Nigeria, Kenya, Ghana: Currency, inflation drag SSA market cap by 1.5% to $1.2trn

BY CHARLES ABUEDE

The total market capitalisation of sub-Saharan Africa’s stock markets rose 3.2 percent to $1.20 trillion year to date (March 2022) in United States dollar terms on the back of positive price movements and appreciations witnessed by the Mauritius Stock Exchange (0.7%) Botswana (2.6%), Tanzania (1.2%) and Malawi (4.4%) exchanges, respectively, as the region continues to show resilience, recovering from the effect of Covid-19, as well as continued show of investor confidence in the face of the ongoing geopolitical faceoff in Europe, collated official market data from African Financials show.

On the contrary, in the month of March, the marginal gain across the sub-Saharan African stock markets was down 1.5 percent, dragged by bearish performances from some of the major bourses, a surge in inflation and exchange rate weaknesses in countries such as the Nigerian Exchange (1.0%), Kenya (3.8%), Ghana (8.4%) and Uganda (10.2%) respectively.

Regardless of the 10 percent increase recorded in the price of crude oil to $107.79 per barrel in March 2022 and the three percent surge reported in the price of gold to nearly $2,000 ($1,934) per ounce, year to date, the Nigerian naira has depreciated 0.5 percent against the dollar due to continued FX demand and lack of liquidity within the system, especially with the call by Nigeria’s apex bank for more tightening measures on FX availability to banks, BDCs and individuals or corporates, for personal or business purposes. Also, currency weakening was recorded for Ghana (18.2%), Côte d’Ivoire (2.2%), Kenya (1.6%) and Zambia (8.0%) year to date.

On flipping the coin, the South African Rand was up 5.4 percent for the month, but regional currency appreciation was muted whereas the Rand appreciated year to date by 9.2 percent alongside the Botswana local currency, which gained strength by 2.7 percent.

However, SSA stock markets, excluding South Africa, have been held back by Nigeria and are now at support levels going back to 2004. Thus, its outperformance against the Shanghai Composite and MSCI Far East has disappeared. But the region has outperformed MSCI Eastern Europe.

Therefore, the top 30 firms listed on the various exchanges across Africa excluding South Africa at the close of the first quarter of 2022, performed variably, falling 1.5 percent on the month and 3.2 percent year to date, with positive market returns for 10 of the 14 markets reviewed on the back of a positive rally in MTN Nigeria, AVZ Minerals and Zimbabwean gold ore mining company (Zimplats), which reach new all-time highs at the end of March 2022.

Further analysis of the data obtained from African Financials revealed that Nigeria, behind South Africa at $1.09 trillion in market capitalization, recorded an increase to close at $52 billion in 2022, from $41.6 billion at the close of June 2021, while Kenya scrambled down to $20.4 billion from $24.3 billion in June last year; Cote d’Ivoire rose to $10 billion from $7.8 billion, while Mauritius ($5.9 billion), Zimbabwe ($4.8 billion) and Ghana ($3.5 billion) all had major contributory values to the regional stock market.

However, high Sharpe ratios and low standard deviation of returns feature exchanges like Botswana ($3.4 billion), Tanzania ($4.4 billion) and Malawi at $3.0 billion.

A critical analysis of the report across the sectoral fronts shows that telecoms and technology firms led the charge for the most capitalised sector with high liquidity, and as such, could be said to deserve being labelled the blue-chip companies. This category saw the likes of Johannesburg’s MTN Group, MTN Nigeria, Safaricom, Airtel Africa, the IHS Towers, Helios Towers, MTN Ghana, MTN Uganda and Econet Wireless, all making the list with strong market capitalisations and undervalued market share prices.

However, sitting atop of the log as the most capitalised firm among the top 30 companies in sub-Saharan Africa is South Africa’s MTN Group, with a market cap of $24.5 billion. It was followed by Kenya’s Safaricom in the ranking with a market cap of $11.8 billion listed on the Nairobi Stock Exchange, while its share price went south under three months to sell for Ksh34.15. Nigeria’s Dangote Cement with a return on equity at 37.4 percent was number three for the quarter having also recorded an increase in its market cap to $11.2 billion, after the company completed its shares buyback programme earlier in the year; listed on the Nigerian Exchange (NGX), it sells on the Exchange at N273.50.

Next on the log is technology and wireless carrier, MTN Nigeria, at N214 per share. MTN Nigeria was listed by introduction on the Nigerian Exchange group in 2019 and its market cap rose significantly to $10.47 billion from the previous $8.14 billion after the company, in 2021, decided to sell down over 85 percent shareholding in the Nigerian subsidiary, in a primary offer that was oversubscribed by the public. It ranks among the top 30 companies in sub-Saharan Africa.

Also, Airtel Africa, a leading telecoms giant in 14 countries and mobile money service provider listed on the Nigerian and London Stock Exchanges, selling at £1.40 per share drove the wireless carrier’s valuation to a trillion naira company by equity analysts. It boasts of $6.89 billion in total market cap across African Exchanges with price to book value at 2.03, and it is number five among the top 30 companies.

In the seventh position is BUA Cement, a major player in the Nigerian and African cement manufacturing space. It retained a top spot for the quarter with a market cap of $5.76 billion, 2.5 percent in dividend yields, 23.1 percent return on equity (ROE) within twelve months and a market share price of N70.75.

Meanwhile, food and beverage company, Nestle Nigeria, newly floated BUA Foods, MTN Ghana, Zimbabwe’s Zimplats, AVZ Minerals, and Sonatel, all joined the list of top 30 companies ranked by market cap in sub-Saharan Africa listed equities, with market caps at $2.66 billion, $2.57 billion, $1.7 billion, $2.327 billion, $3.19 billion and $2.68 billion, respectively.

Also, Nigeria’s top lending financial institutions like Zenith Bank, fell to the seventeenth position with a market cap of $1.69 billion; and was followed by Guaranty Trust Bank, with a market cap of $1.58 billion, in the review period.

The valuation analysis shows that higher returns on equities are rewarded with higher valuations as against a firm’s price to book ratio. Thus, Nestlé Nigeria and MTN Nigeria both posted high Price/Book to ROE ratios as a result of having a leverage of 8 and 11 times, respectively. They could be vulnerable should earnings disappoint; while BUA Cement and Tanzanian Breweries look overvalued relative to their ROE.

Also, it was observed from the African Financials’ official market data that historic Price/Earnings ratios have risen as investors anticipated higher earnings and P/Es were above their March 2021 highs. Again, Price/Book ratios have fallen as some companies have increased their equity through retained earnings. Dividend yields have fallen back sharply from multi-year highs as markets have risen and some companies have reduced/passed their dividends (Covid-19).