Sub-Saharan Africa Stock Markets 2010 Review & 2011 ... - Imara

Sub-Saharan Africa Stock Markets 2010 Review & 2011 Outlook
February 2011
Analysts:
Aobakwe Mokgethi Brian Mugabe Batanai Matsika
aobakwe@capital.bw brian.mugabe@imara.co batanai.matsika@imara.co
Chandapiwa Majola Jimmy Mwambazi Mapenzi Soter Banda
chandapiwa.majola@imara.co jmwambazi@stockbrokerszambia.com.zm mbanda@stockbrokerszambia.com.zm
www.imara.co

Table of Contents
Executive Summary……………………………………………………………………………………………………………………………… 2
Botswana………………………………………………………………………………………………………………………………………………… 3
BRVM……………………………………………………………………………………………………………………………………………………… 6
Ghana…………………………………………………………………………………………………………………………………………………….. 8
Kenya……………………………………………………………………………………………………………………………………………………… 11
Malawi……………………………………………………………………………………………………………………………………………....... 13
Mauritius………………………………………………………………………………………………………………………………………………. 15
Namibia………………………………………………………………………………………………………………………………………………… 17
Nigeria…………………………………………………………………………………………………………………………………………………… 19
Uganda…………………………………………………………………………………………………………………………………………………. 22
Zambia…………………………………………………………………………………………………………………………………………………. 24
Zimbabwe…………………………………………………………………………………………………………………………………………….. 27
Imara Contact Details…………………………………………………………………………………………………………………………… 29
1

EQUITY RESEARCH
AFRICA
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
The bulk of Africa’s major frontier markets realised a
positive year in 2010, as the world continued to
recover from the bank crisis induced malaise of 2008.
Of the eleven main indices covered in this report, eight
closed the year in the black, while three closed weaker.
East Africa dominated the table, with Uganda and Kenya
coming out number one and number 2 with USD returns of
33.81% and 27.70% over the course of the year. Uganda
was spurred by not only a strong local counter
performance but by the good performance of cross listed
Kenyan stocks which dominate Uganda’s market. Kenya
itself had a positive year boosted by the goodwill
generated by the constitutional referendum and good
economic growth prospects.
Open Close % Change LC % Change USD
UGX-ALSI 732.53 1 188.07 62.19 33.81
NSE-20 3 247.44 4 432.60 36.50 27.70
GSE-ASI 5 572.34 7 369.21 32.25 27.55
NSX-Local 154.77 172.72 11.60 23.29
NSE-ASI 20 827.17 24 770.52 18.93 17.17
Semdex 1 660.87 1 967.45 18.46 16.23
LuSE-ASI 2 794.89 3 322.47 18.88 15.03
BRVM Composite 132.05 159.10 20.48 11.96
ZSE-Industrials 151.89 151.27 -0.41 -0.41
BSE-DCI 7 241.89 6 412.94 -11.45 -8.26
MSE-DSI 4 087.19 3 922.61 -4.03 -9.02
Source: IAS
Anchoring the table were Botswana and Malawi, the
former down 8.26% in USD terms and the latter down
9.02%. Malawi’s exchange continues to be hampered by
liquidity concerns as well as a shortage of foreign
currency which has meant foreign investors have
struggled to exit the market since 2008, which has meant
a continued share overhang over the market, despite the
economy as a whole having another solid GDP growth
year. Botswana’s performance was dragged down by the
financial sector which performed relatively poorly as its
economy continued to try and recover from the drop in
commodity prices that had hammered core diamond
revenues.
We expect the markets to have another good year in
2011, driven by excess liquidity courtesy of various
expansionary monetary policies by many of the world’s
developed markets which have seen interest rates kept at
very low levels, meaning that investors searching for yield
have looked towards the developed and frontier markets.
The commodity price rally is also expected to continue
fuelled by China’s demand, and increasingly from the
likes of India, while SSA’s demographic profile and
improving economic condition will see more investment
into the consumer space as local demand from a growing
middle class increases. GDP in SSA is estimated by the
World Bank to have expanded by 4.7% in 2010, and is
projected to grow by 5.3% in 2011 and 5.5% in 2012 (or
6.4% and 6.2% excluding South Africa), not quite keeping
pace with Asia Pacific growth rates but well ahead of the
rest of the world.
Source: World Bank Global Prospects January 2011
Various S&P Indices Relative to S&P Africa Frontier Index 2010
1.30
1.20
1.10
1.00
0.90
0.80
Risks as always remain, with politics very much in the
spotlight this year as many countries hold elections, but
generally we feel democracy is becoming more
entrenched and this is less of a concern than it may have
been historically. Rising inflation fuelled by soaring world
food prices may also play a role this year, while any
faltering in the global world recovery would weigh against
the positive sentiment.
0.70
S&P 500 S&P Euro 350 S&P Bric 40
S&P Latin America 40 S&P Asia 50 S&P Africa Frontier
2

EQUITY RESEARCH
BOTSWANA
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
The economy recovered and grew by about 10.7% in
real terms over the four quarters ending September
2010 after contracting by 3.7% in 2009, but despite
this the stock exchange ended the year with a negative
return.
This good economic performance was due to the global
economic recovery, which led to the improvement of
diamond and copper sales in the world market. As a result
the mining sector experienced a 21.7% increase albeit
from a low base. The rest of the economy grew by 6.3%
during the same period.
Total revenues and grants amounted to BWP 30.0bn in
2009/10 representing a net increase of BWP 2.24bn or
8.07% more than the revised estimates. The additional
revenue can be attributed to the recovery of the diamond
markets, with mineral revenue accounting for the highest
increase of BWP 2.25bn or 33.0%. Total expenditure and
net lending in 2009/10 amounted to BWP 39.49bn
compared to BWP 41.27bn in the revised budget,
representing under expenditure of BWP 1.78bn or about
4.3%. As at end of November 2010, foreign exchange
reserves stood at BWP 54.9bn, a decrease of 5.2% from
BWP 57.9bn as at December 2009. The BWP 54.9bn
represents about 17 months of import cover.
On an annual basis the Pula depreciated against the rand
(-6.79%) while it appreciated against the euro (+10.67%),
the pound (+6.58%), and the US dollar (+2.31%),
respectively.
It is anticipated that inflation will, in the short term,
continue to be higher than the upper bound of the
medium term 3%–6% objective range. In addition to the
continuing effect of the increase in value added tax and
administered prices and the December 2010 increase in
the alcohol levy, the short term inflation forecast also
factors in the expected upward adjustment of private
school fees and electricity tariffs and fuel prices. In the
absence of these factors, inflation would be within the
Bank’s 3%–6% inflation objective range. It is, therefore,
expected that inflation will fall within the objective
range in the second quarter of 2011, as the impact of
these transient factors dissipates.
Top 5 Gainers and Losers- 2010 Opening Closing % Change % Change
Company Price Price (LC) (USD)
ABCH 1.29 2.45 89.92% 94.30%
Engen 3.80 6.40 68.42% 72.30%
RDCP 4.20 6.30 50.00% 53.46%
G4S 23.60 31.90 35.17% 38.29%
Chobe 2.10 2.60 23.81% 26.66%
Imara 6.80 3.25 -52.21% -51.10%
StanChart 14.25 8.06 -43.44% -42.13%
Barclays 6.67 5.50 -17.54% -15.64%
Sefalana 3.21 2.70 -15.89% -13.95%
Sechaba 12.85 10.87 -15.41% -13.46%
Source: BSE
Top Ten Shares by market Cap.
Company
(BWP Mn) USD Mn) % of Total
FNBB 5511.96 836.72 21.00
Barclays 4712.45 715.35 17.96
Letshego 3406.63 517.13 12.98
BIHL 2956.86 448.85 11.27
Standard Chartered 2386.76 362.31 9.09
Sechaba 1429.91 217.06 5.45
Engen 1022.22 155.17 3.89
Wilderness 1009.47 153.24 3.85
Furniture Mart 667.6 101.34 2.54
Turnstar 547.85 83.16 2.09
Source: BSE
DCI relative to the S & P Africa Frontier Index
1.30
1.20
1.10
1.00
0.90
0.80
The Bank Rate was maintained at 10% during most of
2010, with a bank rate cut of 50 basis points coming in
mid-December 2010. The average prime lending rate of
commercial banks was constant at 11.50% between
December 2009 and mid December 2010. The yield on the
14-day BoBC decreased from 7.10% at the end of
December 2009 to 6.56% in December 2010, while the 3-
month BoBC yield also eased to 7.15% in the same period
from 8.20%.
Jan-10
Feb-10
Aug-10
Jul-10
Jun-10
May-10
Apr-10
Mar-10
S&P African Frontier Index
Sep-10
Oct-10
DCI
Nov-10
Dec-10
3

During the year the market had 2 new listings while 3
companies delisted. Cresta and Wilderness Safaris listed
Market Review for 2010
on the domestic board during the first quarter, while
Sefcash delisted during the third quarter. On the foreign
board DiamonEx was delisted after having been put under
judicial management while African Diamonds delisted
towards the end of the year after a successful takeover
by Lucara Diamonds.
A NewGold ETF was listed during the second quarter,
making in it the 1 st EFT to be listed on the Botswana
Stock Exchange.
The DCI started the year on a positive note climbing to
7,702.04 points in February 2010 after having begun the
year at 7,241.56 points. The index experienced some
volatility during the Q2 2010 and Q3 2010 before taking a
nose dive to levels last seen in July 2009 (6,400 points)
driven mainly by the financial stocks. Stanchart,
Barclays, and FNBB ended the year down 43.44%, 17.54%
and 11.60% respectively. It was however not until
December 2010 that the domestic index reached its
lowest levels for the year at 6,368.95 points. The net
result was that the DCI ended the year down 11.45% at
6,412.94 points, or -8.26% in USD terms.
The FCI started the year relatively flat, hovering around
the 1,400 point mark. During June 2010 the foreign
index jumped 206.13 points to close at 1,616.25 points
on the back of a 5.16% gain by Discovery Metals.
A total of 308.66m shares exchanged hands during the
year generating a turnover of USD 149.52m. The last
quarter experienced the highest level of activity with
137.95m shares having been traded, generating a
turnover of USD 49.85m. Letshego dominated the year’s
volume and turnover with a 68.94% and 54.88%
contribution respectively.
10 Most Active Stocks by Volume
Company
Vol. (Mn) % of Total
Letshego 212.80 70.26
FNBB 18.91 6.24
Barclays 13.14 4.34
Turnstar 10.63 3.51
Sechaba 10.09 3.33
PrimeTime 9.58 3.16
FSG 8.22 2.71
BIHL 6.36 2.10
ABCH 4.27 1.41
Sefalana 2.96 0.98
10 Most Active Stocks by Value
Company
Val. (USD) % of Total
Letshego 80,201,630 55.61
Sechaba 17,039,531 11.81
Barclays 13,564,273 9.41
BIHL 9,436,564 6.54
FNBB 7,492,331 5.19
Turnstar 2,792,749 1.94
FSG 2,580,806 1.79
PrimeTime 2,532,883 1.76
Standard Chartered 1,972,724 1.37
Sefalana 1,495,945 1.04
Market Cap Composition
24%
10%
50%
Banking
Property
Hotel
6%
6%
4%
Brewery
Financials
Other
4

Market Outlook for 2011
Botswana’s economic revival continues alongside a slowly
recovering global economy. A 3.7% decrease in total
government spending is budgeted for 2010/11, including a
substantial 15.7% decline in development expenditure.
With the continuing cash flow constraints, the
government has announced a prioritisation of project
spending, tightening of budget management and
implementation of measures to raise revenue, including
the increase in the rate of VAT (effective April 2010) and
government levies, as well as drawing dividends from
parastatals. It is anticipated that the BWP 12.1bn budget
deficit for 2010/11 will be financed by a combination of
domestic borrowing and drawdown of accumulated
savings.
It is anticipated that output will be below trend in the
medium-term. Although the exporting sectors will benefit
from any sustained recovery in world demand, domestic
economic growth will be moderated due to reduced
government spending. Furthermore, it is expected that
demand and its impact on economic activity will be
subdued as a result of the public sector wage freeze,
together with the increase in VAT, administered prices
and other levies. Improving credit developments however
reflect a cautious lending approach by banks and
restrained borrowing due to economic uncertainty and
the limited upward income effect on household credit
demand.
Total revenues and grants for the 2011/12 financial year
are estimated at BWP 34.10bn, with mineral revenue
contributing 33% of the total. The second largest source is
Customs and Excise at 25%, while Non-Mineral Income
Taxes and Value Added Tax come third and fourth at 18%
and 15%, respectively. The proposed total expenditure
and net lending for 2011/12 is estimated at BWP 41.03bn,
made up of BWP 10.77bn for the development budget and
BWP 30.35bn for the recurrent budget.
Top Picks for 2011
FNBB – Botswana’s 2 nd largest bank in terms of loan book
and the biggest company in terms of Market Cap. FNBB
has a large branch network and continues to expand. It is
the industry leader in the technology space. FNBB has the
lowest cost-to-income ratio out of all the banks in the
country.
Barclays – Botswana’s largest bank in terms of loan book
and is the 2 nd biggest company by Market Cap. It has the
biggest branch network and enjoys the largest market
share. Barclays has recently introduced new technology
such as cell phone banking.
ABCH – Recently awarded retail banking license in
Botswana. Has the potential to gain market share from
other players in the market who seem stagnant. Regional
presence and the continued recovery of Zimbabwe should
bolster profits. Merchant business continues to be robust.
Letshego – Botswana’s largest micro lender. Letshego
continue to expand its foot print regionally. Has very low
NPL’s resulting from good collection controls. Letshego
enjoys the majority of the micro lending market share.
BIHL – Botswana’s largest life insurance and asset
management company. Both the life insurance and asset
management company enjoy the majority of market share
in their segments. The asset management company is
well positioned to take advantage of the global equity
market recovery. The life insurance company continues to
grow at a steady pace.
The recommended Development Budget for the 2011/12
financial year is BWP 10.77bn. This budget will be funded
from the Domestic Development Fund at BWP 9.47bn and
loans and grants from development partners at
BWP1.3bn. The Ministry of Minerals, Energy and Water
Resources with a budget of BWP 2.37bn, gets the highest
share of 22% of the proposed overall Development
Budget. The second largest share of 19.8% is allocated to
the Ministry of Transport and Communications at BWP
2.13bn. The Ministry with the third largest share of 13.0%
of the proposed overall development budget is Local
Government at BWP 1.4bn. Total revenues and grants for
the financial year 2011/12 are forecast at BWP 34.10bn,
whilst proposed total expenditure and net lending are at
BWP 41.03bn. The net result is a budget deficit
amounting to BWP 6.93bn which is 6.3% of forecast GDP.
The DCI has gained 6.26% YTD in USD terms mainly driven
mainly by the banking stocks, ABCH, FNBB and Barclays.
We expect the financial sector to drive the market in
2011.
5

EQUITY RESEARCH
BRVM
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
2010 proved to be about Cote d’Ivoire for the UEMOA
region, as a disputed election saw the country descend
into chaos.
Following the 28 November election presidential run off,
Cote d’Ivoire’s electoral commission announced that
opposition candidate Alassane Ouattara had won the
presidential run-off, but the Constitutional Council
contested the announcement. The electoral commission
head, Youssouf Bakayoko, had said Mr Ouattara had won
54% of the vote, compared to 46% for Mr Gbagbo.
About the same time the head of the Constitutional
Council, Paul Yao N'Dre, seen as being close to Mr
Gbagbo, said it was taking over the declaration from the
election commission. "Because of disagreements on the
results of some regions, the independent electoral
commission wasn't able to give the provisional results.
"The Constitutional Council - responsible for sorting out
disputes in presidential elections - finds itself in charge,
to find a solution to the disagreements, and proclaim the
definitive presidential election results," Mr N'Dre said.
The Council then went on to name Gbagbo as the winner
of the election.
Since then, close to 300 people have been killed in postelection
violence, according to the United Nations, while
the internationally recognized president, Ouattara, has
been holed up at the Golf Hotel in Abidjan, protected by
United Nations peacekeepers.
The stalemate is having a materially negative effect on
Cote d’Ivoire’s economy, with cocoa exports having been
suspended by Ouattara while economic sanctions have
been applied to try and financially squeeze Gbagbo and
his allies out of power. The economic impact has spread
beyond Cote d’Ivoire, with the country having missed a
USD 29m coupon payment on its 2.5% USD 2.3bn Eurobond
that was due 31 December 2010, while world cocoa prices
have jumped by close to 20% since 28 November.
Despite the crisis and the fact that the BRVM is
headquartered in Abidjan, the market has proven
surprisingly resilient, perhaps as a reflection of its
relative lack of liquidity and the fact that the most active
stocks by volume (ETI) and value traded (Sonatel) are not
Ivorian centred businesses, as opposed to investor
indifference or apathy. Battle hardened BRVM investors
would probably have factored in an element of political
risk in their decision to invest in that market anyway.
Top 5 Gainers and Losers - 2010 Opening Closing % Change % Change
Company Price Price (LC) (USD)
BRVM Composite 132.05 159.10 20.48 11.96
SAPH CI 10 700 27 000 152.34 134.48
Palm CI 7 095 13 975 96.97 83.03
SOGB CI 18 000 28 000 55.56 44.55
Sicable CI 17 385 23 000 32.30 22.94
SGB CI 37 200 48 250 29.70 20.53
Trituraf CI 2 145 1 600 -25.41 -30.69
Sicor CI 6 250 4 600 -26.40 -31.61
CFAO CI 24 875 18 005 -27.62 -32.74
Sivom CI 6 495 3 500 -46.11 -49.93
Uniwax CI 18 000 9 250 -48.61 -52.25
Source: BRVM/Hudson/IAS
Top Ten Shares by Market Cap.
Company (XOF m) (USD m) % of Total
Sonatel 1 540 000 3 181.36 44.37
ETI 465 981 962.63 13.42
Solibra 164 444 339.71 4.74
Onatel 154 717 319.62 4.46
SGB 150 111 310.10 4.32
SAPH 138 013 285.11 3.98
Palm 108 022 223.15 3.11
Unilever 96 636 199.63 2.78
BICI 66 667 137.72 1.92
Nestle 62 487 129.09 1.80
Source: BRVM/Hudson/IAS
BRVM Composite relative to S&P African Frontier
Index
1.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
Source: IAS
S&P African Frontier
BRVM‐CI
6

Market Review for 2010
Both major indices saw a relatively strong performance in
2010, certainly in local currency terms, with the BRVM
Composite up 20.48% while the BRVM 10 gained 27.41%. In
USD terms, the BRVM Composite and BRVM 10 were
11.96% and 18.39% higher respectively, as the currency
weakened over the course of the year.
Fourteen counters closed the year in the black, against 25
in the red, with the best performing sector being the
agricultural stocks, led by SAPH (+152.34%) and Palm
(+96.97%), which both saw significant appreciation as
investors expect them to benefit for rising rubber and
palm oil prices respectively. Juggernaut Sonatel also had
a strong year, closing 28.33% higher. The agriculture
sector gained 103.24%, followed by the public services (of
which Sonatel is a constituent) up 22.82% and the
financials up 20.49%.
Market capitalisation increased by 23.63% over the course
of the year to close at USD 7.2bn. Sonatel remained the
most capitalised counter on the exchange with 44.37%,
followed by ETI with 13.42% and Solibra with 4.74%.
Total volumes for the year were flat, up just 1.01% to
28.3m shares, while value traded fared marginally better,
up 3.70% to XOF 65.4bn, or circa USD 135.2m. ETI was by
far the most active stock by volumes, contributing 94.68%
of the total. Value traded was led by the market cap
leader, Sonatel, which had 56.28% l, well ahead of SAPH
at number two with 11.13%. The liquidity ratio remained
low, deteriorating to 1.89% from 2.25% in 2009.
Market Outlook for 2011
The political crisis in Cote d’Ivoire has continued into
2011, and despite numerous attempts at mediation by the
African Union and other organisations, Gbagbo is digging
in his heels, with a Kenya/Zimbabwe style “solution” of a
government of national unity perhaps occupying his mind.
While initially we thought the exchange would continue
relatively unscathed as it has been by the political
fallout, security concerns have seen the BRVM closing its
doors in Cote d’Ivoire, at least until 28 February. We
assume there are contingencies for it to relocate to one
of the other member states where necessary, but this
scenario is likely to spook investors in the short term.
Whilst we expect a positive outturn for both indices, we
think the year end return may fall short of that witnessed
in 2010, with the agricultural sector having already rerated
significantly, although rising prices for the
commodities it produces should see more upside. The
financial and telecoms sectors will also be key
determinants of market direction this year, with the
Ivorian focused banks in particular likely to see some
fallout from the electoral crisis.
10 Most Active Stocks by Volume
Company
Vol. (m) % of Total
Ecobank Transnational Inc. 26.78 94.68
SAPH CI 0.38 1.34
Palm CI 0.29 1.03
Sonatel CI 0.27 0.95
CIE CI 0.09 0.31
SOGB CI 0.08 0.29
Bank of Africa BN 0.05 0.18
Filtisac CI 0.05 0.18
Bank of Africa CI 0.04 0.13
Onatel BF 0.03 0.12
10 Most Active Stocks by Value
Company
Val. (USD) % of Total
Sonatel CI 76 070 014 56.28
SAPH CI 15 050 859 11.13
Bank of Africa BN 5 029 608 3.72
Total CI 5 017 785 3.71
Palm CI 4 764 965 3.53
SOGB CI 3 480 350 2.57
Onatel BF 3 168 255 2.34
CIE CI 2 653 713 1.96
Ecobank Transnational Inc. 2 623 695 1.94
Bank of Africa CI 2 305 261 1.71
Source: BRVM/Hudson/IAS
Top Picks for 2011
ETI – Solid Q3 10 results; pan-African expansion drive still
ongoing; strong technology platform; alliance with
Nedbank may receive more attention
Palm – Strong palm oil demand and prices, capacity
increases on the cards
SAPH/SOGB – Higher oil prices mean increase in price of
synthetic rubber and hence increase in demand for
natural rubber; increase in demand from China in
particular pushing prices for natural rubber
Sonatel – Market bell weather; dividend yield remains
attractive
7

EQUITY RESEARCH
GHANA
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
Ghana’s ASI, (or GSE-CI as it is now called), had a very
good 2010 after the disaster that saw it being the worst
SSA performer in 2009, when it lost 54.73% in USD
terms.
There were many factors that contributed to the
performance of the market during the year. These
included the low base from which it was coming after the
fall in 2009; good financial results, with some of the
banks in particular having a solid 2009; a more stable
currency; strong macroeconomic fundamentals
highlighted by the fall in inflation to a 19 year low of
8.58% in December 2010; declining interest rates and
increased foreign investor interest.
By far the major driver of the stock market, and indeed
broader optimism for Ghana’s economy, was the much
anticipated commencement of oil production which was
scheduled for and began in late 2010. Ghana’s oil reserves
came to light with the announcement by UK listed Tullow
Oil of the discovery of 600m barrels of light oil offshore.
Reserves in the Mahogany exploration well were far
greater than the 250m barrels the firm had earlier
forecast.
On Wednesday 15 December 2010, Ghana’s President
John Atta Mills officially opened the valves at the oil field
named Jubilee, thereby heralding Ghana’s admission into
the league of oil producing nations. At initial production
of 120,000 barrels per day, the Jubilee field ranks Ghana
as the seventh largest producer in SSA, with output
expected to double within three years. Estimates are that
the oil from Jubilee will generate circa USD 1.2bn per
annum in government revenues over the next 20 years.
Aside from operator Tullow Oil Plc, major players in
Jubilee include state-owned Ghana National Petroleum
Corporation (GNPC), U.S.-producer Anadarko Petroleum
and privately held U.S. energy firm Kosmos.
As a result of the oil production, the World Bank expects
Ghana to be the fastest growing economy in SSA, with a
growth rate of 13.4% in 2011 and 10% in 2012. A revision
to Ghanaian GDP data in 2010 raised estimates of its
income by 60%, suggesting that it is now a lower-middleincome
country. Outside the oil sector Ghana’s economy
is still expected to register strong growth, particularly in
construction services as large infrastructure projects are
carried out. The World Bank does warn that inflows from
the oil sector, if not managed prudently, could discourage
the incentive structure for agricultural exports, or lead to
the so-called ‘Dutch Disease’. The general optimism,
however, suggests Ghana may avoid the dreaded resource
curse and use the oil proceeds to uplift the broader
economy as a whole and not just enrich the political
elite.
Top 5 Gainers and Losers - 2010 Opening Closing % Change % Change
Company Price Price (LC) (USD)
GSE ASI 5 572.34 7 369.21 32.25 27.55
Ghana Commercial Bank Ltd. 0.74 2.70 264.86 251.91
Fan Milk Ltd. 1.11 2.45 120.72 112.89
AngloGold Ashanti Depository Shares 0.30 0.60 100.00 92.90
Ghana Oil Company Limited 0.17 0.29 70.59 64.53
Golden Star Resources Ltd. 3.10 5.20 67.74 61.79
Cocoa Processing Co. Ltd. 0.03 0.02 (33.33) (35.70)
Sam Woode Ltd. 0.03 0.02 (33.33) (35.70)
Mechanical Lloyd Co. Ltd. 0.20 0.10 (50.00) (51.77)
Aluworks Limited 0.44 0.12 (72.73) (73.70)
Enterprise Group Limited 2.20 0.50 (77.27) (78.08)
Source: GSE, SIC Financial Services, IAS
Top Ten Shares by Market Cap.
Company (GHS m) (USD m) % of Total
AngloGold Ashanti Ltd. 12 328.87 8 400.13 62.63
Ecobank Transnational Inc. 1 487.17 1 013.27 7.55
Golden Star Resources Ltd. 1 455.95 991.99 7.40
Standard Chartered Bank Gh. Ltd. 869.33 592.31 4.42
Ghana Commercial Bank Ltd. 715.50 487.50 3.63
Ecobank Ghana Ltd. 690.39 470.39 3.51
Unilever Ghana Ltd. 355.63 242.30 1.81
Fan Milk Ltd. 290.83 198.15 1.48
Guinness Ghana Breweries Ltd. 256.89 175.03 1.31
SG-SSB Limited 213.69 145.60 1.09
Source: GSE, SAS, IAS
GSE-ASI relative to S&P African Frontier
Index
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
S&P African Frontier GSE-ASI
Source: IAS
8

Market Review for 2010
As mentioned in paragraph one above, 2010 proved to be
a good year for the market, as it recovered somewhat
from the losses experienced in 2009. The benchmark ASI
gained 32.25% in local currency terms and 27.55% in USD
terms to end the year at 7,369.21 points.
Eighteen counters closed the year with a positive return,
against eight trading unchanged while eleven closed in
the red. The gains were dominated by banking,
resource/oil and consumer goods stocks, while
manufacturers dominated the bottom pile. GCB was the
best performer for the year, up 264.86%, followed by Fan
Milk which also more than doubled, up 120.72%. The
former’s performance was driven by investor expectations
that its long outstanding debt from the Tema Oil Refinery
would be cleared by the state, which showed its intention
by clearing more than half of the amount earlier in the
year. Fan Milk was boosted by the expectation that it
would be one of the firms to benefit from higher per
capita incomes once the benefits of oil money are felt
across the broader economy.
Equity market capitalisation closed at GHS 19.7bn or USD
13.4bn. Behemoth AngloGold Ashanti remained the most
dominant stock by market cap with 62.63% of the total,
followed by ETI with 7.55%, Golden Star Resources
(7.40%), SCB (4.42%) and GCB (3.63%). Stripping out
AngloGold Ashanti, the banking sector remained the most
capitalised, with 21.91% of the total.
10 Most Active Stocks by Volume
Company
Vol. (m) % of Total
Ayrton Drug Manufacturing Ltd. 142.82 43.36
UT Bank 50.29 15.27
Ecobank Transnational Inc. 25.09 7.62
Cal Bank Ltd 23.45 7.12
Ghana Commercial Bank Ltd. 23.05 7.00
SIC Insurance Company Ltd. 15.36 4.66
Ghana Oil Company Limited 8.07 2.45
Fan Milk Ltd. 6.91 2.10
African Champion Industries Ltd. 6.75 2.05
SG-SSB Limited 4.76 1.44
10 Most Active Stocks by Value
Company
Val. (USD) % of Total
Ghana Commercial Bank Ltd. 23 051 205 22.32
Ayrton Drug Manufacturing Ltd. 15 564 603 15.07
Fan Milk Ltd. 14 800 448 14.33
UT Bank 10 165 877 9.84
Unilever Ghana Ltd. 7 533 953 7.30
Ecobank Ghana Ltd. 4 792 428 4.64
Cal Bank Ltd 4 398 215 4.26
Standard Chartered Bank Gh. Ltd. 4 159 970 4.03
SIC Insurance Company Ltd. 3 649 814 3.53
Guinness Ghana Breweries Ltd. 3 069 999 2.97
Source: GSE, SIC Financial Services, IAS
Turning to market activity, aggregate stock market
turnover by volumes between January and December
2010 was 329.4m shares, a 241.36% increase, while value
traded at GHS 151.6m rose by 104.23%. In USD terms,
value traded in 2010 equated to approximately USD
103.3m compared with USD 52.4m in 2009. Volumes were
distorted by the purchase of a 65.59% stake or
141,023,485 shares in Ayrton Drugs by South Africa’s
Adcock Ingram in April 2010, through the market. Taking
the once off nature of that transaction into
consideration, the banking sector remained the most
active, with 39.38% of total volumes and 49.74% of value.
The liquidity ratio closed the year at a still low 0.77%, or
2.06% after stripping out AngloGold Ashanti. Clearly
liquidity still remains a major challenge for the Ghanaian
market, and other than trying to encourage local listings,
the GSE during the year commenced a real time data feed
to Thomson Reuters to increase the transparency of the
market for both local and international investors, and
thereby promote market development.
Market Cap Composition
3.47% 1.43% 3.16%
21.91%
70.03%
Source: SAS/IAS
Mining
Banking
Consumer
Breweries
Other
9

Market Outlook for 2011 Top Picks for 2011
The desire to make the market more investor friendly has
continued into 2011, with the GSE opening the year by
extending trading hours by an additional two, from 1000
GMT – 1300 GMT per session to 1000 GMT – 1500 GMT. It
also introduced, with effect from 4 January, two new
indices, the GSE-CI (Composite Index) and the GSE-FSI
(Financial Stocks Index).
The exchange is also expecting at least four new listings
this year, the most high profile of these likely to be that
of oil group Tullow Holdings. The listing had initially been
slated for late 2010 but was subsequently postponed with
the company saying it wanted to focus on first oil from
the Jubilee field and year end corporate planning.
Another certainty to list is Comet Properties Ltd., whose
IPO was slated to close on 31 January, but has since been
extended to 15th February 2011, the company citing “the
unhelpful effect of the intervening holidays, the need to
accommodate the interest of key institutional investors
who require extra time to complete the approval processes
for their investments as well as the need to afford
opportunity to monthly earners and workers to participate
in the offer.” Soccer club Accra Hearts has also reportedly
received the all-clear to list on the exchange, where it
will be Africa’s first listed sporting club. On the negative
side, automobile dealer CFAO is set to formally de-list
from the GSE in March, while Accra Breweries Limited as
also expressed its intention to de-list this year, possibly
by the second quarter.
Ayrton Drugs – Purchase of stake by Adcock Ingram
should begin to yield real benefits going forward; likely to
be used as a hub by Adcock for West Africa expansion;
ETI – Solid Q3 10 results; pan-African expansion drive still
ongoing; strong technology platform; alliance with
Nedbank may receive more attention
Fan Milk – Rallied hard in 2010 and thus unlikely to repeat
its performance, but good long term fundamentals driven
by oil revenues for a company that benefits directly from
any increase in GDP per capita and disposable incomes
Ghana Commercial Bank – Like Fan Milk had a stellar
2010 in terms of share price performance; largest branch
network in Ghana and room for improvements in
efficiencies; Tema Oil Refinery loans actively being paid
back by the state
As can be seen, it is likely to be a busy year in terms of
corporate activity on the GSE, and that allied with the
very bullish anticipated GDP growth rate for 2011 spurred
by the oil find, should see the exchange putting in a
strong performance. Also expected to boost liquidity and
activity on the exchange will be pension fund reforms, as
well as a change (if it materialises as the exchange hopes)
in the trading strategy of the state pension company
SSNIT, which holds large chunks of many of Ghana‘s listed
stocks, and has traditionally done so on a long only basis.
We thus expect the market to provide real returns once
again this year, spurred on by continued oil euphoria,
strong macroeconomic fundamentals, new listings, and
the continued focus on consumer oriented and financial
sector stocks, which are set to record another positive
earnings year.
10

EQUITY RESEARCH
KENYA
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
Kenyans voted in favour of the constitutional
referendum in August 2010, a move that has reshaped
the political landscape and should avoid a repeat of the
post-election violence that claimed the lives of around
1,300 people in late 2007 and early 2008. The vote
also boosted investor confidence in the Kenyan
economy and capital markets.
In 2010, Kenya collected KES 548.1bn in revenue and
received KES 20.7bn in grants, giving total receipts of KES
568.8bn. Total expenditures of KES 725.2bn translated
into a budget deficit of 6.5% of GDP, up from 3.7% in FY
2009. The Ministry of Finance expects the deficit to
increase to 6.8% in FY 2011, mainly due to the 50.7%
increase in funds allocated to development projects.
In the first half of 2010, GDP growth was 5.1% and
expected to be sustained at around that level for the rest
of the year. The Ministry of Finance expects a 5.0%
growth in real GDP in FY 2010. The key drivers of growth
were agriculture (due to favourable weather conditions),
construction (increased investment in infrastructure),
manufacturing (robust regional growth), and financial
services (increased competition and new products).
Tourism arrivals increased beyond the psychological 1m in
2010. However due to the decline in the share of high-end
tourists from the EU, net tourism revenue has not grown
as rapidly as arrivals.
A combination of post-election violence, drought and high
international commodity prices pushed the inflation rate
up to a peak of 31.5% in May 2008. However, improved
food supplies, easing international oil prices and the
change in the methodology of computing the CPI index
from arithmetic mean to geometric mean, have all
resulted in a single digit inflation figure of 4.5% in
December 2010.
The Shilling remained relatively stable, trading in the KES
80 - KES 82 per dollar range. With the widespread
uncertainty in the global markets, the stability in the
Shilling is encouraging and was beneficial to exporters,
especially as some products (such as tea) are quoted in US
dollars.
Kenya has a relatively low Central Bank Rate (CBR) at
5.75%, compared to regional peers. However the interest
rate spread remains high at around 10%, and as a result
we expect impressive results from the banking sector.
Top gainers and losers 2010 Opening Closing % change % change
Company price price (LC) (USD)
NSE-20 3 247.44 4 432.60 36.50% 27.72%
KenolKobil 5.00 17.00 240.00% 218.13%
Kakuzi 31.75 81.50 156.69% 140.18%
Eaagads 20.00 50.00 150.00% 133.92%
Scangroup 25.50 61.50 141.18% 125.66%
Co-op. Bank of Kenya 8.95 19.00 112.29% 98.64%
B.O.C Kenya 150.00 132.00 -12.00% -17.66%
E.A.Cables 20.25 16.25 -19.75% -24.91%
AccessKenya Group 20.25 13.50 -33.33% -37.62%
Marshalls 21.75 14.10 -35.17% -39.34%
Kenya Power & Lighting 17.50 10.00 -42.86% -46.53%
1.5
1.4
1.3
1.2
1.1
1.0
0.9
Top 10 shares by market cap.
Company KES (m) USD (m) % of total
Safaricom 188,000.00 2,320.99 16.75%
East African Breweries 158,945.65 1,962.29 14.16%
Equity Bank 99,049.29 1,222.83 8.82%
Barclays Bank 84,867.75 1,047.75 7.56%
Standard Chartered Bank 70,167.69 866.27 6.25%
Bamburi Cement 67,873.38 837.94 6.05%
Co-operative Bank of Kenya 66,485.03 820.80 5.92%
KenGen 52,760.67 651.37 4.70%
Kenya Commercial Bank 48,236.67 595.51 4.30%
British American Tobacco Kenya 27,000.00 333.33 2.41%
Jan-10
NSE relative to S&P African Frontier Index
SEMDEX relative to the S&P African Frontier index
Feb-10
Mar-10
Apr-10
NSE 20
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
S&P African Frontier
Dec-10
11

Market Review for 2010
The Nairobi Stock Exchange recorded impressive growth in
2010, with both the NSE 20 and NASI up 36.5% in local
currency terms. However due to the 6.9% depreciation in
the Shilling against the US dollar, both indices gained a
lower 27.7% in USD terms. The NSE 20 reached its peak in
October 2010, due to a rally in share prices after the
Kenyans voted in favour of the August 2010 constitution
referendum.
Trading activity increased significantly on the NSE, with
volume up 87% to 5.9bn shares and turnover up 135% to
KES 89.9bn. The commercial and services sector
accounted for 61.4% of shares traded, followed by the
financial sector at 16.9% and the industrial sector at
13.9%.
There is a lot of liquidity in the Kenyan market, as
demonstrated by a number of successful capital raising
initiatives in 2010. Kenya Power and Lighting raised KES
9.5bn through a rights issue, the funds being earmarked
for upgrading the national grid. Kenya Commercial Bank
raised KES 12.5bn also through a rights issue. The
proceeds give KCB adequate capital to pursue aggressive
growth and improve capital ratios which were under
pressure due to the Group’s accelerated growth. KCB is
one of many Kenyan firms planning to set up shop in
Southern Sudan. Standard Chartered Bank Kenya raised
KES 2.5bn through a rights issue, to fund its acquisition of
the Barclays’ custody business.
10 Most Active Stocks by Volume
Company
Volume (m) % of total
Safaricom 3,398.72 57.0%
Equity Bank 498.53 8.4%
Mumias Sugar Company 355.70 6.0%
Co-operative Bank of Kenya 353.81 5.9%
Kenya Commercial Bank 319.44 5.4%
KenGen 198.25 3.3%
KenolKobil 99.33 1.7%
Kenya Airways 71.96 1.2%
Kenya Re-Insurance Corporation 68.43 1.1%
CMC Holdings 53.24 0.9%
10 Most Active Stocks by Value
Company
Val. (USDm) % of total
Safaricom 224.58 20.2%
Equity Bank 135.71 12.2%
East African Breweries Limited 100.93 9.1%
Kenya Commercial Bank 83.44 7.5%
Co-operative Bank of Kenya 62.11 5.6%
Mumias Sugar Company 51.10 4.6%
Kenya Airways 45.81 4.1%
KenGen 42.04 3.8%
Bamburi Cement 32.65 2.9%
Barclays Bank 31.98 2.9%
Market Outlook for 2011
Kenya’s economic prospects are highly dependent on the
weather, due to the importance of agriculture to the
economy. An early end to the February-June 2010 rainy
season and poor rains in the final quarter of 2010 due to
the La Nina weather phenomenon may be indications that
agriculture’s growth momentum may be subdued in the
early part of 2011. We anticipate that the increased food
insecurity will raise food prices in the first half of the
year. This, coupled with higher international oil prices
will ultimately raise the inflation rate, however we
expect it to remain in single digits.
Credit growth has shown signs of recovery and we expect
it to continue on its upward trajectory in 2011 on the
back of strong growth in deposits, a relatively stronger
economy and an increase in liquidity.
A continued improvement in EU tourist traffic and the
increasing traffic from new markets are expected to
support an improvement in tourism receipts in 2011.
The NSE 20 has shed 2.55% y-t-d in US terms. However,
given the upcoming reporting season for the FY 2010
results and the positive results expected, we anticipate a
rise in the NSE 20 and another strong performance from
the Kenyan market in 2011.
Top picks for 2011
Barclays Bank – Strong and diversified capital base,
wide branch and ATM network, diversified loan book,
one of the lowest P/Es in the finance and investment
sector.
Kenya Commercial Bank – Largest banking group in
East Africa with a presence in Kenya, Tanzania,
Uganda, Rwanda, Sudan; cross listed in Uganda,
Tanzania and Rwanda enhancing demand and visibility;
one of the highest dividend yields in the finance and
investment sector, impressive growth in the loan book,
growing customer base, plans to re-enter investment
banking market, successfully completed third rights
issue and will use funds to grow the KCB brand.
East African Breweries – Presence in Kenya, Uganda,
Tanzania, Burundi, Rwanda and southern Sudan;
diverse brand portfolio, wide distribution network,
plans to contract more sorghum farmers to diversify
from volatile barley, constant investment in increasing
brewing capacity.
12

EQUITY RESEARCH
MALAWI
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
An Overview of 2010
A disappointing 2010 as the S&P Africa Frontier Market
Index outperformed the DSI. The year 2010 was not
exciting at all on the MSE, given that the market fell to
historic lows during the first half of the year. However, it
was on a recovery course in the second half of 2010 as it
registered a positive and steady growth in Q3 2010 and Q4
2010. In terms of trading activity, the market registered
low trading volumes and value in 2010 compared to the year
2009. In 2010, a total of 241,957,941 shares were
transacted at a total turnover of USD 12.36m while in 2009,
the market transacted a total of 592,420,289 shares at a
total turnover of USD 20.31m. This reflects a decrease in
volume by 59.16 % and by 35.26% in terms of value.
On a year to year basis, the DSI (that measures the average
price movement of only domestic counters) yielded a return
of -4.03% from 4,087.19 points to 3,922.61 points. The
lowest point was registered in May when the DSI was at
3,836.36 points. The MASI declined from 5,154.95 points
registered at the start of January 2010 to 4,953.09 points
registered as at 31 December, 2010, giving a return of -
3.92% against a return on investment of -15.37 % registered
in 2009.
H1 2010 was more eventful. The MSE registered a strong
and steady growth in the H1 2010 as it transacted a total of
137,449,019 shares at total turnover of (USD 7.96m) against
104,508,922 shares at a total consideration of USD 4.40m)
traded in H2:2010.
Market Capitalisation dragged down by weaker share
prices. The total market capitalisation for the MSE
decreased from USD 1.38m to USD 1.37m on the back of a
decrease in the share prices of some of the traded stocks
such as Real Insurance, FMB, TNM, NBS and NBM which
registered price decreases during the review period. Real
Insurance led the decliners, as it lost 56.52% during the
year.
Market liquidity also worsened in 2010. Generally, the
main constraints with regards to frontier market investing
relates to market liquidity. The MSE largely remains an
illiquid market given the low turnover numbers. The
turnover velocity as measured by the ratio of total value
traded to market capitalisation worsened to 0.90% in 2010
compared to 1.33% recorded in 2009. In addition, the
liquidity ratio of shares traded to shares in issue declined
to 1.39% in 2010, compared to 3.40% in 2009. The market
recorded trading activity on all counters except PIM and
SUNBIRD. TNM registered the biggest trading volume of
93,121,603 representing 38.49% of the total. In value terms,
NBS Bank registered the biggest turnover of MWK 307.15m,
representing 16.49 % of total market turnover.
Top 5 Gainers and Losers Opening Closing % Change % Change
Company Price Price (LC) (USD)
MSE DSI 4,087.19 3,922.61 -4.03 -6.45
MPICO 260 310 19.23 16.23
OML 25,000 28,000 12.00 9.18
Standard Bank 9,200 10,000 8.70 5.96
PCL 16,300 17,000 4.29 1.67
BHL 615 640 4.07 1.44
NBM 5,900 5,865 -0.59 -3.10
TNM 200 175 -12.50 -14.71
NBS 1,400 1,100 -21.43 -23.41
FMB 1,000 650 -35.00 -36.64
REAL 230 100 -56.52 -57.62
Source: MSE
Top Ten Shares by Market Cap.
Company (MWKm) (USDm) % of Total
Old Mutual Plc 1,072,976.65 7,115.20 83.80
Illovo 78,478.88 520.41 6.13
NBM 27,374.01 181.52 2.14
Standard Bank 21,333.41 141.47 1.67
PCL 21,285.28 141.15 1.66
TNM 17,540.79 116.32 1.37
FMB 15,185.63 100.70 1.19
NICO 10,951.93 72.63 0.86
NBS 5,728.18 37.99 0.45
MPICO 3,561.97 23.62 0.28
Source: MSE
DSI vs S&P Africa Frontier Market Index
1.30
1.20
1.10
1.00
0.90
0.80
Jan-10 May-10 Aug-10 Dec-10
DSI S&P Frontier Index
Source: IAS
13

Market Outlook for 2011
No surprises in the political landscape expected. There
are basically three main political parties in Malawi which
include the United Democratic Front (UDF), the Malawi
Congress Party (MCP) and the Democratic Progressive
Party (DPP). However, the ruling Democratic Progressive
Party (DPP) continues to consolidate its hold on power
after it won 114 seats in the 2009 election. As a result,
there appears to be diminishing influence from parties
such as the United Democratic Front (UDF) and the Malawi
Congress Party (MCP). While President Bingu wa Mutharika
is from the UDF party, we expect that the DPP’s increase
in power will enable it to push though policy reforms.
Economic hurdles still remain in the picture. There has
been significant progress in reducing the annual average
inflation from the previous 8.4% in 2009 to about 7.4% in
2010. The decrease in annual inflation was largely
associated with a decrease in the food index by 3.1% and
non-food inflation by 0.2%. However, the main issue is
that the economy depends on substantial inflows of
economic assistance from the IMF, the World Bank, and
individual donor nations. The over-dependence of the
fiscus on concessional grants is evident from the fact that
in the 2010/2011 budget, grants of MWK 85.0bn (USD
566.0m) from donors represented 30% of total revenue.
Generally, the government is faced with many challenges
that include developing a market economy, improving
educational facilities and dealing with the rapidly growing
problem of HIV/AIDS.
Foreign currency shortages may stifle growth. The
Kwacha depreciated by 2.52% against the USD during the
review period of January to December 2010 from its
trading position of MWK 147.00/USD to MWK 145.81/USD.
However, the foreign exchanged system is a pegged one
and the MWK is evidently overvalued. It is unlikely the
MWK will allowed to free-float, as authorities are
concerned about the inflationary impact of a weaker MWK
and also because it would increase the costs of the
fertilizer subsidy programme and push other imported
costs higher. Our view is that the fixed peg has
precipitated foreign currency shortages and amplified the
external shocks to the economy. At current levels of about
MWK 150/USD, we believe the MWK is overvalued.
We expect market development to gather momentum as
corporate activities increase in 2011. While we expect a
lackluster trading year on the MSE, we believe corporate
actions will increase. NBS Bank issued an additional
26,191,909 ordinary shares as bonus shares as at the
record date of 24 December, 2010. The additional bonus
shares were listed on the Exchange on 4 January 2011.
Other corporate transactions include the sale of its life
assurance business to Sanlam (SA) by NICO Holdings. In
addition, indications are that NBM will acquire an existing
investment bank in Zimbabwe. We expect such
transactions to deepen the local stock market and improve
liquidity levels.
Top Picks for 2011
COMPANY Price P/E P/BV Recom.
Hist T+1 T+2 Hist T+1 T+2
M PICO 3.10 3.3 3.1 3.0 0.6 0.6 0.6 BUY
NBM 58.65 8.7 8.3 7.9 2.8 2.1 1.5 BUY
NBS 11.00 6.7 6.4 6.1 2.2 2.2 1.4 BUY
NICO 10.00 4.5 4.3 4.1 1.4 1.4 1.2 BUY
PIM 6.25 6.2 5.9 5.6 0.6 0.5 0.5 BUY
Press Corp. 177.00 3.8 3.6 3.4 0.9 3.1 2.7 BUY
Std. Bank 100.00 7.5 6.7 6.1 2.6 2.5 1.8 BUY
The 2011 Hot Stocks
As highlighted in the 2010 review, the MSE largely
traded in negative territory since June 2010. However,
coinciding with Malawi’s foreign exchange shortage and
combined with the MSE’s relatively low liquidity, this
has meant sell orders by foreign investors remain
outstanding, creating a share overhang in most
counters. In our view, the MSE currently offers some
buying opportunities for long-term investors.
Another exciting point is that dividend yields are
generally expected to remain strong, although some of
the stronger performing companies, especially in the
banking sector, could benefit their shareholders better
through the distribution of higher rates of dividends.
Given a dividend yield at about 4.2%, the market is
relatively attractive to local investors, given local
deposit rates of about 2.5%.
Generally, Malawi has favorable climatic conditions that
provide optimal conditions for sugar production. In our
view, companies such as Illovo would be a safe haven
for MSE investors.
We also like property company MPICO, given that it
maintains and manages an investment portfolio of high
quality retail, industrial and commercial properties
located mainly in the major metropolitan areas of
Malawi, which offers investors sustainable and growing
income and resultant capital appreciation.
National Bank of Malawi (NBM) cannot be ignored,
given that it is the largest bank in Malawi by all
quantitative metrics, controlling c45% market share by
deposits and c50% by advances book. As the largest
bank in the country with direct exposure to the
country’s largest corporates, NBM offers investors a
direct play on Malawi’s economic growth story.
Other recommended BUYs include NBS, NICO Holdings,
PIM, Press Corporation and Standard Bank.
14

EQUITY RESEARCH
MAURITIUS
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
The Mauritian economy is highly dependent on Europe,
which accounts for approximately 70% of its exports.
The slow recovery in Europe has hampered the
recovery of key industries, such as textiles. Despite the
challenges it faced, the Mauritian economy grew by
4.2% in 2010 up from the 3.1% attained in 2009.
Amongst the challenges were the Greek debt crisis, the
volcanic ash cloud which disrupted air travel, the
unfavourable weather conditions that disrupted air
travel in Europe towards the end of the year and the
depreciation of the Euro against the Rupee.
In 2010, Mauritius had a budget deficit of 4.5% of GDP and
expects this to decline to 4.3% in the 2011 fiscal year. In
2010 the government collected MUR 63bn in revenue and
had current expenditures of MUR 68bn and capital
expenditures of MUR 8bn. In 2011, the government
projects that it will collect MUR 70bn in revenue and
spend MUR 84bn.
Growth in GDP was mainly driven by real estate and
property development, which registered growth of 6.3%,
followed by transport, storage and communications at
5.5% and financial services and construction which both
grew by 4.3%.
Despite the challenges faced by the tourism industry,
tourist arrivals grew by 7.3% in 2010. The GFC and the
euro-zone crisis have revealed the need for Mauritius to
reduce its heavy dependence on Europe. In his budget
speech, Finance Minister, Pravind Kumar Jugnauth, stated
that by 2015 Mauritius expects more than 50% of tourists
to come from non-euro-zone countries, in contrast to the
current level which is less than 40%.
Inflation has declined from highs recorded in late 2008 to
December’s m-o-m level of 2.9%. However, y-o-y inflation
stood at 6.1%. The Monetary Policy Committee of the
Central Bank has reduced the repo rate from its March
2008 high of 9.5% to the current level of 4.75%. Given the
likely rise in inflation due to oil prices, we do not expect
to see any changes in the repo rate for at least the first
half of 2011.
The unemployment rate reached 7.6% in Q3 2010 and is
estimated to have declined to 7.5% in December 2010.
This level is relatively low compared to regional peers and
given the challenges faced by the export oriented sectors
which are labour intensive.
Top gainers and losers 2010 Opening Closing % change % change
Company price price (LC) (USD)
SEMDEX 1660.87 1967.45 18.46% 16.23%
ENL Land 19.00 45.90 141.58% 137.03%
Harel Mallac 89.00 215.00 141.57% 137.03%
Swan Insurance Co. 153.00 300.00 96.08% 92.39%
Mauritius Leasing Co. 4.10 8.00 95.12% 91.45%
Ireland Blyth 40.50 74.00 82.72% 79.28%
Automatic Systems 127.00 120.00 -5.51% -7.29%
New Mauritius Hotels 134.00 110.00 -17.91% -19.45%
Mauritius Stationery Manuf. 21.00 17.10 -18.57% -20.10%
Sun Resorts 69.00 56.00 -18.84% -20.37%
Naiade Resorts 36.00 25.50 -29.17% -30.50%
Top 10 shares by market cap.
Company MUR (m) USD (m) % of total
Mauritius Commercial Bank 41,562.30 1,369.43 23.44%
State Bank of Mauritius 27,488.50 905.72 15.51%
New Mauritius Hotels 17,756.60 585.06 10.02%
ENL Land 9,662.90 318.38 5.45%
Harel Freres 8,451.50 278.47 4.77%
Rogers & Co. 7,384.90 243.32 4.17%
Sun Resorts 6,350.30 209.24 3.58%
Ireland Blyth 5,286.40 174.18 2.98%
Omnicane 4,958.90 163.39 2.80%
Promotion and Development 4,042.10 133.18 2.28%
Source: SEM
SEMDEX relative to the S&P African Frontier index
1.3
1.2
1.1
1.0
0.9
0.8
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
SEMDEX
S&P African Frontier
15

Market Review for 2010
The Stock Exchange of Mauritius started the year with the
finalisation of the merger of sugar producers, Mon Desert
Alma and Savannah Sugar Estates. The merged company
(Savannah) rebranded itself and is currently known as ENL
Land. British American Investment on the other hand
delisted from the official market, following the
acquisition of all its shares by Seaton Investment Limited.
ENL Land raised MUR 933.6m through the issue of
preference shares. Naiade Resorts issued new shares and
a convertible loan and raised MUR 1.0bn, to finance its
MUR 1.5bn restructuring. The remaining MUR 0.5bn will
be raised through the sale of assets.
There was increased activity on the Stock Exchange of
Mauritius, with volume up 47.8% to 334.5m shares and
turnover up 12.2% to MUR 11.69bn.
The SEMDEX gained 18.5% y-o-y in local currency terms
and due to the slight depreciation of the rupee against
the US dollar, the index gained 16.2% y-o-y in USD terms.
The SEM-7 on the other hand gained 3.5% in local
currency and 1.5% in USD terms. Harel Freres and ENL
Land are now SEM-7 constituents, replacing Naiade
Resorts and Omnicane.
Foreign investors were net sellers of MUR 1.54bn worth of
transactions, compared to 2009 when they were net
sellers of MUR 184.91m worth of shares.
10 Most Active Stocks by Volume
Company
Volume (m) % of total
Mauritius Development Inv. Trust 102.15 30.3%
British American Investment 48.33 14.3%
Caudan Development 45.58 13.5%
Mauritius Commercial Bank 22.00 6.5%
State Bank of Mauritius 13.41 4.0%
New Mauritius Hotels 12.13 3.6%
Naiade Resorts 9.86 2.9%
Sun Resorts 8.65 2.6%
Harel Freres 8.06 2.4%
P.O.L.I.C.Y. 7.32 2.2%
10 Most Active Stocks by Value
Company
Val. (USDm) % of total
Mauritius Commercial Bank 100.97 26.2%
New Mauritius Hotels 46.36 12.0%
State Bank of Mauritius 36.56 9.5%
Mauritius Union Assurance 29.10 7.6%
British American Investment 25.50 6.6%
Sun Resorts 18.20 4.7%
Mauritius Development Inv. Trust 17.22 4.5%
Rogers and Co. 10.35 2.7%
United Basalt Products 10.00 2.6%
Naiade Resorts 9.60 2.5%
Market Outlook for 2011
In the 2011 budget speech, the Finance Minister proposed
that the Bank of Mauritius and Financial Services
Commission merge into a single regulatory institution.
The BoM would be empowered to issue a larger variety of
instruments, extend advances from 3 months to 6
months, broaden the list of collateral and develop the
forex and derivatives market, amongst others. As a
result, we expect increased liquidity in the Mauritian
market.
Mauritius is seeking to tap into the USD 1tn Islamic
finance industry. The central bank will offer Shariacompliant
short-term liquidity tools, and according to the
governor, the first Islamic bank will be operational by the
end of Q1 2011. Given that a sixth of Mauritius’
population is Muslim, we anticipate that this development
will be highly successful.
The CSO forecasts that Mauritius will grow by around 4.2%
in 2011, with growth mainly driven by the business
activities, financial institutions, and transport, storage
and communications sectors.
The SEMDEX has gained 8.73% y-t-d in USD terms, mainly
driven by the banks, MCB and State Bank. We expect the
banks and hotels to drive the market in 2011, given the
recovery of the overall market and tourist arrivals.
Top picks for 2011
Mauritius Commercial Bank – Mauritius’ largest bank
with the highest market share of loans and deposits,
diversified product range, engaged in other non-vanilla
banking activities such as leasing, factoring, credit
cards, investment management, stock broking and
registry services, income from foreign sources at
around 40% of the Group’s net results, global business
desk to help foreign institutional clients take
advantage of the double taxation treaties, falling
impairment charges.
Naiade Resorts – The Group has returned to making
profits, diversified hotel base – Mauritius, Maldives and
Reunion Island; improved occupancies in all markets,
revenue set to further increase when average room
rates recover, plans to increase stake in White Sands
Resort and Spa.
Air Mauritius – Tourist arrivals forecast to continue
rising, MTPA continues to promote Mauritius in the
Asian market, fuel hedge losses realised, increased
revenue in recent results as a result of increases in
both passenger and cargo volumes.
16

EQUITY RESEARCH
NAMIBIA
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
An Overview of 2010
SWAPO remains firmly in power. Judging from the
regional and local authority elections that took place at
the end of November 2010, the ruling SWAPO party
continues to dominate the political space. However, the
voter turnout was low as only 38% of registered voters
made the effort to cast their votes. With the elections
over, however, it is largely business as usual for SWAPO.
In our view, the opposition needs to become a more
credible force if democracy is to maintain its vibrancy and
credibility with the electorate. However, the increasing
popularity of the Rally for Democracy and Progress (RDP)
bodes well. In addition, Namibia's constitution enshrines a
multi-party system and a bill of rights. It also limits the
executive president to two five-year terms and provides
for the private ownership of property. Namibia has a
relatively robust civil service infrastructure which it
retained post-independence.
NSX Indices were in line with major international
indices. The NSX local Index was not only in line with
major indicators such as JSE, Dow and FTSE in 2010, but
also tracked the S&P Frontier Market Index throughout
the year. On a YTD basis, the NSX Local index gained
11.60%, whereas the NSX overall Index gained 12.35%. The
Namibian Stock Exchange (NSX) comprises mostly duallisted
shares, with Anglo-American representing 50% of
the total market capitalisation. The seven listed local
companies constitute less than 1% of total market
capitalisation.
Local stocks benefiting from Domestic Investment
Requirements (DIR). The local index (LCI) is less exposed
to global market influences. The index has largely
benefited from regulation forcing local asset managers to
hold 35% of their portfolios in domestic companies.
However, the risk is that the LCI may come under
pressure if changes are made to the domestic investment
requirement (DIR).
Institutions such as the International Monetary Fund (IMF)
have advocated for changes to the domestic investment
requirement as there are concerns related to moral
hazards. It remains to be seen however, whether the
Namibian monetary authorities will make any changes to
the DIR in 2011.
Top 5 Gainers and Losers Opening Closing % Change % Change
Company Price Price (LC) (USD)
NSX Local Index 154.77 172.72 11.60 23.58
Truworths 43.99 71.76 63.13 80.65
Shoprite Holdings 65.75 99.85 51.86 68.18
Barloworld Ltd 45.61 67.00 46.90 62.68
Vukile Property Fund Ltd 10.55 14.85 40.76 55.88
Oceana Group Limited 30.00 38.50 28.33 42.12
Old Mutual Plc 13.18 12.98 -1.52 9.06
Stimulus Investments Ltd 104.99 102.99 -1.90 8.63
Afrox 22.65 20.65 -8.83 0.96
Trustco Group Holdings Ltd 0.70 0.60 -14.29 -5.08
Trans Hex Group Limited 4.00 2.33 -41.75 -35.49
Source: NSX
Top Ten Shares by Market Cap.
Company (NAD m) (USDm) % of Total
Anglo-American plc 498,885 69,002.07 41.94
Paladin Energy Limited 160,913 22,256.23 13.53
Trans Hex Group Limited 112,533 15,564.77 9.46
Afrox 88,844 12,288.24 7.47
Barloworld Limited 66,164 9,151.38 5.56
Bidvest Namibia Limited 57,351 7,932.37 4.82
Namibia Breweries 51,391 7,108.08 4.32
Oceana Group Limited 30,101 4,163.32 2.53
Nictus 26,992 3,733.27 2.27
Truworths 25,019 3,460.41 2.10
Source: NSX
1.300
1.200
1.100
1.000
0.900
0.800
NSX vs S&P Africa Frontier Market Index
Jan-10 May-10 Aug-10 Dec-10
NSX Local Index
S&P Frontier Index
Source: IAS
17

Market Outlook for 2011 Top Picks for 2011
Global economic recovery to dictate the pace in 2011.
It is important to note that Namibia’s economy is hinged
on the global commodity cycle. The economy is heavily
dependent on the extraction and processing of minerals
for export. Mining accounts for 8% of GDP, but provides
more than 50% of foreign exchange earnings. Rich
alluvial diamond deposits make Namibia a primary
source for gem-quality diamonds. Namibia is the fourthlargest
exporter of non-fuel minerals in Africa, the
world's fifth-largest producer of uranium, and the
producer of large quantities of lead, zinc, tin, silver,
and tungsten. As the global economy recovers, the
Namibian economy should benefit accordingly. Real GDP
growth is expected to have recovered to 3.8% in 2010,
following the contraction of 0.8% in 2009. In 2011, we
expect growth to accelerate to c4.0% as the global
economic recovery gains momentum.
Inflationary threats are minimal in 2011. Consumer
inflation remains subdued with the inflation rate for
November 2010 at 3.4% Given the subdued inflation
environment, the Bank of Namibia (BON) continued
with its monetary easing (in line with SARB) by cutting
interest rates by 75 bps in December 2010. However,
rates remain 50 bps higher in Namibia than in South
Africa. This implies that the Bank of Namibia has room
to cut rates by a further 50 bps.
The key predicament relates to unemployment. In our
view, Namibia's rising unemployment is the main
challenge to the Namibian government. Recently,
indications were that unemployment levels rose to a
startling 51.2%. Evidently, an independent Namibia
inherited a highly segmented labour market, with a
major underlying factor being unequal access to
education and sometimes, total lack of access to
education for locals.
NSX shares should continue to track the JSE in 2011.
While the global economic recovery is proceeding
broadly as expected, the recovery still remains fragile as
strong policies to foster internal rebalancing of demand
from public to private sources and external rebalancing
from deficit to surplus economies are not yet in place.
The WEO expects global activity to expand by 4.8% in
2010 and 4.2% in 2011.
Given the fact 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 are hinged mainly on global
factors.
COMPANY Price P/E P/BV Recom.
Hist T+1 T+2 Hist T+1 T+2
FNB Namib. 12.25 8.1 7.7 7.3 2.0 1.8 1.7 BUY
N.A.M . 0.25 6.6 6.4 6.3 0.0 0.0 0.0 BUY
Nictus 1.05 4.7 4.5 4.4 0.6 0.5 0.5 BUY
Trustco 0.60 4.8 4.7 4.6 1.1 1.1 1.0 BUY
The 2011 Hot Stocks
Local stocks are “lekker” when it comes to value. Our
focus has mainly been on the local stocks, given the
exciting growth prospects. We like FNB Namibia because
of its diversified income base. The group is an excellent
example of a successful business with profitable,
diversified operational divisions. FNB is changing this
trend by showing that other diversified operations can
also contribute successfully to a bank’s profit line. These
are basically non-interest income (fees and commissions)
and insurance premium income. On a relative basis,
FNB’s earnings yield (EY) of 13.9% and dividend yield
(DY) of 5.6% outperforms all the other local banks. In
addition, a PER of 8.1x is undemanding relative to JSE
banking sector PE of 13.62x.
Another interesting stock is Namibia Asset Management
(NAM), the only listed asset management firm in
Namibia. The company manages funds on behalf of the
largest pension funds in the country. NAM has also been
growing its retail assets aggressively. In addition, NAM’s
fully discretionary best house-view portfolios have been
ranked third in the Alexander Forbes Survey for
Namibian Funds.
Trustco Group Holdings (TUC) continues to register solid
growth as it expands its operation not only in Namibia
but also in the region. The company ventured into the
Zimbabwean market through a partnership with
Zimbabwe’s Econet Wireless. In addition, Trustco's
subsidiary, Trustco Mobile (Pty) Ltd, is pursuing an
expansion strategy into Africa. We recommend investors
tap into Trustco’s strong growth story.
We also recommend exposure in Nictus, a diversified
group operating in South Africa and Namibia. The
company is involved in retailing furniture, motor and
carpet, wholesaling carpet, immovable property, shortterm
insurance and financing. Ratings are also
undemanding at a PER of 4.7x and PBV of 0.6x.
Policies should continue to favour local stocks. Local
stocks should continue to be benefit from the domestic
investment requirements (DIR). In addition, given an
anticipated growth rate of c4.0% in 2011 on the back of
global economic recovery gains, local stocks are likely to
benefit from a recovery in consumer demand.
18

EQUITY RESEARCH
NIGERIA
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
2010 proved to be a year of reform for the Nigerian
Stock Exchange, precipitated by the banking sector shake
up undertaken by the Central Bank of Nigeria (CBN) that
began in 2009.
The CBN injected nearly USD 2.6bn into five troubled banks
and dismissed the institutions' top executives, in a
dramatic move aimed at rescuing the firms from what the
government said was chronic mismanagement. A key
reason for the banks finding themselves undercapitalised
was that they lent heavily during the boom year for the
stock market that was 2007, to speculators in the stock
market. This left many banks overexposed when
commodities prices turned around, the world sank into the
‘GFC’ and Nigerian shares fell.
With the banking sector making up such a large proportion
of the exchange’s market cap, the negative sentiment
towards that sector spread a pall over the market in
general, as did the overhang created by uncertainty over
what would happen to the equities held as security for the
margin loans.
In 2010, the market awaited the passing of the Asset
Management Corporation of Nigeria (AMCON) establishment
bill. The AMCON was established by the CBN as the
principal vehicle for the resolution of the asset quality
problems that had risked the banking system in the last
two years and it provided an alternative to the liquidation
of distressed banks. In addition to purchasing
non-performing loans from the banks, AMCON is also a
vehicle for recapitalizing these institutions. Once the bill
was approved, a deadline of 31 December 2010 was
announced by AMCON for it to acquire NPLs from the
banks, and this was achieved with the institution executing
loan purchase and service agreements with 21 participating
banks to acquire NPLs with a face value of NGN 2.04tn for
just under NGN 800bn, with 92.5% of the purchased NPLs
coming from the ten banks that had required direct CBN
intervention.
The events in the banking sector and the negative impact
this had on investor perceptions of the NSE led to an
investigation by the SEC into the exchanges operations.
The end result of those investigations was the removal by
the SEC of Dr. Ndi Okereke- Onyiuke as Director-General of
the NSE, as well as dissolving the NSE Council. The reasons
given were the NSE’s, “inadequate oversight function of
the Exchange; ongoing litigations; allegations of financial
mismanagement; governance challenges; and the
inordinate delays in the implementation of the succession
plan for the Exchange.” The SEC appointed the former CEO
of audit firm Deloitte in West and Central Africa,
Emmanuel Ikazaboh, as interim manager, and a substantive
head has since been appointed in January 2011.
Top 5 Gainers and Losers - 2010 Opening Closing % Change % Change
Company Price Price (LC) (USD)
NSE ASI 20 827.17 24 770.52 18.93 17.17
Vono Products Plc 0.69 2.86 314.49 308.36
International Breweries Plc 2.27 6.42 182.82 178.63
Berger Paints (Nig) Plc 3.2 8.36 161.25 157.38
Cadbury Nigeria Plc 10.49 25.62 144.23 140.62
Capital Hotels Plc 1.38 3.3 139.13 135.59
Crusader (Nig) Plc 1.57 0.53 -66.24 -66.74
Oasis Insurance Plc 1.49 0.5 -66.44 -66.94
Aluminium Manufacturing Co. Plc 27.71 7.75 -72.03 -72.45
Beco Petroleum Products Plc 2.53 0.6 -76.28 -76.64
Unity Kapital Assurance Plc 2.26 0.5 -77.89 -78.20
Source: NSE
Top Ten Shares by Market Cap.
Company
(NGN bn) (USD bn) % of Total
Dangote Cement Plc 1 859.28 12.33 23.47
Nigerian Breweries Plc 583.07 3.87 7.36
Zenith Bank Plc 471.26 3.13 5.95
First Bank of Nigeria Plc 448.04 2.97 5.66
Guaranty Trust Bank Plc 414.11 2.75 5.23
Guinness Nigeria Plc 281.06 1.86 3.55
Nestle Nigeria Plc 243.44 1.61 3.07
United Bank for Africa Plc 236.69 1.57 2.99
Dangote Sugar Refinery Plc 192.00 1.27 2.42
Stanbic IBTC Bank Plc 172.50 1.14 2.18
Source: NSE
NSE-ASI relative to S&P African Frontier
Index
1.40
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
S&P African Frontier NSE-ASI
Source: IAS
19

Market Review for 2010
In the midst of all changes, the NSE All Share Index
gained 18.93% to close at 24,770.52 in 2010, (2009: -
38.40%). The increase in USD terms was approximately
18.16%. According to the NSE, the year opened with a
reasonably bullish Q1 (+22.40%) following a reduction in
deposit rates. Q2 (-1.89%) and Q3 (-9.48%) were more
bearish, as counter allegations between the council and
NSE executives became public and disruptive, forcing the
SEC to intervene. Q4 (+7.66%) then witnessed an
improvement, as the Amcon came nearer to reality and
the interim executive of the NSE pursued restructuring
exercises to bring back investor confidence in how the
exchange was being run. Trading hours were also
extended by 2 hours towards the end of Q4. Three of the
four sector indices closed the year in the black, namely
the Food & Beverage (+41.2%), Banking (+18.9%) and Oil &
Gas (+17.8%), while the insurance sector lost 36.9%. The
average market PER at the end of 2010 was 14.24x vs.
11.46x at end 2009.
Equity market capitalisation closed at NGN 7.92tn (USD
51.6bn) compared with NGN 5.0tn (USD 32.8bn) in 2009.
Overall equity market cap was boosted by the listing of
Dangote Cement in Q4 10. The banking sector, however,
remained the most capitalised, with 34.2% of equity
market capitalisation, followed by the building materials
sector (26.0%) and the breweries sector (11.1%).
Looking at market activity, aggregate stock market
turnover by volumes between January and December
2010 was 93.3bn shares, a 2.06% reduction, while value
traded at NGN 797.6bn rose by 24.99%. In USD terms,
value traded in 2010 equated to approximately USD 5.2bn
compared with USD 4.2bn in 2009. Q2 was the most
active quarter by volume and value, contributing 29.95%
and 30.74% respectively to the annual totals. The most
active equity sub-sectors by volume during the year were
the banking, insurance, food/beverages & tobacco, ICT
and mortgage companies, in that order. By value the
order was banking, food/beverages & tobacco, insurance,
ICT then mortgage companies. The banking sector
remained the most traded, with 53.1% and 54.2% of
volume and value, respectively.
Foreign portfolio investment amounted to a net inflow of
NGN 171.0bn (circa USD 1.1bn), with purchases
amounting to NGN 350bn and sales of NGN 178.81bn. Net
inflows in 2009 were recorded at NGN 33.4bn (circa USD
219.2bn). Average volumes per day were 377.9m shares,
while average value traded was approximately USD
21.1m. Average volumes and value traded per day in 2009
were 414.7m shares and USD 18.1m respectively. The
liquidity ratio fell to 10.07% in 2010 compared with
13.71% in 2009, although this will have been diluted
somewhat by the increase in market cap late in the year
by the Dangote Cement listing.
10 Most Active Stocks by Volume
Company Vol. (bn) % of Total
Zenith Bank Plc 6.30 6.8
First Bank of Nigeria Plc 5.44 5.8
Guaranty Trust bank Plc 4.29 4.6
United Bank for Africa Plc 4.25 4.6
Access bank Plc 3.46 3.7
FinBank Plc 3.20 3.4
Skye Bank Plc 2.98 3.2
Fidelity Bank Plc 2.95 3.2
Diamond Bank Plc 2.78 3.0
Oceanic Bank International Plc 2.05 2.2
10 Most Active Stocks by Value
Company
Val. (USD) % of Total
Zenith Bank Plc 543 741 225 10.28
Guaranty Trust Bank Plc 495 522 520 9.37
First Bank of Nigeria Plc 494 537 469 9.35
United Bank for Africa Plc 306 851 618 5.80
Oando Plc 244 641 796 4.63
Nigerian Breweries Plc 233 851 559 4.42
Access Bank Plc 196 641 904 3.72
Diamond Bank Plc 147 648 242 2.79
Skye Bank Plc 135 809 825 2.57
Flour Mills Plc 124 669 174 2.36
Source: NSE, Afrinvest, IAS
Market Cap Composition
1.20% 0.70%
1.90%
Banking
3.70%
3.70% 2.40%
Building Materials
4.00%
Breweries
34.20%
Food/Bev. & Tobacco
11.10%
Petroleum
11.10%
Conglomerates
Foreign Listings
26.00%
Insurance
Construction
ICT
Other
Source: NSE
20

Market Outlook for 2011 Top Picks for 2011
The year began with the exchange continuing with its
“clean up” exercise, which is focused on amongst other
issues, trading platform selection, the establishment of
the Index Committee, the strict enforcement of rules and
regulations (January saw the suspension of 57 stock
broking firms for not meeting minimum capital
requirements) and broadening and deepening the market.
These initiatives should see investor confidence continue
to grow with regards to the transparency of the market.
In terms of market performance, we anticipate 2011 will
see the ASI outperforming the return it achieved in 2010.
We expect the major drivers of the exchange to be:
• Emerging and frontier markets are considered
“sexy” again with risk appetite having returned to
some extent, thanks to the global economic
recovery.
• Increased liquidity and the search for yield
courtesy of expansionary monetary policies by
many developed world central banks should see
markets such as Nigeria enjoying an increase in
portfolio flows.
• The Nigerian economy is expected to continue to
show strong growth, with the World Bank
forecasting that growth in 2010 was 7.6%,
anchored by positive domestic economic
developments, particularly with regards to nonoil
sector growth. Growth for 2011 and 2012 is
forecast at 7.1% and 6.2% respectively. This
broader economic growth should also continue to
underpin the attractiveness of Nigeria’s
demographics and growing middle class.
• The removal of the ‘bad-debt’ overhang that has
been hovering over the sector by the AMCON, and
the improvement in financial performance of the
sector that should result from this. This should
herald increased investor interest, as should
prospects of further consolidation within the
sector. Cleaner balance sheets should also help
unlock credit in the broader economy, with the
increased liquidity benefiting capital markets.
The major risk to our outlook we think is politics, with
the presidential election scheduled for 9 April. It is
generally expected, however, that the PDP with
incumbent Goodluck Jonathan should retain power, which
will be positive for the markets which thrive on
continuity. Goodluck Jonathan’s reform agenda for the
economy, which includes addressing critical issues such as
the power sector, have hitherto been well received.
We thus expect the stock exchange to record a better
performance post the election, as investors take a more
cautious approach in Q1.
We believe banking sector (on the back of the creation of
AMCON) and the consumer and infrastructure related
sectors remain the most attractive for investors on the
NSE.
Our top picks in these sectors are the following:
Banking
First Bank, UBA, Zenith Bank – Large local branch
networks allow for easier deposit mobilisation; regional
footprint expanding (UBA); large balance sheets; can take
advantage of further industry consolidation; positive local
consumer market perception
GTB – Impressive management team; technologically
driven growth strategy; strong presence in the corporate
market
ETI – Solid Q3 10 results; pan-African expansion drive still
ongoing; strong technology platform; alliance with
Nedbank may receive more attention
Consumer
Nigerian Breweries – Beer consumption volumes on the
rise; Heineken’s acquisition of controlling interest in five
more brewers in Nigeria may see consolidation with
Nigerian Breweries
Nigerian Flour Mills - Diversified business well set to
benefit from Nigeria’s demographics; high conglomerate
discount means SOP much higher than market cap; large
flour market share
PZ Cussons – Increasing capacity; good existing personal
care product range, but also now expanding into branded
cooking oils and spreads in Nigeria in alliance with Wilmar
UACN – Ideally placed to benefit from growing middle
class consumers; JV with Tiger Brands to manage UACN’s
food and dairy operations and SWAN water business has
huge potential synergies
Infrastructure
CCNN – Underperformed the market in 2010 as the
company underwent management and structural changes;
trading at a discount to the sector; integration with Bua
International should be a positive
Lafarge Wapco - Looking to double capacity; cost saving
initiatives and increased use of coal improving margins;
relative valuations favourable
21

EQUITY RESEARCH
UGANDA
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
While politics and oil, (or the politics of oil, perhaps?),
were the major themes playing on the minds of
Ugandan’s during 2010, this did not deter from the
local bourse’ performance as it closed the year as the
top performer in SSA.
On the political scene, campaigning for the upcoming
presidential election, which is set for Friday the 18 th of
February, was the name of the game. The odds seem to
be stacked in favour of incumbent President Yoweri
Museveni, who most are expecting to win and add another
term thereby extending his rule to 30 years, despite a
fierce challenge from third-time rival and former ally
Kizza Besigye. Besigye, the president's doctor in the bush
when he was a rebel leader, now heads the four-party
Inter-Party Cooperation coalition that has made deep
inroads in rural areas that are the veteran president's
traditional support base. He says he was cheated of
victory in the last two elections and cites rulings by the
Supreme Court, which said the 2001 and 2006 elections
were marred by vote-rigging but that this did not affect
the overall result.
Both candidates are striving to be the ones to take
Uganda forward in what will potentially be a golden age
for the country following the discovery of oil. Uganda is
expected to reap the benefits of the significant oil find in
the Lake Albert basin, west of the country. Following on
from Shell’s abandoned exploration activities in that
region 30 years ago due to falling oil prices and political
tension, Tullow Oil (and former partner for the two blocks
at Lake Albert, Heritage Oil Plc), returned to the basin
and found large crude deposits, with a confirmed 800m
barrels already discovered, out of an estimated 2.5bn
barrels in reserves. Only four other SSA countries, Nigeria,
Angola, Gabon and Sudan have proven reserves of over
2bn barrels.
Top 5 Gainers and Losers - 2010 Opening Closing % Change % Change
Company Price Price (LC) (USD)
ALSI 732.53 1 188.07 62.19 33.81
British American Tobacco 270 1 740 544.44 431.69
Equity Bank 355 762 114.65 77.09
Jubilee Holdings 2 904 5 294 82.30 50.40
East African Breweries 3 636 5 783 59.05 31.22
Stanbic Bank Uganda 170 268 57.65 30.06
Kenya Commercial Bank 518 619 19.50 -1.41
NIC Bank 60 70 16.67 -3.75
Uganda Clays 50 50 - -17.50 S
ource: USE/IAS
Top Ten Shares by Market Cap.
Company (UGX bn) (USD m) % of Total
East African Breweries 4 573.05 2 006.22 35.81
Equity Bank 2 821.52 1 237.81 22.10
Kenya Commercial Bank 1 826.15 801.14 14.30
Stanbic Bank Uganda 1 371.86 601.84 10.74
NMG 718.66 315.28 5.63
Kenya Airways 610.72 267.93 4.78
Jubilee Holdings 238.23 104.51 1.87
DFCU Ltd 204.35 89.65 1.60
Bank of Baroda 201.60 88.44 1.58
British American Tobacco 85.40 37.47 0.67
Source: USE/IAS
USE-ALSI relative to S&P African Frontier
Index
1.80
1.70
1.60
The potential impact on Uganda’s economy of the
discovery, (commercial production now expected to begin
early 2012 having been pushed back), will be massive.
The IMF is of the view that it is too soon to estimate
precisely the impact of oil on the economy, as the timing,
scope and pace of oil production will be a function of
ongoing exploration and technical analyses. However, it
does say oil revenues are likely to exceed one third of
total government revenues and contribute up to 8% of
GDP, and thus can be expected to alter meaningfully
Uganda’s productive, fiscal and financial landscape.
1.50
1.40
1.30
1.20
1.10
1.00
0.90
Source: IAS
S&P African Frontier
USE-ALSI
22

Market Review for 2010
Spurred by a solid performance across the board, the ALSI
gained 62.19% to end the year at 1,188.07 points.
However, a materially weakening currency versus the
dollar, particularly towards the end of the year and which
has continued into 2011 as the election approaches meant
the USD return was a relatively lower 33.81%. The
currency weakness has been attributed to high dollar
demand from the energy sector, tight supply, speculative
trading by offshore players and elevated state
expenditure.
Of the twelve counters that were listed at the beginning
of the year, nine closed in the black while three ended in
the red. BATU was the top performer, up 431.69% in USD
terms, as it saw a re-rating after it more than doubled its
2009 earnings.
Market capitalisation increased by 78.98%% over the
course of the year to close at USD 5.6bn. EABL was the
most capitalised counter with 35.81% of the total. SBU
was the most highly capitalised local listing, with 10.74%.
Total volumes for the year were up 82.39% to 224.8m
shares while value traded increased by 75.38% to USD
18.4m, both metrics boosted by the listing of NIC in
March. SBU remained the most active stock by volumes
and value, with 39.83% and 52.02% contributions
respectively. The liquidity ratio remained very low, with
some of the cross listings still only seeing all of their
trades occurring in Nairobi. Nevertheless a slight
improvement was recorded to 0.33% from the 0.28%
achieved in 2009.
Market Outlook for 2011
The market will be watching the presidential election
with interest, given that the challenger has already
threatened an “Egypt style” response should the
opposition feel the election was rigged. Political risk will
thus be somewhat higher until the electoral process is
complete. With cross listings dominating the market,
however, events in Kenya are more likely to have an
impact on the direction of the exchange, we believe.
10 Most Active Stocks by Volume
Company
Vol. (m) % of Total
Stanbic Bank Uganda 89.52 39.83
NIC 86.74 38.59
Uganda Clays 31.50 14.02
Bank of Baroda 8.70 3.87
DFCU Ltd 6.02 2.68
East African Breweries 1.12 0.50
New Vision 0.57 0.25
British American Tobacco 0.49 0.22
Equity Bank 0.10 0.05
NMG 0.00 0.00
10 Most Active Stocks by Value
Company
Val. (USD) % of Total
Stanbic Bank Uganda 9 575 684 52.02
NIC 2 393 556 13.00
East African Breweries 2 035 835 11.06
DFCU Ltd 1 816 388 9.87
Bank of Baroda 1 457 957 7.92
Uganda Clays 737 162 4.00
British American Tobacco 191 386 1.04
New Vision 177 370 0.96
Equity Bank 18 929 0.10
NMG 3 563 0.02
Source: USE/Renaissance Uganda/IAS
Top Picks for 2011
DFCU – Growing branch network and deposits; strong
interim performance should filter through to FY;
introducing new products to boost fee income
Economic growth for 2010 is estimated at 6.3% and
forecast to grow to 6.5% in 2011 and then 8.6% in 2012 as
oil revenues begin to flow. The positive growth prospects
should thus also give the market upward momentum,
though the weak currency and potential impact on
inflation remains a concern in the short to medium term.
Liquidity remains a problem and to this end the USE will
this year move to trading every day of the week from the
current three, while at least three new listings are
expected this year, including Tullow Oil and Umeme.
Centum from Kenya has already cross listed earlier this
year. The USE is also working on developing a local index
to capture the trading activity of domestic companies.
23

EQUITY RESEARCH
ZAMBIA
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
The resilience shown by the Zambian Economy to the
global economic crisis saw the economy post an estimated
real GDP growth rate of 7.1% in 2010, marking twelve
consecutive years of positive GDP growth averaging 5.12%
per annum over the period. Recovery in global trade saw
strong demand for commodities from India, China and
Brazil. For Zambia, the key sectors expected to have
driven GDP were agriculture and mining, while higher
growth was also expected in the construction, transport
and communication and tourism sectors. Preliminary
estimates show these sectors posting growth rates of
+12.9%, +16.8%, +7.2%, +14.9% and +25%, respectively.
The notable attributes to growth in the named sectors
were:
• Bumper maize production in the agricultural
sector at 2.8m metric tonnes (2009: 1.9 MT) as
well as increased production from NTE’s (nontraditional
exports), mainly tobacco, sugar and
cotton.
• The total trade surplus in year to October 2010
was ZMK 6.2tn, up +196.7% from 2009, while total
exports derived from NTE’s grew +7.6% to ZMK
5.2tn. According to the 2011 national budget,
NTE’s are expected to grow by +8.2% in 2010 to
USD 973.7m.
Top 5 Gainers and Losers - 2010 Opening Closing % Change % Change
Company Price Price (LC) (USD)
LuSE ALSI 2 794.89 3 322.47 18.88 15.03
Metal Fabricators of Zambia Plc 200 600 200.00 190.29
AEL Zambia Plc 1 000 1 810 81.00 75.14
Zambia National Commercial Bank Plc 550 821 49.27 44.44
Shoprite Holdings Ltd 21 800 32 000 46.79 42.04
Copperbelt Energy Corporation Plc 430 615 43.02 38.39
Zambeef Products Plc 3 800 3 700 -2.63 -5.78
Zambia Bata Shoe Company Plc 90 80 -11.11 -13.94
Zambia Sugar Plc 381 310 -18.64 -21.27
Cavmont Capital Holdings Plc 9 4 -52.94 -54.46
ZCCM Investment Holdings Plc 27 000 10 000 -62.96 -64.16
Source: LuSE
Top Ten Shares by Market Cap.
Company (ZMK m) (USD m) % of Total
Shoprite Holdings Ltd 17 391 343.00 3 618.59 56.26
Zain Zambia Plc 3 692 000.00 768.19 11.94
Zambia Sugar Plc 1 962 742.59 408.38 6.35
Lafarge Cement Zambia Plc 1 363 271.95 283.65 4.41
Standard Chartered Bank (Zambia) Plc 1 138 410.00 236.87 3.68
Zambia National Commercial Bank Plc 948 255.01 197.30 3.07
Zambian Breweries Plc 910 000.00 189.34 2.94
ZCCM Investment Holdings Plc 892 964.28 185.80 2.89
Copperbelt Energy Corporation Plc 615 000.00 127.96 1.99
Zambeef Products Plc 587 212.37 122.18 1.90
Source: LuSE
• The 2010 soccer world cup in South Africa coupled
with recovery in the global economy supported
tourism sector growth;
• Strong demand for residential and commercial
properties and increased public expenditure on
the road sector led to growth in the construction
sector. This sector is expected to grow further on
the back of various power-generation related
construction
works.
• Reduction in call tariffs and the introduction of 3 rd
generation mobile services had driven growth in
the communication sector;
• Increased copper production exceeding 720,000
metric tonnes was on the back of buoyancy in
global copper prices that averaged USD 7,567.29
per metric tonne in 2010. Total metal exports
grew +38% to ZMK 22.4tn at October 2010 in
comparison with 2009.
Projected 2011 GDP growth rate is at 6.4% with key
sectors such as manufacturing, transport and
communication earmarked for a recovery; while continued
growth is expected in construction, mining and tourism
sectors.
Index
1.40
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
LuSE relative to S&P African Frontier
S&P African Frontier
LuSE Index
24

Market Review for 2010
The LuSE All-Share Index closed 2010 at 3,322.47 points
ending the second consecutive year of net negative FPI, a
trend which continued up until July 2010. Market
turnover for 2010 was 328% higher at ZMK 962bn versus
ZMK 225bn in 2009. The acquisition of Zain Zambia (listed
as Celtel Zambia), triggered by a mandatory offer,
accounted for 67% of total turnover in 2010 and
contributed significantly to the net positive FPI of USD
101m in 2010. Hence turnover grew by 41% to ZMK 316bn
on a normalised basis whilst net FPI was a negative USD
10m excluding the month of December, in which the
mandatory offer transaction occurred. The picture
painted by 2010 is a lot less optimistic when turnover and
net FPI numbers are normalised, and the LuSE seems to
still be lagging relative to the market climate in 2008.
In the broader economy, copper prices recovered in 2010
to circa USD 9,000/tonne which in turn led to higher
Zambian copper production with 2010 year-end
production forecasts at 720,000 tonnes. FDI was forecast
at USD 3bn for 2010 and was predominantly mining
related. The second successive record bumper-harvest of
2.8 million tonnes kept CPI inflation at bay with year-end
CPI at a low of 7.7% y-o-y. With the Kwacha remaining in
the ZMK 4,600/USD to ZMK 4,800/USD region, exports
grew to ZMK 28tn as at October 2010 whilst imports grew
to ZMK 22tn as at October 2010 which resulted in a trade
surplus of ZMK 6tn as at October 2010.
The yield on 91-day treasury bills opened the year at 5.4%
and reached a low of 1.9% in April 2010 but closed 2010
at a 12-month high of 7.7%. Higher up the maturity
spectrum, 15-year bonds declined from 18.9% in January
2010 to 15.4% in December 2010. The net result was a
flattening of the yield curve which points to expectations
of slower accelerating inflation going forward. Weighted
average base-lending rates by commercial banks also
reduced in tandem from 22.7% in January 2010 to 19.4%
in December 2010. In 2010, loans and advances by
commercial banks increased by 13.8% to ZMK 9.2tn.
On the LuSE, corporate restructuring activity arose from
the acquisition of Zain’s African assets (excluding Sudan
and Morocco) by Bharti Airtel Limited; and the acquisition
of BP Africa Limited by Puma Energy Holdings Limited (a
subsidiary of Trafigura Beheer). During the year, the Zain
acquisition triggered a mandatory offer at the country
level as per the provisions of the Securities Act of the
laws of Zambia governing takeovers and mergers. The
acquirer offered ZMK 710 per share to minorities which
resulted in Bharti Airtel Zambia Holdings (BAZH) holding
96.4% of the total issued and fully paid up share capital of
Zain Zambia (listed as Celtel Zambia). The LuSE has just
rejected BAZH’s application to delist from the exchange,
and BAZH is expected to rapply. The sale of BP Africa’s
Zambian assets is currently pending.
Top Most Active Stocks by Volume
Company Vol. (mn) % of Total
Zain Zambia Plc 1,040 71.80
Investrust Bank Plc 99 6.85
Zambia Sugar Plc 76 5.23
Metal Fabricators of Zambia Plc 59 4.05
Copperbelt Energy Corporation Plc 41 2.81
Cavmont Capital Holdings Plc 33 2.25
Standard Chartered Bank (Zambia) Plc 29 2.01
Zambia National Commercial Bank Plc 23 1.56
Zambeef Products Plc 17 1.16
Zambian Breweries Plc 10 0.69
Source: LuSE
Top Most Active Stocks by Value
Company Val. (USD) % of Total
Zain Zambia Plc 150,191,789 74.35
Zambeef Products Plc 12,952,170 6.41
Metal Fabricators of Zambia Plc 6,822,628 3.38
Shoprite Holdings Ltd 6,591,036 3.26
Zambia Sugar Plc 4,974,449 2.46
Copperbelt Energy Corporation Plc 4,363,312 2.16
Zambian Breweries Plc 3,983,331 1.97
Lafarge Cement Zambia Plc 3,353,630 1.66
Zambia National Commercial Bank Plc 3,019,344 1.49
Farmers House Plc 1,599,293 0.79
Source: LuSE
2.05%
Market Cap. Composition
8.50%
59.14%
1.85%
7.14%
4.54%
4.46%
12.31%
Banking
Cement processing
Breweries
Mobile
Telecommunications
Retail Trading
Energy
Agriculture processing
Other
25

Market Outlook for 2011 Top Picks for 2011
The 2011 outlook for the Zambian economy and the LuSE
is generally positive. With the possible listing of Konkola
Copper Mines (KCM), Vedanta Resources’ local subsidiary
and also Zambia’s largest copper miner will add breadth
to the stock market. As at the latest available results in
2010/11, indications are of a broadly strong performance
in terms of the earnings of listed companies in line with
the broader economy, and increased export revenue for
export oriented companies owing to the relatively weak
Kwacha. In addition to the Kwacha’s current level of ZMK
4,800/USD, copper prices at the USD 10,000/tonne level
if sustained will likely lead to further mining and
exploration investment.
On the LuSE, as at February 11 th 2011 the LuSE Index had
increased by 8.51% y-t-d, versus a decline of 10.73% y-t-d
on February 11 th 2010 and a decline of 7.52% y-t-d on
February 11 th 2009. This growth makes 2011 one of the
most bullish starts (between 31 st December and 11 th
February) over the last 3 years. Though volumes remain
relatively low and concentrated in a few companies, only
3 of the 20 listed companies had prices lower than their
December 31 st 2010 prices at 11 th February 2011.
The following will likely be the growth drivers in 2011;
• Mining – on the back of global recovery,
investment in mining is expected to continue and
production further increased in line with the 1m
tonnes per annum domestic production target by
2012.
• Agriculture – has in recent years seen increased
investment given Zambia’s largely untapped
arable land resources.
• Construction – though the sector has performed
relatively well over the last 10 years, there is
still potential for growth in areas such as the
Copperbelt of Zambia, which has begun to
experience increased investment.
Based on current prices, our top picks for 2011 are:
Lafarge Cement Zambia - Expected increased local and
foreign demand and lower capex post-expansion will
increase free-cash flows.
National Breweries - Expected benefits from increased
domestic demand owing to election environment and
broad economic growth.
Zambian Breweries - Expected benefits from financial
restructuring, lower capex post-expansion, and increased
capacity.
Also, look out for the following companies:
AEL Zambia - More mining activity and improved
efficiency could continue to drive turnover and increase
profit margins.
Zanaco - Though capex requirements are expected to
increase, higher revenues per user from mobile banking
in line with the economy will continue to drive sales.
Standard Chartered Bank - With a bigger focus on
management fees by the Bank of Zambia, Standard
Chartered’s lean structure will likely increase
shareholder cash flows.
Zambeef - Highly ambitious growth prospects but the
market awaits the payoff – definitely one to watch.
Zambia Sugar - Debt-restructuring could yield better
benefits from the company’s recent expansion.
Copperbelt Energy Corporation - Planned expansion
through the Kabompo Gorge Hydro power project will
yield positive results over time.
• Energy – partly as a result of increased
investment in construction of power stations
(construction) and investment in bio-energy
(agriculture), the energy sector is expected to
grow in 2011.
• Export oriented companies – assuming the
Kwacha remains at its current levels and
global/regional demand continues to improve,
the export industry is expected to grow further
in 2011.
That said, with presidential elections on the horizon,
there may be a shift in government policy which in turn
may affect the investment climate and may pose a level
of political risk. However, a radical shift is not envisaged.
26

EQUITY RESEARCH
ZIMBABWE
FEBRUARY 2011
2010 REVIEW AND 2011 OUTLOOK
An Overview of 2010
A new dollarised economy. The year 2010 on the ZSE
was eventful. The adoption of a multi-currency regime in
2009 provided a solid base for the economy and
individual companies as it basically brought about sanity
and optimism across the whole economy. For companies,
it meant the end to price controls and hyperinflation.
Foreign exchange risks also became manageable as the
country adopted more stable currencies.
The main hold-up was Indigenisation Laws. In line with
the positive trend that has been set in 2009, 2010
started with considerable promise. Our initial forecasts
at the beginning of the year were that the economy
would grow by a high rate of around 11% backed by
improvement in capacity utilisation to about 55%, with
the GDP amounting to over USD 7.0bn. However, the
Indigenisation Act which came into effect in March 2010,
dampened the growth prospects. We also noted that a
number of capital projects were suspended as a result of
the uncertainties relating to the regulations.
Recapitalisations and restructurings were the order of
the day. The year 2010 was marked by a wave of
corporate transactions as companies adopted
restructuring programs to reset themselves on a growth
trajectory. A number of rights offers and private
placements were concluded as a strategy to earn an
advantage in a new competitive environment. Some of
the companies that successfully raised capital included
ART, Nicoz Diamond, NMB, OK Zimbabwe, PGI and Star
Africa.
Top 5 Gainers and Losers Opening Closing % Change
Company Price Price (USD)
ZSE Industrial Index 151.88 151.27 -0.40
Zimplow 2.50 6.70 168.00
Pioneer 0.25 0.60 140.00
National Tyre Service 1.35 3.20 137.04
African Banking Corporation 20.00 45.00 125.00
Turnall 3.00 6.70 123.33
PGI Zimbabwe 9.25 2.50 -72.97
Caps Holdings 3.00 0.70 -76.67
African Sun 12.00 2.20 -81.67
Zeco 1.00 0.15 -85.00
TN Holdings 6.00 0.77 -87.17
Source: ZSE
Top Ten Shares by Market Cap.
Company (LCm) (USDm) % of Total
Delta 826.15 826.15 18.60
Econet 810.74 810.74 18.25
Innscor 324.80 324.80 7.31
Hippo 270.23 270.23 6.08
SeedCo 227.07 227.07 5.11
Barclays 188.35 188.35 4.24
Meikles 134.96 134.96 3.04
Hwange 123.81 123.81 2.79
CBZ Holdings 123.15 123.15 2.77
Old Mutual 102.01 102.01 2.30
Source: ZSE
Industries still operating below full capacity. Lack of
adequate working capital largely impacted the
manufacturing sector as there were limited favourable
short term loans available on the market. Capacity
utilisation thus remained low averaging around 45%. With
no lender of last resort, the local banking sector was
cautious on lending in a bid to avoid NPLs. For most of
the commercial banks the loan to deposits ratio
remained low (below 50%). This also resulted in high
lending rates (c18% pa) as demand for credit outweighed
supply.
1.30
1.20
1.10
1.00
0.90
ZSE vs S&P Africa Frontier Market Index
Despite various constraints, good growth was registered
in the consumer, mining and agricultural sectors. The
Ministry of Finance estimates that the 8.1% forecast
growth rate for 2010 was backed by a 47% and 33.9%
growth rate in the mining and agricultural sectors. The
ZSE managed to close 2010 at a market cap of USD
4.2bn, while the daily value traded for 2010 averaged
USD 1.6m versus USD 2.1m in 2009.
0.80
Jan-10 May-10 Aug-10 Dec-10
Industrial Index S&P Frontier Index
Source: IAS
27

Market Outlook for 2011 Top Picks for 2011
The political outlook in 2011 is marked by
uncertainties revolving around elections. While the
main political theme in 2010 had to do with the new
indigenisation laws in Zimbabwe, we believe that the
“talk” of elections in 2011 will be the main theme in
political and business circles. We have read divergent
statements relating to the possibility of elections in
2011, with the three main political parties echoing
different views. This, in our view has revealed the
disunity within the Zimbabwean Government itself.
Will the GPA dissolve? The Global Political Agreement
(GPA), involving the three main political parties in
Zimbabwe had an initial two-year tenure and therefore
expires in February 2011. As such, this has sparked
speculation that the inclusive government will be
dissolved. However, from events on the ground, our
view is the talk of 2011 elections is a bit premature.
Elections would naturally result in the dissolution of the
inclusive government (GPA). On that note, we re-iterate
that to-date certain milestones provided for in the GPA
have not yet been attained. In addition, there is need
to allow for the completion of constitutional revision
before elections can be held. Furthermore, specific
conditions necessary for the holding of a free and fair
vote in Zimbabwe have not been agreed on. On that
basis, elections could be deferred. Generally, our view
is that there will be increased political bickering in the
next months, given heightened political gatherings and
electioneering. In our opinion, most of the statements
from these gatherings are unlikely to be investorfriendly.
Do not listen to what they say, watch their footsteps.
While we are not advocating that investors disregard all
the statements echoed by politicians, we urge investors
to take most of the statements with caution, given the
discrepancies of reality on the ground and newspaper
headlines. For example, while the Indigenisation and
Economic Empowerment Act was signed, we continue to
witness a number of deals involving foreign firms in
various sectors of the economy. Of interest would be
the acquisition of Zisco Steel by Essar Group of India
and the investment in Premier Banking Corporation by
ETI, a Pan African entity.
Be a bull but graze near the gate. We remain longterm
bulls on the Zimbabwean economy and are
strongly convinced that long-term investors should seek
exposure as a recovery play, with significant upside off
a very low base. However, investors should seek
exposure in companies with limited debt, strong growth
prospects and with defensive business lines. According
to the Ministry of Finance, growth rates of 8.1% and
9.3% are expected in 2010 and 2011, respectively. Most
companies are valued well below asset replacement
value, and have considerable headroom for volume
growth.
COMPANY Price P/E P/BV Recom.
Hist T+1 T+2 Hist T+1 T+2
AICO 19.50 0.0 19.5 19.5 1.2 1.1 1.1 BUY
ART Holdings 1.35 0.0 13.5 12.9 0.4 0.4 0.4 BUY
CBZ Holdings 16.51 11.0 10.5 10.0 1.8 1.7 1.6 BUY
CFI Holdings 14.60 0.0 14.6 9.7 0.3 0.3 0.3 BUY
Dairibord 19.00 13.2 12.6 12.0 2.3 2.1 2.0 BUY
Dawn Properties 1.20 30.5 12.0 11.4 0.5 0.5 0.4 BUY
Delta 73.00 18.5 17.6 16.7 5.3 5.1 4.8 BUY
Econet 500.00 7.1 6.8 6.5 5.4 5.1 4.9 BUY
Hippo Valley 140.00 12.8 12.1 11.6 1.6 1.5 1.5 BUY
OK Zimbabwe 8.00 0.0 16.0 15.2 4.7 4.5 4.3 BUY
RioZim 200.00 0.0 20.0 18.2 1.3 1.2 1.2 BUY
Seedco. 123.00 17.9 17.1 16.3 4.3 4.1 3.9 BUY
Star Africa 4.90 0.0 9.8 9.8 0.0 4.9 4.9 BUY
TA Holdings 25.00 0.0 12.5 10.0 0.7 0.7 0.6 BUY
The 2011 Hot Stocks
For 2011 our top picks include AICO, CBZ Holdings,
Dairibord, Delta, Econet, Hippo, SeedCo and OK
Zimbabwe. However investors should watch out for any
corporate actions as most of these companies have
indicated the need to raise capital. AICO, for example has
indicated a USD 50.0m recapitalisation.
Retail stocks in particular are likely to perform well on
the back of increased disposable incomes. Counters such
as Delta, Innscor and OK Zimbabwe would benefit from
this. Additionally we also urge as buys companies with
minimal gearing. These include Econet, CBZH Holdings,
and Zimplow.
For agricultural stocks, soft commodities prices are
performing well on the international scene mainly due to
supply shortfall of some commodities such as cotton and
sugar. This should bode well for AICO and Hippo.
Other investments to look out for. The luxury consumer
industry is now recovering in line with the global
economy. We see this resulting in better pricing for
commodities such as crocodile skins. Newly listed
Padenga Holdings is likely to benefit from this. In
addition, given the demand for infrastructural
rehabilitation, construction companies are well poised to
take advantage of the opportunities and counters likely to
gain include M&R, Lafarge and PPC.
We also consider the PGI Zimbabwe Convertible
Debentures to be attractive. The CD has a term of 60
months and a coupon rate of 10% p.a. In view of the fact
that the CDs will be convertible at a conversion price of
USD 0.033, there is a high probability that the market
price will be higher than the exercise/strike price;
making it an attractive call option (i.e. holders will
convert the Debentures at a price lower than its market
value).
28

Notes
Capital
Securities
Botswana
Ground Floor,
Exchange House
Block 6, Plot
64511
Fairgrounds,
Gaborone,
Botswana
Tel: + 267 318
8886
Cell: + 267 7 132
1421 / 7 162
4390
Imara Africa
Securities
Block A, Unit 3
Millennium
Office
Park Kgale Hill
Gaborone
Botswana
Tel:+267 3188
710
Fax:+267 3191
767
Imara Securities
Angola
SCVM Limitada
Rua Rainha Ginga
74, 13 th Floor,
Luanda, Angola
Tel: +244 222
372 029/36
Fax: +244 222
332 340
Imara Edwards
Securities (Pvt.)
Ltd.
Tendeseka Office
Park
1st Floor Block 2
Samora Machel
Ave.
Harare,
Zimbabwe
Tel: +2634
790590
Fax:+2634
791435
4 Fanum House
Cnr. Leopold
Takawira/Josiah
Tongogara Street
Bulawayo
Tel: +263 9
74554
Fax: +263 9
66024
Members of the
Zimbabwe Stock
Exchange
Imara S P Reid
(Pty)
Ltd
Imara House
257 Oxford Road
Illovo 2146
P.O. Box 969
Johannesburg
2000
South Africa
Tel: +27 11 550
6200
Fax: +27 11 550
6295
Member of the
JSE Securities
Exchange
Namibia Equity
Brokers (Pty)
Ltd
1st Floor City
Centre
Building, West
Wing
Levinson Arcade
Windhoek
Namibia
Tel: +264 61
246666
Fax: +264
61256789
Member of the
Namibia Stock
Exchange
Stockbrokers
Malawi Ltd
Able House
Cnr. Hanover
Avenue/
Chilembwe Road
Blantyre
Malawi
Tel: +265
1822803
Member of the
Malawi Stock
Exchange
Stockbrokers
Zambia Ltd
2nd Floor (Wing),
Stock Exchange
Building
Central Park
Corner
Church/Cairo
Roads
P O Box 38956
Lusaka
Zambia
Tel: +260
211232455
Fax: +260
211224055
Member of the
Zambia
Stock Exchange
This research report is not an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The securities referred to in this report may not
be eligible for sale in some jurisdictions. The information contained in this report has been compiled by Imara Edwards Securities (Pvt.) Ltd. (“Imara”) from
sources that it believes to be reliable, but no representation or warranty is made or guarantee given by Imara or any other person as to its accuracy or
completeness. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of Imara as of the date of this report only and
are subject to change without notice. Neither Imara nor any other member of the Imara Group of companies including their respective associated companies
(together “Group Companies”), nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents
or otherwise arising in connection therewith. Each recipient of this report shall be solely responsible for making its own independent investigation of the
business, financial condition and prospects of companies referred to in this report. Group Companies and their respective affiliates, officers, directors and
employees, including persons involved in the preparation or issuance of this report may, from time to time (i) have positions in, and buy or sell, the securities of
companies referred to in this report (or in related investments); (ii) have a consulting, investment banking or broking relationship with a company referred to in
this report; and (iii) to the extent permitted under applicable law, have acted upon or used the information contained or referred to in this report including
effecting transactions for their own account in an investment (or related investment) in respect of any company referred to in this report, prior to or
immediately following its publication. This report may not have been distributed to all recipients at the same time. This report is issued only for the information
of and may only be distributed to professional investors (or, in the case of the United States, major US institutional investors as defined in Rule 15a-6 of the US
Securities Exchange Act of 1934) and dealers in securities and must not be copied, published or reproduced or redistributed (in whole or in part) by any
recipient for any purpose.
© Imara Africa Securities 2011
29