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

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

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