African Development Bank AGM

The Annual General Meeting of the African Development Bank was held on 13-14 May in Dakar, Senegal. The theme of this year’s meetings was Africa and the financial crisis.

At a general level, there was much discussion over the shape and timing of the world economic recovery, and concomitant impact for risk appetite. This discussion came from both sides, African policymakers and private sector investors.

There was some scepticism over the extent to which the recovery is sustainable and the degree to which optimism shown in the market had diverged from fundamentals. African policymakers, for their part, recognised the impact of the global crisis on Africa, after earlier periods of denial and complacency. Policy reversals were now seen as the biggest threats in the region, but so far signs for most countries were encouraging.

Air Arabia

Silk Invest has Air Arabia in its Arab Falcons fund. We met with the company's Director of Finance and Administration to review how things were going in the light of the recent uptick in oil prices (a big component in any airlines costs).

The company has a natural fuel hedge. In effect, when oil price is high, margins are down but revenues go up as the economy is strong. That said, the company hedged 50% of its fuel for this year at USD 55. Good news.

The biggest takeaways are that this is actually a different business model from the European low cost airlines. Firstly, only 30% of tickets are sold through internet. The company has an extensive general sales agent network that adds a fee to the basic prices it distributes. This is difficult to duplicate and is very powerfull in the GCC and India where internet penetration is low. Another big difference is that the Middle East does not close airports at night. As such, the company flys 24/7. Its planes fly 14 hours a day, the highest in the world. (that is twice most other airlines!!!) Its distances are longer on average, versus the small 'hops' in Europe. This means four flights a day, instead of six. As a result, turnaround times are less critical. The other big difference is that it is a 'dry airline'. As such, it does not get revenue from drink sales. By the way, this is not a negative, its customers like that! That said, it gets 2% revenue from excess bagage sales. The final difference is that Sharjah airport owns 17% of company, so new competitors flying our of Dubai can't compete on price as it gets discounted landing fees.

Equity bank grows into slowdown

Kenya’s Equity Bank results for the quarter to March 2009 saw operating income
rise 52% and Profit After Tax rise 26%.

There was a 59% fall in loan loss provisions but a 126% rise in staff costs. Needless to say, the cost income ratio rose to 64% compared to 60% for FY 2008. Total NPLs, worryingly rose by 164% against a bigger Total balance sheet(up 45% year)

The slowing domestic economy is starting to have an impact. Although the bank delivered a good bottom line progression, there were clearly growing pains in this set of results.

Safaricom slips despite higher revenue

Safaricom saw a 23.9% year on year decline in net profits to Kshs 10.6 billion, and a 30.5% decline in earnings.

Revenue was, however, up 14.8%, boosted by an 83% growth in revenues from SMS, MPESA and data, which accounted for 12.9% of the total revenues.

Revenue market share remained at a steady 83%. The weakness was largely down to a fall of 23% in ARPU.

Orascom Construction improves construction margins

Orascom Construction significantly beat expectations growing net profit by 40%. The margin imporved accross the board. The margin was a function of a higher than expected contribution from fertilisers on the back of stronger volumes and a higher margin reported by the construction segment.

Although construction suffered from lower bookings, it experienced significantly higher margins. These may well prove fragile in the current economic environment, but clearly they have already gone in the opposite direction of almost any other construction company anywhere in the world.

Afromedia IPO

Good to see IPO's resurface after so long.

Afromedia Plc, a pioneer and leading out-of-home media company is finally set to list on the Nigerian Stock Exchange. The company began as part of the UACN group in 1929. It is one of the most experienced out- of- home advertising agencies in Nigeria. The board has its Chairman as Onaolapo Soleye, former Minister of Finance.

The company would be listing 4,035,497,307 Ordinary Shares of 50 Kobo each at N2.92 per share on Monday May 18 2009.

Oman Telecom

Oman Telecom reported a slow down in service revenue of 2.5%. This was not offset by the strong 20% rise in net international interconnection income and 52% growth in local net interconnection income.

Insurance claims from last years cyclone helped. Earnings declined by 1.2%. Excluding the one off cyclone payments, profits were 10% lower yoy.

Egyptian remittances rise!

The doomsayers are wrong once again. The predicted collapse in remittances has not occured. Indeed, net remittances from Egyptians working abroad reached USD 2.3bn in Q1, up from USD 1.9bn a year earlier. Net unrequited transfers jumped by 9.9% y/y.

Is Kuwait's USD 5.2bn stimulus package sufficient?

Nassar Al-Kharafi, who controls nearly 16 percent of National Bank of Kuwait, the emirate’s biggest bank, and 10 percent of Global Investment House, has quesyioned the effectiveness of the countries $5.2 billion stimulus package. The 15-year guarantee against losses on existing credits and investments "won’t stave off economic catastrophe" he claimed in an interview with Institutional Investor.

Oman gives boost to construction

Oman's Economy Ministry awarded OMR 598mn (USD 1.55bn) in construction and infrastructure projects including the Muscat International Airport and the Al Duqm Master Plan. The plan will stimulate growth by 11%. This move underlys one of our observations in the region; namely that infrastructure spend will decouple the construction industry from the global cycle.

Oil and gas continues to contribute 45% to the national GDP.

The lure of Africa’s long term story

The Financial Times reported an upbeat story by Dr. Ayo Salami who maintains a market cap-weighted index of African Companies (sub-Saharan Africa excluding South Africa). Although the index was down 40% last year companies in the index grew their earnings per share by 32%.

Dr. Salami sees continuing growth in consumer demand and recommends companies like brewers, cement and food staples.

Orascom Construction Industries fertizer push

The fertilizer industry in Egypt is supported by the cheap natural gas and phosphate rock.

Orascom Construction Industries, one of the bigger players in the fertilizer market, has signed a deal with the Egyptian Financial and Industrial Corporation to make up to 78,000 tons of ammonia annually. The company currently operates plants capable of producing a total of 2mn tons of nitrogen-based fertilizers annually. The group also has an investment in a facility in Nigeria.

The Egyptian government has approved a strategy allowing ten new phosphate fertilizer plants in the country, worth some USD 1.8bn.

World Bank predicts Middle East growth at 3.9%

In its global economic outlook the World Bank predicts the Middle East region is will grow by 3.9% in 2009, versus 5.8% in 2008.

The bank predicts the global downturn will cause both commodity prices and inflation to decline. Oil prices are seen averaging USD 75 a barrel in 2009.

Benso Oil Plantation Limited of Ghana

Palm Oil, one of the third world's most traded commodities, has a bad year, falling 66%. It is not surprising, therefore, that Benso (part of Unilever Ghana) took it on the chin. First quarter profits slumped 56%. Still, it could have been worse. Only problem is Ghana is such an illiquid stockmarket that the stock will take time to react to underlying fundamantals.

Standard Chartered Bank Ghana

Full year results for Standard Chartered Bank Ghana were held back by numerous charges. Earnings only rose 0.5%. One off IT and restructuring charges of GHS 14.0m (US$11.0m) were made.

On the positive side, net interest income rose 19% and the loan book rose 60%.
The headline cost/income ratio rose to 61% but adjusting for the charges the cost/income ratio fell to 49%.

We visted the company last year and like the management and approach.