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

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.
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