Alpha Capital Monthly Research Newsletter - March 2024

Dear Mwekezaji,

Despite various market developments in the month of March 2024, trading activities during the month took a beating, especially on the bonds side which saw the lowest turnover for the month of March in three years. However, equities turnover was the highest compared to similar periods in the last two years.

Equities Market

Equity turnover for March 2024 was TZS 18.14 billion, compared to TZS 4.62 billion and TZS 5.10 billion for similar months in 2023 and 2022 respectively. CRDB Bank Plc (DSE: CRDB) remained the top mover for the month, accounting for 47% of the monthly equity turnover, followed by Tanzania Breweries Ltd (DSE: TBL) accounting for 28%, Twiga Cement (DSE: TPCC) which contributed 13%, and NMB Bank Plc (DSE: NMB) accounting for 6%. Collectively the four counters moved 94% of the total turnover for the month.

On a quarterly basis, Q1-24 saw an equity turnover of TZS 57.6 billion, which is 183% higher than the turnover for Q1-23 and 46% higher than Q4-23. CRDB remains the top mover for the quarter, accounting for 55% of the total turnover, followed by TBL at 17%, while NMB and TPCC equally accounted for 10% of the turnover.

Equities Price Movement

Both major indices saw positive movement during the month and the quarter as prices were supported by impressive earnings reports for the year 2023. The domestic market capitalization gained 1.38% in March and 3.67% since the beginning of the year, amounting to TZS 11,819.65 billion at the end of Q1-24. The total market capitalization growth was slowed down by KCB Bank Plc (DSE: KCB) and National Media Group (DSE: NMG) which both dropped by 10% and 2% respectively. As a result, the total market capitalization went up 1.09% during the month and 2.26% during the quarter, closing Q1-24 at TZS 14,611.43 billion.

The National Investment Company Ltd (DSE: NICOL) was the top gainer for the month and the quarter, followed by CRDB, NMB and DSE in both aspects. The price of NICOL went up 12% in March and 30% since the beginning of the year following a 23% net profit growth reported for the year 2023. The fund manager reported an investment income growth of 33% to TZS 11.8 billion, crossing the TZS 10 billion mark for the first time in its history. NICOL’s operating expenses fell by 26% mostly due to a decline in administration and board expenses, leading to an operating margin of 91%, from 75% the year before. A substantial rise in finance expenses from the loan secured in the end of 2022 suppressed the net margin from 71% to 66%.

In December 2022, NICOL leveraged its Treasury bonds position to secure a seven years TZS 21.6 billion loan facility from Diamond Trust Bank at an interest rate of 11.5%. The fund manager has injected the loan proceeds into its subsidiary, NICO Land Development Company Ltd, which focuses on real estate investments. The subsidiary has invested part of the funds into investment properties, and some is characterized in the balance sheet as work-in-progress, believed to be real estate development. The investments, along with a 46% growth of their equities’ portfolio due to price surge of NMB, has led to a 51% growth of total assets for the company. These developments led to NICOL’s best performing status as the price closed March at TZS 650/-, and already at TZS 750/- as of 8th April 2024, from TZS 500/- at the beginning of the year 2024.

Next top gainer was CRDB which went up 9.6% and 24% in March and Q1-24 respectively. The price of CRDB follows a 21% profits growth as the bank’s projected dividend for the year 2023 yields 9.5% at end of month price, slightly lower than historical annual lowest dividend yield in the last four years, suggesting some potential lingering upward momentum before the ex-dividend period.

The price of NMB gained 2.6% during the month and 6.2% during the quarter as the bank reported a 26% profit growth for the year 2023. NMB price growth has been slower relative to CRDB since NMB investors began factoring in the bank’s profit growth since July 2023, leading to a more than 30% growth in August 2023 alone. The bank’s price at the end of the month was TZS 4,780/- while the projected dividend for the year yields 7.5%.

DSE was another gainer for the period as the exchange’s price went up 1.1% in March and 2.2% in Q1-24, to close the periods at TZS 1,840/-. The price of DSE has slightly climbed on the back of a 30% profit growth for the year 2023 while the projected dividend yield stands at 8.3%.

The top loser during the month was Tanga Cement Plc (DSE: TCCL) with a monthly price drop of 13.9% in March, and a 0.94% drop in Q1-24. The price of TCCL dropped from its peak of TZS 2,520/- in February when speculation on the retail acquisition offer from Scancem International D.A heated up demand on the counter hence raising the price. The offer was initially expected before the end of Q1-24, but the delays have cooled off the counter, suppressing the price to TZS 2,100/- in the end of March. The expected offer price is TZS 2,440/- with the assumption that the offer price shall be similar to the transaction price between Afrisam and Scancem.

The next top loser was DCB Commercial Bank (DSE: DCB) which dropped by 13.3% to TZS 130/- at the end of March, which is similar to the price at the beginning of the year. The price drop on the DCB counter during the month is on the back of investors digestion of the bank’s TZS 3.65 billion loss for the year 2023, from a TZS 748 million profit in 2022.

Other counters that saw their prices diminish during the month are TCCIA Investment Company Ltd (DSE: TICL), Swissport Tanzania (DSE: SWISS), and Twiga Cement (DSE: TPCC). The counters saw prices drop by 2.63%, 1.79%, and 1.38% respectively.

The price of TICL dropped to TZS 185/- at the end of March, although the loss has been more than recovered since the beginning of April as the price went up by 5.41% in a week. Price decline of TICL in March comes amid a 28.5% drop in the EPS despite a 43% profit growth for the year 2023. The EPS took a beating due to the doubling of number of shares following TICL’s rights issue in the end of 2023.

The price of SWISS drops as the market awaits the company’s results for 2023. Dissecting the results, analysts will be focused on the business lounge the company established at Kilimanjaro International Airport (KIA) in partnership with Air Tanzania. The venture is an effort to diversify and widen Swissport’s revenue as increased competition tightens its core businesses. The company reported a slight profit shrinkage of 9% for H1-24, due to a 9% growth in operational expenses while revenue growth stood at 6% to TZS 18.62 billion

On the other hand, the price drop on the TPCC counter likely originates from the cement manufacturers stagnated revenue, which slightly dropped by 0.9% for the year 2023, while net profit slightly up-ticked by 1% due to operational efficiency. TPCC has reached its maximum production capacity since 2022, and requires substantial capital expenditure to either install new production capacity or acquire a production unit. In late March, limited reports emerged of TPCC’s acquisition of Mamba Cement Company Ltd. Also, the acquisition of Tanga Cement by Scancem International D.A, the parent company of TPCC, is potentially another solution to TPCC’s capacity challenge, although the future association between the two subsidiaries is still unclear.

Foreign Participation

The market was still dominated by local investors in March similar to the last two years. During the month, local investors accounted for 87% of total equity purchases and 75% of total equity sales while foreign investors accounted for the balance. During the quarter, local investors’ dominance in purchases was way higher, at 92%, while locals accounted for 54% of equity sales. High foreign sales during the quarter originated from high foreign disposal of CRDB in January and February, before stabilizing in March.

Foreign participation in emerging and frontier markets is still constrained by global economic and geopolitical trends. FPI trends were expected to reverse in 2024 as the U.S was bracing for at least three rate cuts due to stabilizing inflation. Hopes of rate cuts in 2024 are quickly fading with the changing tone of the Federal Reserve following higher than expected inflation and employment numbers for Q1-24. Investors in developed markets, particularly U.S, are bracing for an elongated high interest rate market, which means persisted foreign exchange challenges in developing economies, as well as persisted FPI net foreign outflows.

Fixed Income Securities

Secondary Market

The total value of bonds traded in the secondary market during March 2024 dropped by 39% compared to February 2024, and 29.8% compared to March 2023. The value of bonds turnover for the month stood at TZS 272.29 billion, while the total face value traded was TZS 265.33 billion.

On a quarterly basis, the total turnover for Q1-24 stood at TZS 983.1 billion which is 1.4% higher than Q1-23 and 66% higher than Q4-23. As an indicator of falling prices and rising yields, the transaction value to face value ratio dropped from 1.14x in Q1-23 to 1.03x in Q1-24, while long term tenors remained dominant of secondary market transactions.

Primary Market

In the primary market, the central bank conducted two Treasury bonds auctions in March 2024, for the 20-years and 25-years tenors. From the two auctions, the central aimed to collect TZS 395.69 billion and received a total tender size of TZS 1,053.92 billion, equivalent to a subscription rate of 266%. The central bank accepted TZS 626.59 billion which is 59.5% of the tender size but 158.4% of the target.

Both auctions in March were re-openings from the restructured issuance calendar published in mid-February. To note the success and the high subscription on the re-opening auctions, the two auctions in March represented only 49% of the total offer size for Q1-24 but 74% of the total subscription and 82% of the total collections of Treasury auctions in Q1-24. The total offer in Q1-24 stood at TZS 803.85 billion, and the total subscription amounted to TZS 1,422.81 billion, while the Bank of Tanzania accepted TZS 765.32 billion from six auctions during the quarter.

Monetary Policy

On the other hand, following the transition of the monetary policy framework to an interest rate based policy in early January, the central bank raised the policy rate from 5.5% to 6.0% in early April 2024, with a 200bps deviation. Which means the current new stable interval of the 7-days interbank rate is between 4.0% and 8.0%. Immediately after the announcement of the lifted policy rate, the weighted average 7-days interbank rate closed at the ceiling of 8% on the 4th April 2024, indicating a somewhat tightening liquidity in the banking sector.

The major motivation for the move is to curb lingering inflationary pressures particularly from foreign exchange challenges. This poses a conundrum to the central bank, considering that domestic inflation is at the bottom of the target range, tightening liquidity in the banking sector, while foreign exchange challenges are expected to persist following the uncertainties of the U.S inflation and monetary policies, and the tense volatile geopolitics in the middle east.

Market Outlook

The second quarter is usually the most active quarter for equities due to dividend announcements for most companies, particularly listed banks. Moreover, the quarter sees publishing of annual reports and annual general meetings. We expect to see publishing of detailed annual reports beginning April 2024, along with AGM announcements.

Particularly for CRDB and NMB, we expect dividend announcements and AGMs between April and May, while dividends to be paid in June 2024. We expect ex-dividend period to be in May, which is crucial for capital gain investors, while for long term investors should expect some inflow in June.

On the fixed income side, we wait for six Treasury bonds auctions in Q2-24, while April alone has two re-opening auctions of 25-years and 10-years tenors. The 25-years bond with 22 years remaining to maturity was auctioned on 3rd April 2024 and saw a slight drop in yield due to a push back in prices from the Bank of Tanzania.

The next auction is on 17th April 2024 when the Bank of Tanzania shall re-open a 10-years bond with only 2 years remaining until maturity. The bond was initially auctioned on 3rd February 2016, matures on 4th February 2026, and carries a coupon rate of 11.44%. The accrued interest on the day of the re-opening auction shall be TZS 2.3194/-.

We do not expect a significant shift in Treasury yields in April and Q2-24, as the central bank strikes a balance between limiting the demand of USD and maintaining ample supply of TZS liquidity in the banking sector, especially after a 50bps uptick of the CBR.

In that sense, we expect a stable fixed income securities market and an elevating equities market as we step into the quarter with most corporate actions, particularly the dividend period.

Happy Investing

Head, Research & Financial Analytics

Alpha Capital