES 480.6bn

raisedin

the

FY09.

EXTERNAL RELATIONS KES/USD EXCHANGE RATEThe Kenyan shilling fell sharply in the early stages of the financial crisis as

foreigninvestorsliquidatedpositionsinthemoreliquidmarkets.Hencethe

currency wasalready weak (undervalued) at the beginningof 2009. In the

initial stages of the year the shilling managed to hold its own against the

USDdollararoundtheKES/USD80level;howeveritstartedtoappreciateas

normalityreturnedtothelocalmarketandtheUSdollarstartedtoweaken

againstmostglobalcurrencies.

Forexcurrencyinflowsarelikelytocontinuetobeunderpressuredueto the

higher cost of fuel imports and reduced Diaspora remittances, but we

expectthattheunitwillberangeboundatKES/USD7080duringtheyear.

60

65

70

75

80

85

Ja n08 Jul08 Jan09 Jul09 Jan10



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10 | A frican A lliance Pa nA frican Se curit ie sRe se arch 18 January 2010


EQUITY MARKET OVERVIEW NSE 20 AND AA BANKS INDEXTheKenyanequitymarkethadadifficult2009,following2008duringwhichthe NSE 20 Index lost 35%. Last year was a story of four quarters: during

1Q09 the market was sold off strongly in tandem with other emerging

equity markets (32% off at the lowest point); the bounce that followed in

2Q09took themarketbackalmost to theopening levels.During3Q09the

highlevelofinflationaswellastheactivebondmarketattractedattention

away from the equity market. 4Q09 saw foreign buying in the industrial

sector(mainlytelecomsandutilities),butbankswereleftbehindstruggling

withincreasingnonperformingloansandassetgrowthslowingontheback

of difficult trading environment and pressure on disposable incomes. As a

result, the NSE 20 Index ended the year only 7.8% lower, with Safaricom

providingthemostsupport(26.4%gainduringtheyear).

40%

35%

30%25%

20%

15%

10%5%

0%

5%

Ja n Mar Ma y Jul Sep Nov

NSE20Index AABanks

Source:

African

Alliance

database

COMPANY EARNINGS1

NSE-LISTED COMPANY EARNINGSThe trading conditions during the year were difficult, but better than the

14.1%declineinearningsrecordedin2008.Thecementsectorshowedthe

highestprofitgrowth(estimatedat83%),whilethebankingsectorearnings

grewonlybyanestimated9.8%duringtheyear.Earningsinthebrewingand

telecoms sectors are both expected to have fallen in 2009, by 4.8% and

22.5%respectively.Weexpectthat2010willbeanimprovedyearformost

of the market sectors with banks, brewing and telecoms sectors growing

their earnings by 15.3%, 24% and 22.6% respectively. Only the cement

sectorisexpectedtosufferamarginalearningsdeclinein2010(1.1%).

AccordingtoNSEestimates,themarketendedtheyearonaPEof13.4x,up

from11.4xattheendof2008.

40

45

50

55

60

65

70

75

20 07 20 08 2 009 2 01 0 2 01 1

20

15

10

5

0

5

10

15

20

25Growthrate(%)(RHS)

Earnings(KESbn)

Source:AfricanAllianceestimates

1Financialanalysisisbasedoncompaniesundercoverage


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VALUATIONS

Dec10 Dec11 12m 24m Dec10 Dec11

FPE FPE PEG PEG FDY FDY

BanksandFinancial

BarclaysBankofKenyaLtd 10.5 9.1 1.77 1.05 5.2 7.2

CoopBank 9.0 7.7 0.50 0.55 2.4 3.2

DiamondTrustOfKenya 8.1 6.8 0.42 0.47 4.1 4.9

EquityBankLtd 11.6 8.6 0.81 0.53 3.3 4.1

HousingFinanceCoLtd 18.9 16.4 1.21 1.34 2.0 2.3

KenyaCommercialBankLtd 8.3 6.9 0.42 0.46 6.6 8.2

NICBankLtd 8.4 7.1 0.50 0.52 4.0 7.1

StandardCharteredBank 8.7 8.3 1.06 1.34 7.1 7.7

Brewing

and

Beverages

EastAfricanBreweriesLtd 12.3 10.6 0.69 0.84 6.4 7.5

Cement

AthiRiverMiningLtd 13.2 10.1 0.60 0.57 1.5 2.2

BamburiCementCoLtd 9.8 8.5 1.05 0.82 4.2 4.8

EAPortlandCementLtd 5.9 4.5 NA NA 3.9 6.7

TelecomsandIT

AccessKenya 14.0 8.6 0.47 0.38 3.8 6.3

SafaricomLtd 13.1 11.3 0.90 0.72 3.4 4.7

RECOMMENDATIONS

Prices(KES) Performance(%)

Sector/companyname 13Jan10 FairvalueUpside% Dec09 2009 Rating

BanksandFinancial

BarclaysBankofKenyaLtd 49. 25 48. 76 1.0 1.6 10.9 HOLD

CoopBank 9.25 8.59 7.1 0.6 15.6 HOLD

DiamondTrustOfKenya 72. 00 71. 98 0.0 4.5 2.2 HOLD

EquityBankLtd 14. 35 12. 34 14.0 6.7 18.5 SELL

HousingFinanceCoLtd 17. 70 11. 73 33.7 15.4 7.2 SELL

KenyaCommercialBankLtd 20. 75 24. 15 16.4 1.2 12.8 BUY

NICBank

Ltd

32. 25 29. 95

7.1 5.9

28.2 HOLD

StandardCharteredBank 157.00 166.81 6.2 9.5 0.6 BUY

BrewingandBeverages

EastAfricanBreweriesLtd 150.00 143.21 4.5 4.3 0.7 HOLD

Cement

AthiRiverMiningLtd 105.00 110.02 4.8 13.8 22.7 BUY

BamburiCementCoLtd 158.00 131.99 16.5 1.9 5.5 SELL

EAPortlandCementLtd 80.00 125.92 57.4 0.0 0.6 BUY

TelecomsandIT

AccessKenya 20. 50 19. 65 4.1 1.3 2.4 HOLD

Safaricom

Ltd

5.40 3.99

26.1

6.2 26.4 HOLD


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KENYA COMMERCIAL BANK (KCB) PRICE PERFORMANCE (KES)

While

KCB

has

good

organic

growth

opportunities

due

to

its

strong

presencein markets outside Kenya, its current key constraint is its low capital

adequacy ratio in 3Q09 (13.0%). This is being addressed via an intended

KES10bn bond issue in 1H10, which we believe will be successful. As a

result,weexpectitsPEandPBrelativeratings,whicharethelowestamong

the tier 1 Kenyan banks, to improve. We also expect a substantial

improvementin4Q09EPSowingtohighprovisioningthatoccurredin4Q08.

KCBscurrentrelativelowratingoffersvalue.40%

35%

30%

25%

20%

15%

10%

5%

0%

Ja n Ma r Ma y Jul Sep Nov


STANDARD CHARTERED BANK OF KENYA (SCBK) PRICE PERFORMANCE (KES)With 3Q09 performance above our expectations, we upgraded our

recommendation andrevivedourEPSestimatesupwards(KES16.52).While

3Q09showedthatstronggrowthin1H09deposits(29.4%y/y)andNIMwas

notsustainable,webelieveahigherearningsbasehasbeenestablished.We

expectSCBtoremainthemostcostefficientbankinthesector.Inaddition,

webelieveitsprovisioningtobethemostconservativeinthesector.Ahigh

forwarddividendyieldlimitsdownsidesharepricerisk.

25%

20%

15%

10%

5%

0%

5%



ATHI RIVER MINING (ARM) PRICE PERFORMANCE (KES)With impressive 1H09 performance, ARMs plans to expand cement

business todriverevenuegrowthcoupledwith itswellplacedcompetitive

advantagetoaddcapacityatsignificantlylowercostthanitspeers,allowsit

to run a higher margin business. Despite likely pricing pressure and low

forecast capacity utilization owing to more competition from external

markets,weexpectearningstogoupwithwellsupportedmarginsowingto

benefitsfromdiversifiedproductbaseandregionalmarketpresence.Overa

period of 3 years, we expect principal payments (due to high financial

gearingdebttoequityof+200%)toeasecashflowpressure.ARMremains

oneofourtoppicksonanattractiveforwardPEbasis.

40%

20%

0%

20%

40%




13/60



EAST AFRICA PORTLAND CEMENT (EAPC) PRICE PERFORMANCE (KES)

Despite

margins

lagging

industry

players

owing

to

paying

premiums

forclinker imports and using fuel oil as its main energy source, we believe

bettercapacityutilisation,marginimprovementfromuseofcoalinthekiln,

efficientmillingcapacityandclinkerselfsufficiencytodrivefutureearnings

growth.Weexpectearningstonormalizefromthegaininassetrevaluation

inFY09.KeyriskstoEAPCsrevenuegrowthincludepricingpressuredueto

increased competition, delays in expansion projects, timely delivery of

importedclinkerandaccessibility toexternalmarkets.20%

15%

10%

5%

0%

5%

10%



EAST AFRICAN BREWERIES LIMITED (EABL) PRICE PERFORMANCE (KES)EABLremainsthe leadingbrewer inEastAfrica.DuringFY0509,estimated

salesvolumeregisteredaCAGRof16.7%,butEABLislosingshareinitskey

Kenyamarket(FY09:76.5%).WhileweexpectEABLtomaintainitsdominant

position, given its established distribution network and brand portfolio,

market share is expected to fall to 71% by FY14. To compensate, EABL is

increasing its presence in southern Sudan, eastern Congo, Rwanda and

Ethiopia, to capitalise on rising percapita incomes. We anticipate export

volumestoincreaseataCAGRof20.9%overFY0914,contributing9.8%to

total sales volumes in FY14 (5.3% in FY09). However, legal and regulatory

hurdlesinTanzaniaandEthiopiahavedelayedregionalexpansion.

We rate EABL a HOLD, however the counters exposure to the Kenyan

consumer market and good trading liquidity suggests that it should be

accumulatedifthesharepricefallsbelowKES140.

40%

30%

20%

10%

0%

10%


Source:African

Alliance

database

SAFARICOM PRICE PERFORMANCE (KES)Safaricomhassignificantupsidepotentialinitsvariousdatabusinesses(M

pesa, mobile broadband, etc), but this is offset by slowing growth in its

voicebusinessastheoverallmarketmatures.WeexpectFY010to increase

by 25.3% y/y. However, this growth is off a low base after a particularly

difficult FY09 (2H09 in particular), and FY10 EPS will still be slightly lower

thatrecordedinFY08.WeforecastcompoundannualEPSgrowthof19%pa

overthenextfiveyears.

Safaricomssubscribernumbersstoodat14.5matendSeptember2009,up

almost9%fromMarch2009.WeexpectittoclosetheyeartoMarch2010

with subscriber numbers of approximately 15.3m (+14% y/y). Current

marketshareisaround78%andweexpectthistodeclinegraduallyoverthe

next five years due to continued competition, notably from the likes of

Orangewhohasnowemergedasacompetitorofsomereckoning.

We calculate average tariffs to have declined from around KES 21/min in

FY05 toaroundKES8.1/min inFY09,adeclineof61%.Weexpectaverage

tariffstodropfurthertoKES7/mininFY10FandsettleataroundKES6/min

over the forecast horizon. As a result, ARPU for FY10F is estimated at KES

358(14%y/y)andaroundtheKES350levelinsubsequentyears.

We calculate a 12month total return potential of 17.9%, which is in line

withSafaricomscostofequity,andthereforeratethestockaHOLD.

50%40%

30%

20%

10%

0%

10%

20%

30%

40%

Dec Feb Apr Jun Aug Oct



14/60


Africa 2010 Outlook and StrategyNigeria

ECONOMIC ACTIVITY REAL GDP GROWTH (% PA)2010isexpectedtobringgreaterstabilitytoNigeriaseconomicandpoliticalsituation,yetthecountrystillfacesmanyuncertaintiesintheyearahead.A

higher average oil price and improved supply, due to the calming of the

conflict in the Niger Delta after the arms amnesty, should provide the

revenue needed to implement the planned fiscal expansion and fund vital

infrastructure developments (especially with regard to power generation).

However, political uncertainty surrounding President YarAduas ability to

govern, as well as the upcoming 2011 elections, could negatively affect

growthandscareoffforeigninvestors.

Real GDP growth was cut by half from 6% in 2008 to 2.9% in 2009, but is

expectedtorecovertoatleast5%in2010.Thenonoilsectorwasalsohard

hitin

2009,

with

its

growth

rate

slowing

to

an

estimated

4.5%

from

9%

in

2008.However,thereboundinoilpricesandgreaterstabilityinthebanking

sector (and thus a more stable naira and increasing credit to the private

sector),shouldseethenonoilsectorexperience improvedgrowthin2010.

Infact,accordingtothe IMF,Nigeriannonoilsectorweatheredtherecent

economiccrisisbetterthanmostintheotheroilproducingcountries.

0

5

10

15

20

25

2000 2003 2006 2009 2012

Source:IMF

POLITICAL CLIMATE CONSUMER INFLATION (% Y/Y)Politicaltensionsareexpected tocontinue in2010,as theneedtoreplace

YarAduaat theheadof thePeoplesDemocraticParty (PDP)aheadof the

2011 elections causes party members tojockey for positions. One of the

most pertinent questions will revolve around whether the election of a

Northernerto

the

head

of

the

PDP

will

affect

the

fragile

peace

that

has

been

establishedintheNigerDelta(theheartofthecountrysoilindustry).Peace

wasbroughttotheregionthroughaprotractedperiodofnegotiation,with

an arms amnesty and promises that oil revenues will benefit the local

community.0

2

4

6

8

10

12

14

16

Ja n08 Jul08 Ja n09 Jul09

MONETARY SECTOR M2 & PRIVATE CREDIT(% Y/Y)2H09 sawM2broad moneyandcredit to the private sector increaseonce

again, after stagnating between January and August. This increased

inflationary pressure towards the end of the year and should continue to

exertupwardpressureontheCPIaslongasthegovernmentcontinueswith

its

relaxed

monetary

policy.

The

governments

target

of

bringing

inflation

backtosingledigitswillconflictthisyearwiththeaimofkeepingthemarket

liquid and reducing fuel subsidies, thus we can expect inflation to remain

between1011%in2010.

Effortsto improvetheeffectivenessofmonetarypolicywillcontinuetobe

hamperedbytheunderdevelopedfinancialsystem,whichlimitstheofficial

interestratesfromaffectingavailabilityandpriceofcommercialcredit.Thus

faramuchbettertoolforcontrollinginflationhasbeentheexchangerate;

stablenairahaskeptimportedinflationfromescalating.

0

20

40

60

80

100

120

Ja n06 Jan07 Jan08 Jan09

M2 Privatecredit


15/60



FISCAL POLICY

The

proposed

2010

budget

is

strongly

expansionary,

with

spending

expectedtoincreasebyaround31.5%toNGN4.07trn,fromtheproposedNGN3.1trn

in 2009. Recurrent expenditure is set to increase to NGN 2trn, up from

NGN1.6trn in the 2009 budget, while capital expenditure is planed to

increase to NGN 1.37trn, from NGN 1.02trn in 2009. However, as with

previous years, it isunlikely that thegovernmentwillhave thecapacity to

spend the allocated funds. Moreover, the expenditure on infrastructure

developmentwillbeskewed towards importedgoodsandwillthushavea

negative affect on the current account and have a less direct impact on

domestic economic activity, despite governments claims to the contrary.

One factor that will incentivise greater expenditure is the upcoming 2011

election. The fiscal deficit is expected to breach the 3% target set in the

2007FiscalResponsibility Act,andreach4.8%ofGDP(NGN1.6trn)in2010.

The proposed budget assumes oil production of 2.1mbpd at USD 57 per

barrel, which is conservative given that the World Bank and EIU predict

international oil prices around USD 75 per barrel in 2010. Meanwhile, the

financing of the budget could be aided by the proposed USD500m bond

issue, which was previously shelved in 2009. The new Petroleum Industry

Billcouldalsomakemorerevenueavailabletofinancethebudget(although

thefinalimpactisuncertain).

EXTERNAL RELATIONS GROSS RESERVES (USD BN)With oil constituting over 90% of the countrys exports, the economys

external

sector

is

heavily

dependent

on

the

international

oil

price.

In

2010theeconomyshouldbenefitfrombothhigherinternationalprices(expected

to average around USD 75 per barrel) and increased production thanks to

the conflict in the Niger Delta moderating. OPECs 1.67mbpd quota will,

however, limit thecountrysability to take fulladvantageof thehigheroil

prices. Furthermore, there is always the risk that political instability will

resurface, especially that President YarAduas ability to govern has been

questionedandgeneralelectionsaresetfor2011.Importsarealsoexpected

to increaseasspendingpicksupas thegovernmentgearsup for the2011

election.Thecurrentaccount,however,shouldpostasurplus intheregion

of11%in2010.

40

45

50

55

60

65

Nov07 Nov08 Nov09

Shouldoilrevenuesnotbedisrupted,wecanexpectthenairatoremainina

narrowband

around

NGN/USD

150.

There

will

be

continued

pressure

on

the

government to keep the naira strong and on a managed float. This

sentiment,thoughcontrarytothereformsmanywouldprefer,ispreferred

becauseoftheimportdependentnatureoftheeconomyandtheeffectthat

anydepreciationwouldhaveontheNigerianconsumers.

NGN/USD EXCHANGE RATE

110

120

130

140

150

160



16/60



EQUITY MARKET OVERVIEW NSE 20 AND AA BANKS INDEXThe2009storyintheNigerianmarketwasmainlyaboutbanks.Firstly,theywerethedarlingsofforeign investorsduring2007and2008astheyraised

capital for localandAfricanexpansion.Secondly,whentheglobalfinancial

crisis hit in 2H08, the Nigerian banking sector was impacted by the

withdrawal of foreign credit lines and increasingly difficult operating local

environment. Lastly, the bad debts started to unravel during the year as

nonperforming loans in oil and gas, and margin loans on capital market

investmentsastheoverallmarketfellbyalmost40%during1H09.

Despite a relief rally late in 2Q09 that made up initial losses and even

registered a positive YTD performance, the sentiment turned increasingly

negative as the special audit into the health of the banking sector was

initiatedand

speculation

was

rife

about

the

state

of

individual

banks.

As

a

result,thebankingsector(40.2%)draggedtheAllShareIndex33.8%lower

fortheyear.

Industrial sectors fared better as both local and international investors

scampered for the safety of defensive stocks; the cement stocks gained

38.7%, brewing sector gained 20.6%, while consumer shares were

marginallyup(+1.4%).

60%

50%

40%

30%

20%

10%

0%

10%


NigseIndex AABanks

COMPANY EARNINGS2 NSE-LISTED COMPANY EARNINGSDuring 2009 the financial performance of the banking sector become

completelyopposite

of

that

of

the

industrial

sector,

which

both

cement

and

breweries sector earnings growing strongly during the period (56.8% and

20.4%gainsrespectively).Thebankingcountershadatorridtimeasspecial

provisions required by the central bank meant that their profit fell

significantly,withanumberofbanksreportinglargelosses,andevenbeing

technicallyinsolvent.

We forecast 245% growth in earnings for banks under coverage off a low

basein2009.Theindustrialcompaniesarelikelytorecordmorepedestrian,

andstablegrowthrates,withthecementearningsgrowthslowingdownto

27% in2010,whilethebrewingsectorearningsareexpectedtoaccelerate

somewhatto24%.

0

50

100

150

200

250

300

350

400

2 00 7 2 00 8 2 00 9 2 01 0 2 01 1

100

50

0

50

100

150Growth

rate

(%)

(RHS)Earnings (NGNbn)

2Financialanalysisisbasedoncompaniesundercoverage


17/60



VALUATIONS



BanksandFinancial

AccessBank 6.8 6.0 0.1 NM 5.9 6.7

DiamondBank 7.1 6.0 0.1 0.2 5.6 6.6

FirstCityMonumentBank 7.0 5.8 0.1 0.2 5.7 6.8

FirstBankOfNig. 11.3 10.1 0.2 0.4 3.5 3.9

GuarantyTrustBank 8.6 7.7 0.2 0.4 4.7 5.2

StanbicIBTCBank 10.9 9.1 0.2 0.4 3.7 4.4

UBA 6.4 5.1 0.1 0.2 6.3 7.8

ZenithBank 8.7 7.4 0.1 0.3 4.6 5.4

BrewingandBeverages

GuinnessNigeria 8.9 7.4 0.3 0.4 8.5 10.2

NigerianBreweries 11.9 10.1 0.8 0.8 8.0 9.4

Cement

AshakaCement 8.8 7.2 2.1 0.7 2.8 3.2

BenueCementco 9.5 7.5 0.5 0.4 5.3 10.0

LafargeWAPCO 7.5 5.5 0.3 0.3 2.1 2.9

PEGratiosdoenotmakesensefor

Nigerianbanksduetotheseverely

depressedearningsin2009

RECOMMENDATIONS

Prices(KES) Performance(%)

Sector/companyname 13Jan10 FairvalueUpside% Dec09 2009 Rating

BanksandFinServices

AccessBank 7.90 10.96 38.7 12.4 7.5 BUY

DiamondBank 7.50 8.79 17.2 9.6 0.8 BUY

FirstCityMonumentBank 7.50 8.94 19.2 3.0 19.3 HOLD

FirstBankOfNig. 15. 14 17. 85 17.9 0.4 22.4 BUY

GuarantyTrustBank 16. 07 16. 99 5.7 1.4 50.2 HOLD

StanbicIBTCBank 7.50 6.94 7.5 4.8 31.5 SELL

UBA 11. 38 15. 95 40.2 2.7 17.9 HOLD

ZenithBank 15. 80 22. 31 41.2 4.1 7.3 SpecBUY

BrewingandBeverages

GuinnessNigeria 128.00 169.30 32.3 3.4 28.1 BUY

NigerianBreweries 58. 99 64. 38 9.1 1.0 29.8 BUY

Cement

AshakaCement 12.70 9.81 22.8 1.1 32.1 SELL

BenueCementco 48. 11 46. 35 3.7 0.0 138.9 BUY

LafargeWAPCO 30. 26 33. 41 10.4 6.0 17.6 BUY


18/60


Africa 2010 Outlook and StrategyBotswana


Botswana

has

long

been

praised

as

Africas

success

story,

and

rightly

sogiventhatthecountrywasabletogrowby8.9%annuallybetween1960and

2005(EIU).However,thislastyearhasseensomeoftheshinecomeoffthe

country as it became evident that the economys lack of diversification

(36.7%ofGDPin2008wasderivedfromminingand40%ofexportearnings

attributable to diamonds) makes it vulnerable to external demand shocks.

Theeconomy isexpectedtohavecontractedby10.3% in2009andshould

only rebound by around 4% in 2010. Diamond prices, however, are set to

improvein2010asglobaleconomicconditionsimprove.

Importantinfrastructureprojectsaresettobegininearnestin2010,suchas

the USD 1.6bn Morupule B Power Station, which should boost economic

activity. Coal and uranium mining projects should also attract further

investment.

The

tourism

sector

should

also

receive

a

boost

during

the

soccerWorldCupinSouthAfrica.

10

5

0

5

10

15

2000 2003 2006 2009 2012

Source:IMF

POLITICAL CLIMATEThe Botswana Democratic Party (BDP), led by Ian Kama, was handed yet

another clear mandate to govern when it won elections in October,

increasing itsmajority in thenationalassembly.Therunuptotheelection

saw infighting disrupt many parties, while competition between parties

remained low inwhatwasa foregoneconclusion.TheBDPhasruledsince

independence and it seems that not even Botswanas worst economic

performance to date was able to affect the partys popularity. We can

expectcontinuedpoliticalstabilityforthemediumterm.

MONETARY SECTOR INFLATION AND INTEREST RATE (%)Inflationdeclinedsteadilythrough2009,enteringsingledigitsonceagainin

May. This easing was enabled by the appreciation of the pula and the

general lowering of commodity prices since their highs of 2008. In

November2009 inflationdropped to its lowest level inoveradecade (5%

y/y),comfortablywithintheBankofBotswanas36%targetrange.Thiswas

mainly as a result of a high base in Nov 2008 caused by an alcohol levy

(indexupby16%)andtherecentstrengthofthepula.

Monetary policy was relaxed and the bank rate was cut consistently

throughout2009.Withtheinflationoutlookstablefor2010,wecanexpect

interestratestoremainataroundtheircurrentlevels.

0

5

10

15

20

Ja n08 Jul08 Jan09 Jul09

Inflation Primelendingrate

Source:BankofBotswana

FISCAL POLICYFiscalpolicyisexpectedtoremainconservativeastheoutlookfordiamond

exportrevenuesremainsuncertainandreceiptsfromtheSouthernAfrican

CustomsUnionareexpectedtobebelowexpectations.However,therewill

bepressurefortheBDPgovernmentto liveuptoitsdevelopmentelection

promisesandtheNationalDevelopmentPlan10(NDP10)issettocomeinto

effectinApril(afterbeingdelayedayearduetotheglobalfinancialcrisis).


19/60


Africa 2010 Outlook and StrategyBotswana

EXTERNAL RELATIONS AND EXCHANGE RATE BWP/USD EXCHANGE RATE

The

pula,

determined

by

a

basket

of

currencies

dominated

by

the

rand,

isexpected to maintain its current strength for much of 2010. This will

dampentheexportearningsgainedthrougharecoveryindiamondpricesas

the global economy emerges from the recession. However, increased

production is expected to underpin the currencys strength and we can

expectthecurrentaccounttostrengthenin2010.

Debswana, the partnership between the Botswana government and

diamondminingcompanyDeBeers,hasindicatedthatitexpectsproduction

to rebound to 60% of its normal production (20m carats), up from 50%

(17.1mcarats) in2009.Fullcapacityproduction isprojectedtoreturnonly

in2012.

6.0

6.5

7.0

7.5

8.0

8.5



EQUITY MARKET OVERVIEW BSE DCI PERFORMANCE (BWP)TheBotswanamarketcameundersomesellingpressure in1H09,however

the market as a whole held up pretty well during the year, and the 2H09

recovery even allowed it to record a marginal gain (+2.9%). Most of the

positive performance came from the banking sector as gains in Barclays

Botswana (+5.9%), FNB Botswana (+25%) and Letshego (+21.6%)

outweighed losses on ABC Holding (67.8%) and Standard Chartered

(11.1%);thesectorasawholewasupby6.1%fortheyear.

Elsewhere, insurance stocks BIHL (+26.4%) and FSG (+43.6%) did well,

property stocks managed reasonable gains, but the industrial stocks were

generally lower: Sechaba dropped 15.2%, Chobe was down 32.3% and

Engenfell

13.7%.

15 %

10 %

5%

0%

5%

10 %



VALUATIONS



BanksandFinancial

BarclaysBotswana 10.9 8.2 1.2 0.6 3.8 5.1

FNBBotswana 13.5 10.8 1.0 0.8 3.7 6.2

Letshego 9.8 8.1 0.9 0.7 2.5 3.1

StanchartBotswana 11.7 10.7 0.7 0.9 8.5 9.4

WebelievethatBotswanabanksarethe

mostexpensiveinourpanAfricanbanks

universe.WehaveaSELL

recommendationonStanchartBotswana

andaHOLDonBarclaysBotswana,FNB

BotswanaandLetshego.

We

currently

do

not

cover

any

Botswana

companiesoutsidethebankingsector.


20/60


Africa 2010 Outlook and StrategyEgypt


The

global

recession

has

affected

Egypt

mainly

through

a

fall

in

revenuefrom the Suez Canal (decrease in global trade), foreign direct investment,

tourism,anddepressedstockmarketactivity.Largelyduetorecentreforms,

the financial sector has been resilient throughout the financial crisis. The

overallGDPgrowthisexpectedtohavedroppedonlyto4.7%in2009,from

7.2% in2008,an impressiveperformance for a large and tradedependent

economy.

The EIU is bullish for the year ahead and forecasts that GDP growth will

reboundto5.7%,whiletheIMFandWorldBankseethegrowthratefalling

for another year. These predictions are sensitive to the outlook for the

worldasawholeand thegovernmentsabilitytocapitaliseon itsstimulus

spending.

Positivefactorsincludeimprovingcommodityprices(significantlyforEgypt:

cotton and hydrocarbons), international trade picking up (leading to

improvedSuezCanalandtradeexciserevenue)andthecontinuationofan

expansionary fiscal policy. However, we have probably seen the end of

interest rate cuts as inflation has begun to climb higher once again.

Weighingup the positive international forecast with a tightening of

monetarypolicy,weexpectanimprovingGDPgrowthrateofslightlyabove

5%;inlinewithEgyptsMinistryofInvestmentspredictions.

0

2

4

6

8

2000 2003 2006 2009 2012

Source:IMF

POLITICAL CLIMATEEgyptspoliticsshouldheatupasparliamentaryelections,scheduledfor10

November2010,

come

near.

The

ruling

National

Democratic

Party

(NDP)

is

expectedtoremain inastrongposition.Theyearwillalsosee thestartof

campaigning for the 2011 presidential elections. Skirmishes between

securityforcesandactivists,canbeexpected.

It isstillamatterofspeculationastowhowillsucceedPresidentMubarak

(81 years old) who has been in power since 1981, however this could be

decided in early 2010. His eldest son, Gamal Mubarak, has been groomed

for the post, but this has been an unpopular decision, with many

uncomfortable with the idea of a nepotistic dynasty taking hold. Other

candidates include Nobel prize winners (for peace and chemistry

respectively) Mohamed ElBaradei and Ahmed Zewail, intelligence chief

Omar Suleiman, and Amr Moussa (current head of theArab League and a

formerforeignminister).Analystsagreethatthemostlikelyoutcomewillbe

forMubarakjuniortotakethepost.

MONETARY SECTOR AND POLICY CONSUMER INFLATION (% Y/Y)Thesteadydeclineinfoodandfuelpricessincetheirpeaksin2008aidedin

bringing inflation down to below 10% by June 2009. However, 4Q09 saw

inflationarypressuresmountduetorecoveringcommodityandfoodprices

(food has a 44% weighting in the Egyptian CPI basket). The upward

inflationary pressure was also a result of increased consumer demand

broughtaboutbyrepeatedinterestratecutsthroughouttheyear.

The government is expected to resume its programme of cutting fuel

subsidies

in

2010,

despite

upcoming

elections;

this

should

add

furtherupwardpressuretoinflation.

0

5

10

15

20

25


Source:CAPMAS


21/60


Africa 2010 Outlook and StrategyEgypt

ThecentralbankannouncedinOctoberlastyearthatitwouldlaunchacore

consumerprice

index

in

January

2010.

This

development

should

see

foods

weightingintheCPIbasketreduced,buttherestof itsmakeuphasnotas

yetbeenmadepublic.Thelaunchofthenewindexindicatesthatthecentral

bankisapproachingamoreexplicitinflationtargetingregime,whichwould

make itsactionsmorepredictableandperhapsaddameasureofdiscipline

tofiscalpolicy.

Afterayearofcontinuously cuttinginterestrates,andwithinflationonthe

rise, it is likely that we have seen the end of the CBEs loose monetary

policy.Shouldinflationcontinuewithitsrisewecanexpectinterestratesto

risefrom2H10.

INTERNATIONAL RESERVES (USD BN)

30

31

32

33

34

35

36


Source:CentralBankofEgypt

FISCAL POLICYGovernmentwillcontinuewithitsexpansionaryfiscalpolicyin2010,leading

toabudgetdeficitofbetween910%ofGDPinFY10;upfrom6.9%inFY09

and making governments deficit target of 3% by 2012 far less likely.

Previously, the government aimed to reduce the deficit by 1% per year

through measures including the scrapping/reducing of the fuel subsidy

(accordingtotheWordBankthiscurrentlystandsat5.5%ofGDPfordirect

subsidies); expanding VAT and implementing new property taxes (which

came into effect in 2009); and generating savings through better financial

management. Although the fiscal policy will remain expansionary in 2010,

wecanexpectgovernmenttobeginconsolidationmeasuresinthemedium

terminordertopromoteprivatesectorledgrowthandallayinvestorfears

overthe

financing

costs

of

the

governments

debt

and

risks

to

its

exchange

ratepeg.

Further pressure on the fiscus will come in the form of expenditure for

parliamentaryelectionstobeheldneartheendof2010.

EXTERNAL RELATIONS EGX/USD EXCHANGE RATEExports will remain below their 2008 level due to a continued lull in the

main export markets (US and the EU), but should improve on their 2009

performanceascommoditypricesstabiliseintheinternationalmarket.With

55%ofEgyptsexportrevenuefromoilandnaturalgas,thecountryshould

benefitasoilpriceshoverbetweenUSD7075perbarrel.

The Egyptian pound, pegged to a basket of currencies, is expected to

appreciate against the dollar, but marginally weaken against the euro. An

increase in Suez Canal receipts, improved tourism and higher remittances

should boost foreign reserves further and narrow the current account

deficit.

5.2

5.3

5.4

5.5

5.6

5.7




22/60


Africa 2010 Outlook and StrategyGhana


The

global

recession

impacted

Ghanas

economy

through

stressed

exportearnings,decliningremittancesandprivatecapitalinflows,anddifficultiesin

attracting foreign investment and donor support. Consequently, the IMF

projects Ghanas real GDP growth to have slowed to 4.5% in 2009 (from

7.3%in2008)andthatitwillstarttoacceleratemarginallyin2010(5.0%).

Thegovernments2010budgetaimstoreachanaveragegrowthrateof8%

between2010and2012.ThisshouldbeeasilyachievedastheIMFforecasts

Ghanaseconomytogrow22.5%inrealtermsin2011,primarilyduetothe

contributionofthenewoildiscoveries.Oilproduction isexpectedtoreach

120,000bpdby2010,whichwillincreaseto250,000bpdby2012.According

to IMF estimates, Ghana is likely to generate USD 1bn in oil revenues in

2011, which will provide a fillip to the countrys economy and national

incomewhen

production

begins.

0

5

10

15

20

25

2000 2003 2006 2009 2012

Source:IMF

POLITICAL CLIMATEThe2008electionssawapeacefulchangeofpowerbetweenthedominant

partiesforthesecondtimesincedemocracywasreintroducedin1992.The

peacefulnatureof thetransition,despitetheclosenessofthecontest,has

beeninterpretedbymanyasasignthatGhanaspoliticalsystemismaturing

andheadingtowardsdemocraticconsolidation.

The ruling NDC seems set to commit itself to the Medium Term

DevelopmentPolicy,which is theeconomicplandrawnupbytheNational

Planning Commission to replace the current Ghana Poverty Reduction

StrategyII(GPRS

II)

which

ended

in

December

2009.

Although

details

of

the

planaresketchyatpresent,asitisonlygoingtoberevealedtoparliament

in early 2010, it is unlikely that it will differ drastically with the plans that

haveprecededit.

MONETARY SECTOR CONSUMER INFLATION (% Y/Y)In 2009 inflation rose once again, partially due to higher government

spendingaheadofthe2008electionsandthesteeprise infoodandcrude

oilprices.BoGresponded to the inflationary threatby increasing thebank

rateevenfurther,to18.5%inFebruary2009.This,coupledwiththedecline

in international commodity prices, is expected to bring inflation down to

14.6%inDecember2009andtosingledigitsin2010,accordingtotheIMF.

However,theneedtoreininthefiscaldeficitwillmeanthegovernmentwill

need to cut its fuel subsidies, which, along with recovering commodity

prices on the international market, will put upward pressure on inflation.

Despitethisinflationissettomoderateoffitsrecenthighsandmayprovide

space for the BoG to further relax its monetary stance during the year

ahead.

0

5

10

15

20

25


Source:StatisticsGhana


23/60


Africa 2010 Outlook and StrategyGhana

FISCAL POLICY

The

government

budgeted

expenditure

of

GHS

9.8bn

in

2009,

with

sectorbudget allocations reaffirming the governments commitment to improve

thebusiness environment through infrastructure (roads,energy and water

sector)andhumanresourcedevelopment.About71.9%ofthebudgetwas

earmarkedforthehealth,education,transportandenergysectors.

The expansionary 2009 budget projected a deficit equivalent to 9.4% of

GDP, funded by net domestic financing of GHS1,392m and foreign

borrowing of GHS626m. The Ghana government aims to reduce the fiscal

deficit to 6% of the GDP in 2010, but this could constrain governments

capitalexpenditureplansandmayimpactdevelopmentprojects.

EXTERNAL RELATIONS GHS/USD EXCHANGE RATE

Theglobal

recession

in

2009

stressed

Ghanas

export

earnings,

remittances

and private capital inflows, and created difficulties in attracting foreign

investmentanddonorsupport.Forexamplein1H09,remittancestoprivate

individualsdeclinedtoUSD728.3mfromUSD822.8min1H08.

Asaresult,afterdepreciating31.5%againsttheUSdollar in2008,thenew

Ghanacedi lostanother18%byJuly2009,onlytorecoverslightlytowards

theendoftheyearonimprovedportfolioandtradeflows(down12.5%for

the year). Analysts predict that the worst of the depreciation is now over,

howeverthecurrencywillremainvulnerablein2010.0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6



EQUITY MARKET OVERVIEW GSE ALSI PERFORMANCE (GHS)Ghanas equity market was one of the worst performing markets in 2009

(46.6%) as foreign investors pulled out and liquidity driedup as local

demand was only available at lower levels. This situation persisted during

mostof1H09astheALSIended48%downbyendofJune.

As the global recovery started to take hold and riskaversion towards

emergingmarketssubsided,theGhanaianmarketreappearedontheradar

screenofdiscerning investors;during3Q09thebankingsectorgained23%

and Fanmilk gained 53.6% (after having lost 38% in 1H09) to be the only

counter to end the year in the green (+23.3%). This momentum waned

towardstheendoftheyear,buttradingactivityendedonarelativelyhigh.

60 %

50 %

40 %

30 %

20 %

10 %

0%



VALUATIONS



BanksandFinancialServ

EcobankGhana 10.7 8.3 0.8 0.6 6.2 8.0

StandardChartered 9.8 8.0 0.8 0.6 7.9 9.7

SGSSB 5.6 4.3 0.2 0.2 11.9 15.6

CalBank 3.6 2.5 0.4 0.2 9.2 13.3

BrewingandBeverages

GuinnessGhana

135.0 21.4

0.2

4.4 0.4 2.5

*Bankfinancialsbasedonmanagementforecasts

Ghanabanksareagrowthplay;not

cheaponPEbasis,butareonthelower

endofthespectrumonPEGbasis

EcobankGhanaandSCBareour

preferredchoicesinthebankingsector

duetoreasonableliquidity.CalBankis

outtoppickbasedonvaluationmatrices

WemaintainourSELLrecommendation

onGuinness

Ghana


24/60


Africa 2010 Outlook and StrategyLesotho


2009

saw

Lesothos

embattled

clothing

and

textile

industry,

the

largestmanufacturing subsector (around 18% of GDP), take further knocks as

demand in traditional export markets (US and EU) dropped and the loti

strengthened against major currencies; as a result, the sector shed over

4,000jobsbetween3Q08and2Q09.Theburgeoningdiamondindustryalso

began the year on a low note, with two mines having been temporarily

closedonaccountoftheeconomiccrisis.However,by2Q09bothdiamond

prices and exports have improved. Growth is expected to return in 2010

(3.1%)afterfallingbyanestimated1%in2009.2

0

2

4

6

8

10

2000 2003 2006 2009 2012

Source:IMF

POLITICAL CLIMATE

In

April

the

Prime

Minister

Bethuel

Pakalitha

Mosisili

survived

anassassinationattemptafteranattackonhishouse.Thegovernmentblamed

SouthAfricanandMozambicanmercenariesforthe incident,statingthat it

wasanattemptedcoup.

Political wrangling over parliamentary seat allocations after the 2007

elections came to a head in July, when SADC mediator, former Botswana

president Ketumile Masire, walked out on the talks. He stated that the

Lesotho government was to blame for obstructing the mediation process

andthatthejudiciaryhadfailedinitsdutybyrefusingtoruleonthevalidity

oftheelectionresults,claimingthatitwasbeyondtheirjurisdiction.

MONETARY SECTOR CONSUMER INFLATION (% Y/Y)Inflationdroppedoffitshighbase,broughtaboutbythefuelandfoodcrises

in 2008, as commodity prices moderated. The slackening of demand for

imported goods and the strengthening of the loti also aided in bringing

inflation under control. Despite the difficult global conditions, Lesotho has

managedtomaintainafavourablebalanceofpaymentsandcouldboastnet

international reserves of over USD 1bn at the end of October (well above

thecentralbanksUSD500550mtarget).0

2

4

6

8

10

12

14

Ja n08 Jul08 Ja n09 Jul09

Source:LesothoBureauofStatistics

FISCAL SECTORGovernmentexpenditurewaslowerthanplannedinthefirsthalfoftheyear

duetotechnical issuesplaguingthe implementation ofthenew Integrated

FinancialManagement InformationSystem(IFMIS).This ledtoa42.2%q/q

decline in government expenditure in the second quarter. Revenue,

however, is set to decline markedly due to a shortfall in SACU receipts

brought about by a decline in trade and possible restructuring in the

revenue sharing formula. Lesotho is heavily reliant on these receipts that

makeupover50%ofgovernmentrevenues.


25/60


Africa 2010 Outlook and StrategyLesotho

EXTERNAL RELATIONS LSL/USD EXCHANGE RATE

The

strengthening

loti

has

had

a

dual

role

in

2009:

Its

negative

effects

werefelt in the manufacturing sector, blunting Lesothos competitiveness in

tough global conditions. However, with regards to inflation, the

strengtheningcurrencyhasaided inmaking importsrelativelycheaperand

helpedtomaintainthelevelofnetinternational reserves.Weexpecttheloti

tomaintainitscurrentstrengthformuchof2010.

6

7

8

9

10

11

12

Ja n08 Jul08 Ja n09 Jul09 Ja n10



26/60


Africa 2010 Outlook and StrategyMalawi


Economic

growth

in

Malawi

has

been

impressive

under

President

Bingu

waMutharikasstewardship(since2004),butremainsdependentonagriculture

(35% of GDP, 80% of exports), which in turn is influenced by weather

patterns and global prices. The government projects economic growth of

7.9% in FY10 to June, driven by a good harvest, uranium production and

growth in telecommunications sector; this figure appears to be optimistic

given the current international environment. IMF estimates for real GDP

growthin2010islower,at4.6%,asthereisariskoflowerthannormalrain

duringthecomingmonths(the InternationalResearch InstituteforClimate

and Society projects a 5060% likelihood of lower than normal rains

betweenJanuaryandMarch2010).Theunavailability offoreignexchangeis

anotherneartermrisk.

5

0

5

10

2000 2003 2006 2009 2012

Source:IMF

POLITICAL CLIMATEIn May 2009 Malawians went to the polls and reelected President

Mutharikasinanelectionthatisnotableforbreakingearlierregionalvoting

patternsandbringingtopoweranewparty,theDemocraticPeoplesParty

(DPP). The DPP was also able to secure a majority in parliament, thus

assuringthatpolicymakingwillnotbehamstrungaswasintherecentpast.

Mutharikas second tenure has been characterised by developmental

policiesthatmadehimpopularduringthefirstterm.However,hisrhetoric

against lending institutions, foreigners, and forex dealers is a cause for

concern. The recent forex and fuel shortages have dented his popularity

somewhatandledtoscathingcriticisminthepress.

MONETARY SECTOR CONSUMER INFLATION (% Y/Y)By the end of 2009 the consumer inflation, which is dominated by food

(weighting of 60%), eased closer to its target range of less than 7%, after

averaging8.5%forthefirstelevenmonths.Theoutlookfor2010inflationis

ratheruncertainandwilldependondevelopments in thecurrencymarket

and agricultural sector, as well as the effects of electricity tariff hikes on

consumerprices(theMalawiEnergyRegulatoryAuthorityapprovedEscoms

proposal to increase electricity tariffs by 56% over the next four years in

order to improveservices).However, theeffectsof theelectricity increase

maybesubduedascurrentlyonly8%ofhouseholdsareelectrified. 6

7

8

9

10

11


Source:National

Statistical

Office

of

Malawi

FISCAL SECTORThe government has budgeted for revenues and grants of MWK 244bn in

FY10toJune,a9% increaseontherevisedfigure forFY09.Around33%of

this (MWK 81bn) is expected to come from grants; there remains the

questionofwhethersupportwillbeasforthcomingintheyearaheaddueto

thefrontloadingofdisbursementsbymajordonors.

Expenditure is projected to increase by only 2% on FY09, or MWK 257bn.

However,thepreviousyearsexpenditureinvolvedanumberoflarge,once

off items, thus there is more room for priority expenditure in the current

budget.Thegovernmentexpectsthefiscaldeficittodeclineto1.6%ofGDP

in

the

current

year.


27/60



EXTERNAL RELATIONS AND EXCHANGE RATE

In

2009

tobacco,

a

key

export,

sales

volume

increased

by

19%

y/y,

but

lowpricescausedbytheglobalrecessionandoverproductionmeantthatexport

salesdeclinedby9%y/y(2009:MWK61bn).ConsequentlyMalawisforeign

reserveswerelowthroughout2009,afterbeingdepletedbyrecordfueland

fertiliserimportsin2008.ByNovember2009,grossofficialforeignreserves

haddeclinedtoUSD197.3m(1.5monthsofimportcover).

The low foreign reserves forced the government to abandon its fouryear

currencypegof MWK/USD140, and to allow thekwacha to float withina

narrowband(MWK/USD139143).Amanageddepreciationwouldimprove

monetarystabilityandincreaseinvestorconfidence,butwouldatthesame

timeincreaselocalpricesoffertiliserandfuelandnegativelyaffectMalawis

currentaccountbalance.

WhiletheopeningofauraniummineinKarongabyAustralianfirmPaladin

promises to reduce cropdriven seasonality in foreign currency flows, the

black market rate, currently at around MWK/USD 190, suggests that the

kwachacoulddepreciatein2010.

EQUITY MARKET OVERVIEW MALAWI ALL SHARE INDEX (MWK)Malawi, as one of the smallest and least liquid markets in Africa, was

particularly hard hit by the impact of the global financial crisis; foreign

investors found themselvesunable to liquidatemanypositionsdue to lack

oflocal

demand

as

well

as

foreign

currency

restrictions.

As

aresult

in

1Q09

the All Share Index fell sharply (18.2%) as shares fell often on very small

volumes traded. For the remainder of the year the market was rather

stagnant,onlyrecoveringsomewhattowardtheendoftheyear,upby3.9%

in 4Q09 on strong buying in Standard Bank Malawi (+23.5% in 4Q09) and

PressCorporation(+25.4%).

StandardBankMalawiwastheonlyshareinthegreenattheendoftheyear

(+8.2%). TNM was particularly hit early in the year when the share price

dropped back to the IPO level of MWK 2.00. Other banks also saw some

trading,butweremostlydown:NBSendedtheyear3.5% lower,NBMwas

down7.8%andFMBfellby16.7%.Curiously,bothNBSandNBMwerequite

activetradersbuttheirsharepricesremainedflatafter31March2009.

25 %

20 %

15 %

10 %

5%

0%



STANDARD BANK MALAWI PRICE PERFORMANCE (MWK)Lowestsharerating,goodfundamentals.StandardMalawicontinuestoreap

thebenefitsfromitsmajorshareholder(StandardBankSA)intermsofnew

productintroduction,costreductionandriskmanagement.Thisbodeswell

for revenue growth, cost efficiency and confidence in asset quality. High

loan book exposure to agriculture not considered a threat as majority of

exposure is to tobacco and tea which are drought resilient. Current low

relativeratingprovidesattractiveentry.

20 %

15 %

10 %

5%

0%

5%

10 %




28/60



NATIONAL BANK OF MALAWI (NBM) PRICE PERFORMANCE (MWK)

Sector

stalwart

but

earnings

to

underperform.

NBM's

profits

have

benefitedfromnetimpairmentwritebacksamountingtoMWK1.22pershareoverits

past two financial years. In view of its low NPL cover ratio (40%), further

writebacksbeyondFY09areunlikelytobesustainable.Areversiontomore

"normalised" impairment charges will most likely result in NBM's earnings

underperformingthesectoroverourforecastperiod.

10 %

8%

6%

4%

2%

0%



VALUATIONS



BanksandFinancialServ

StandardBank 5.3 4.4 0.3 0.3 6.9 9.0

NBS 5.3 4.6 0.3 0.3 6.3 7.3

NBM 5.6 4.7 0.4 0.4 8.5 10.1

FMBMalawi 15.6 12.5 0.9 0.8 3.2 4.0

OurpreferredbankinMalawiisStandard

Bank,butsharepriceincreasein4Q09

hastakenawaymostoftheupside.

WerateNBSandNBMasHOLD,while

FBMasSELL.


29/60


Africa 2010 Outlook and StrategyMauritius


Mauritius,

which

has

never

technically

been

in

recession,

has

nevertheless

noticed a slowdown in certain key sectors such as the tourism and

manufacturing sector. The tourism sector faced a reduction in tourists

arrivals of 9.3% over 1H09, and revenue for the industry fell by 18%. We

expect the industry to have seen signs of recovery by 4Q09. Overall, we

expecttheindustrytocontractby8.8%toreach930,456arrivals.Whilethe

revenuegeneratedisnotexpectedtobeaslowasthedropinarrivals,given

theweakeningoftheMURthathaslostsome18%overthepastoneyear.

Thefinancialserviceshavebeenmoreresilient;theglobalbusinesssegment

isexpectedtoremainbuoyantdespitenoticingacutbackinthenumberof

new registered offshore companies. However, the sector could feel some

pressureshouldtheworldeconomytake longer torecoverfrom thecrisis.

The

banking

sector

continues

to

perform

well

driven

by

the

optimism

aroundtheeconomywhich isexpectedtohavegrownbyatleast2.8% last

year.

0

1

2

3

4

5

6

7

8

2000 2003 2006 2009 2012

Source:IMF

POLITICAL CLIMATEMauritius is ademocratic republic where elections are held every 5 years.

The country which has a population of nearly 3m is politically very stable.

According to the Ibrahim Index of Corporate Governance, Mauritius is

consideredasthebestgovernedcountryinAfrica.

ThePresident,whoistheHeadoftheState,andthePrimeMinisterwhois

the Head of Government, have absolute power in their hands. The Prime

Ministeriselectedatthegeneralelections,whilethePresidentiselectedby

theNationalAssemblyfora5yearmandate.TheNationalAssemblyhas70

members of which 62 are elected for a five year term and 8 additional

membersareappointedfromalistofunsuccessfulcandidatesunderabest

losersystem.

MONETARY POLICY CONSUMER INFLATION (% Y/Y)AtitslastMPCmeetingon22Sep2009,thecentralbankkeptthereporate

unchangedat5.75%,duetolowinflationratewhichhasfallentowards0%

bytheendoflastyear,beforeboundingbackslightly.Howeverthemassive

fiscalandmonetarypolicies implementedsincethestartofthecrisiscould

resultininflationarypressuresassoonastheeconomyrecovers.Weexpect

that the repo rate would be maintained at its current level for the next 6

months.

The reduction in interestrates has reduced the gapbetween the dividend

yieldandthebankrate.Thiscreatedfurtherenthusiasmforthemarketwith

thefavouredstocksremainingthebanksandthehotels.

0

24

6

8

10

12

14

Jan 08 Jul08 Jan09 Jul09

Source:CentralOfficeofStatistics

FISCAL POLICYThebudgetdeficitreached3.5%ofGDPforthe6monthsendingDecember

2009 which is reasonable taking into account the massive fiscal measures

providedby thestimuluspackageand theMay2009budget. InDecember

2008, the government provided a stimulus package of MUR 10.4bn

representing 4.4% of GDP to help support export oriented sectors. We

expect thebudgetdeficit toclimbfurther in2010drivenbythenumerous

publicinfrastructure

projects

to

be

deployed

all

around

the

island,

together

withtherenovationoftheairportandthecompletionofthecruiseterminal.


30/60



EXCHANGE RATE MUR/USD EXCHANGE RATE

During

the

crisis,

the

rupee

has

shown

some

volatility

against

the

majorcurrencies,namely theUSdollar, theeuroand the poundsterling.TheUS

dollarwhichappreciatedsharplyagainst theRupee (22%)over theperiod

September2008 toMarch2009,has thereafterbeenonadeclining trend.

The depreciationof the dollar resulted mainly from the recovery ofglobal

marketswhichpushedinvestorsawayfromthegreenback.

Therupeewhichhasbeenweakeningagainsttheeurosincethestartofthe

crisis, eventually gained some grounds over the last two months of 2009.

Relativetothepoundtherupeecontinuestoremainstrongandweexpect

thistoremainassuchatleastover1Q10.

25

27

29

31

33

35

Jan 08 Jul08 Jan09 Jul09 Jan10


EQUITY MARKET OVERVIEW SEMDEX ALSI PERFORMANCE (MUR)Mauritiusexperiencedabumpyfirstfewmonthswhenthemarketlostjust

over 20%, yet it was very quick to recover, in line with other emerging

markets,andthealmostunbrokeneightmonthrallypulleduptheALSIby

47% (year to October), before profit taking started to take its toll in the

closing months of the year. The strong upward move during the year was

underpinnedbythethreemainsectors,namelybanksandfinancialservices

(+29.6%),hotelsandleisure(+63%)andagriculture(+53.5%).

Among the heavyweight stocks that performed well, were the usual

suspects:MCB(+17.7%)andSBM(+56.9%)amongthebanks,NewMauritius

Hotels

(+67.5%)

and

Sun

Resotrs

(+64.3%)

in

the

hotel

sector,

as

well

as

Harel Freres (+69.3%) and Omnican (+25.8%) among the agricultural

counters.IrelandBlythwastheonlysizeablecompanytoendtheyearinthe

red(10%).

30 %

20 %

10 %

0%

10 %

20 %

30 %

40 %

50 %

60 %


Source:African

Alliance

database

MAURITIUS COMMERCIAL BANK (MCB) PRICE PERFORMANCE (MUR)Thelargestbankremainswellpoisedtofacecurrentchallengesaroundthe

differentsectorsoftheeconomyresultingfromtheaftermatheffectsofthe

crisis. Despite increased competition, we expect MCB to maintain its 40%

marketshareovertheyearstocome.Theonlywayforthebanktoexpand

locally isby thecrosssellingofproducts through itsdifferententities.The

long term strategy of MCB is to consolidate local market share, while at

same

time

diversifying

its

revenue

stream

away

from

banking

activities.

Thegroupalsocontinuestoexpandintheregion.

Afterhavingregistereddoubledigitgrowth(exclusiveofexceptional items)

over the last few years, we expect growth for this financial year to be

contained within a single digit on account of the crisis and its resulting

effectsontheeconomy.Overallearningsfortheyearareexpectedtogrow

by9%.Atitscurrentprice,MCBistradingonanexpecteddividendyieldof

4%.

40 %

30 %

20 %

10 %

0%

10 %

20 %

30 %




31/60



STATE BANK OF MAURITIUS (SBM) PRICE PERFORMANCE (MUR)

SBM

posted

a

remarkable

performance

over

the

last

financial

year,

achievedon the back of solid banking operations which compensated for the

reduction in dividends received from Mauritius Telecom. The banking

groupsconservativeapproachtowards its loanhasresulted inareduction

inthenetNPLbelow0.5%forFY09.Thestrategyistogrow intoafinancial

services centre through theprovision of banking and nonbanking services

suchwealth&assetmanagementandinsuranceservices.Thebankhasalso

recentlybeenactive intherecruitmentofanumberofqualifiedpersonnel

tocatertothenewenlargedvisionofthegroup.StateBankwillmakeuseof

itshighqualityITplatformtodevelopthosenewbanking andotherfinancial

servicesproduct.

We forecast earnings for the year to grow by 8.5%, based on a constant

dividend

income

of

around

MUR

220m

from

MT.

The

percentage

contributionofnoninterestincometototaloperatingincomeisexpectedto

crossthe40%levelasthegroupcontinuestodiversifyitsrevenuebase.At

the current trading price, the stock offers a prospective dividend yield of

3.7%(3.5%historical),andistradingonaforwardPEratioof9.5x.

40 %

20 %

0%

20 %

40 %

60 %

80 %



NEW MAURITIUS HOTELS (NMH) PRICE PERFORMANCE (MUR)Despitethedifficulttimesfacingthetourismindustryformuchoflastyear,

NMH has maintained good occupancy rates without having recourse to

majordiscountingincomparisontootherhotelgroups.Thishasallowedthe

hotel group to pursue its development projects both inland and in the

region,namely

in

Morocco

and

Seychelles,

while

maintaining

alow

debt

to

equityratio,whichisexpectedtoremainbelow50%.

We recommend investors to accumulate the stock on weakness as a

mediumto longterm investment.Atthecurrentprice,thestock istrading

onaforwardPEratioof14xandanexpecteddividendyieldof3.8%.

40 %

20 %

0%

20 %40 %

60 %

80 %

100%



PHOENIX BEVERAGES LIMITED (PBL) PRICE PERFORMANCE (MUR)Overthelastfewyearsthegrouphasbeenactivelylookingforopportunities

outsideMauritius.ThesettingupofthebreweryinMadagascargoesalong

with the groups strategy to further externalise the Phoenix brand in the

region and beyond. Since 2006,PBL has restructured its activities to focus

solelyon itscorebusinessandhasthusdisposedoffnoncoreassetswhich

hasenabledareduction inthegearingandallowedtherecentfinancingof

theMadagascarproject.

Atthecurrentprice,thestockistradingonahistoricaldividendyield4.1%,

anda30%premiumtoitsbookvalue.

0%

10%

20%

30%

40%

50%

60%

70%

Jan Mar May Jul Sep Nov



32/60



VALUATIONS

Mcap Price PEratio PBV DivYield ROE

MURm MUR x x % %

BanksandFinancialServices

MCB(Jun10) 37,959 141 7.7 1.6 4.0 22

StateBankMauritius(Jun10) 26,329 81 9.5 1.5 3.7 16

BrewingandBeverages

PhoenixBeverages(Jun09) 2,632 160 10.6 1.3 4.1 25

Hotelsandleisure

NewMauritiusHotels(Sep10) 22,276 138 14.0 1.9 3.8 14

CIMStockbrokersratesbothMCBand

SBMaspreferredfinancialstocks,and

MHandPhoenixBeveragesaspreferred

industrials.


33/60


Africa 2010 Outlook and StrategyMorocco


Moroccos

recent

macroeconomic

reforms,

low

exposure

to

international

financial markets andabumper cerealharvest have allaided inmitigating

theeffects of the global recession on thecountry. However, with its main

export partner, Europe,deeply affected by the economic slowdown, there

has beendeterioration in the countrys external position (the trade deficit

has widened, putting pressure on the BoP). Europes continued economic

hardships also affect Morocco through a decrease in remittances (2.5m

MoroccansareworkinginEurope)andafallintourismrevenue.

Real GDP growth rate has fallen from5.6% in 2008 to an estimated5% in

2009,andshouldfallfurthertoaround3.2%in2010.TheIMFprojectsthat

therealnonagriculturalGDPgrowthin2009stoodat2.5%;anditpredicts

that with conditions in Europe improving this year, nonagricultural GDP

growth

could

rise

to

4%.

Agriculture,

which

represents

15%

of

GDP

and

around42%ofemploy

africa 2010 outlook & strategy

Documents