Alpha Capital Monthly Research Newsletter - May 2024

Dear Mwekezaji,

The month of May 2024 was full of corporate actions surrounding dividends and annual general meetings (AGMs). No wonder equity turnover and market capitalization are both in the green as investors rushed chasing ex-dividend dates to reserve the right for cashing payouts for the year 2023. The fixed income market saw a marginal downward movement of yields which means rising prices and increased activities in terms of turnovers.

Equity Market

Equity Turnover and Movers

Equity turnover went up 95% in May 2024, rising to TZS 20.92 billion, from TZS 10.72 billion in April 2024. The increased turnover originated from increased activities on CRDB Bank Plc (DSE: CRDB) and NMB Bank Plc (DSE: NMB), partially offset by the drop of activities on the Tanzania Breweries Ltd (DSE: TBL) counter which was almost missing in action. Equity turnover on the CRDB counter went up 78% while that of NMB rose by 392%. Similar to April, CRDB remained the top mover in May, accounting for 46% of the total turnover in the month. NMB followed closely at 36%.

Increased turnover on the two banks was a result of corporate actions. The two banks collectively accounted for 82% of the May turnover. The two banks were followed by Tanzania Cigarette Company Plc (DSE: TCC), Twiga Cement Plc (DSE: TPCC) and TOL Gases Ltd (DSE: TOL) which collectively accounted for 16% of the turnover, almost equally distributed among the three.

Foreign Participation

Similar to the trend in the last two years, foreign participation was still minimal during the month of May, accounting for an average of 11.3% of the total value of transactions. Foreign investors accounted for 9.52% of total equity purchases in May, and 13.07% of total equity sales. As a result, the net foreign outflow during the month was TZS 742.76 million ($0.26mln).

The foreign funds flow has significantly improved from a net foreign outflow of TZS 3.16 billion ($1.13mln) in April 2024 despite a 95% increase in the turnover in May 2024. Substantial foreign outflow from the CRDB counter since the beginning of the year seemed to have halted in April when foreign investors accounted for 34% of total equity sales and only 5% of equity purchases.

Foreign Portfolio Investments (FPIs) into emerging and frontier financial markets is still limited on the back of a tightened monetary policy in the U.S. The Fed has maintained interest rates stable for almost a year while the U.S economy saw a sustained disinflation. Analysts expected the Fed to cut rates in 2024, and begin an expansion policy, but the inflation data for March and April 2024 suggested otherwise. Now markets are waiting for the Fed’s meeting on 12th June 2024 to get future guidance on U.S monetary policy. That will also paint a picture of future foreign funds flows into and from emerging and frontier financial markets.

The next monetary policy meeting in Tanzania shall be on 3rd July 2024, while the MPC statement shall be released on 4th July 2024. The meeting shall set the tone of the monetary policy for the year 2024/25, and set the direction for the policy rate which is still the lowest in the region. Setting the policy rate shall put into consideration the domestic inflation and foreign exchange pressures.

Headline inflation remained stable in May, with a slight decline of 5bps to 3.07%. The marginal slowdown originates from a 32bps monthly drop in annual core inflation to 3.57% in May 2024 as a result of relaxing services index. Non-core inflation is gaining momentum, albeit slowly, as energy and food inflation are both rising. Energy inflation is up 52bps in May, landing at 9.80%. Food Crops and Related Items Index have risen from 0.77% in April 2024 to 3.44% in May 2024.

On the other hand, the TZS depreciated by approximately 1.03% in the Interbank Foreign Exchange Market (IFEM) in May 2024, while the value of transactions significantly dropped by 88% on a monthly basis. The total amount traded during the month was $10.78 million, lowest value since February 2024. Low value of transactions is most likely a result of low participation of the central bank during the month.

Indices and Equity Price Movement

All major indices were in the green during the month of May 2024 as prices of four counters appreciated, off-setting five counters that saw depreciated prices. The Tanzania Share Index (TSI) gained 0.94% as the domestic capitalization lifts by the same pace to TZS 11.88 trillion.

NMB was the leading gainer during the month, and to the most part responsible for lifting the TSI due to the bank’s weight in the index. NMB saw its price gain 11.8% following the bank’s TZS 361.18/- per share announced during the month, reflecting a 26% dividend growth, similar to the profit growth. The price of NMB closed the month at TZS 5,300/-. NMB’s ex-dividend began on 6th June 2024 while the dividend will be paid on or by 17th June 2024.

Another gainer was the Dar es Salaam Stock Exchange Plc (DSE: DSE) with a 9.68% price gain as investors shifted from CRDB which hit ex-dividend in the beginning of May, and NMB which already saw its price appreciate. DSE will hold its 9th AGM on 25th June 2024 at the New Africa Hotel and virtually through eAGM Mkutano Platform beginning 9:30am.

Other gainers include Mkombozi Commercial Bank (DSE: MKCB) and TOL Gases Ltd (DSE: TOL) which saw prices going up by 1.61% and 1.45% respectively. The price of MKCB was recovering from a fall in April as the bank reported a 36% profit growth for the year 2023. MKCB has seen its price drop by 3.2% since the beginning of June 2024 as the counter catches market attention with a P/E ratio of 1.88x. MKCB missed the non-performing loans (NPL) threshold in 2023, disqualifying the bank from potentially paying dividends for the year. The bank’s NPL ratio was 8% while cost to income ratio (CIR) was 48%. In Q1-24, the CIR improved to 46% while the NPL ratio slightly worsened to 9%. Similarly, the bank lacks a dividend policy due to non-payment of dividends since it was listed, considering the years of losses and clearance of accumulated losses since 2021.

TOL is already up 6.06% year to date with demand on the counter outpacing supply since the beginning of the year. The price of TOL closed the month at TZS 700/- as investors price in opportunities available for the company to exploit within the region.

Five counters had shed prices in May, led by DCB Commercial Bank Plc (DSE: DCB) which saw its price fall by 15.4% following a net loss of TZS 3.65 billion in 2023 from a net profit of TZS 747.7 million in 2022. The loss follows a decline in both interest and non-interest income while interest expenses climbed.

CRDB was the next top loser with an 8.93% price fall during the month as the counter entered the ex-dividend period. The bank closed the month at a price of TZS 510/-. Another loser was Tanga Cement Plc (DSE: TCCL) which dropped by 5.94% to TZS 1,900/-. The price drop on TCCL follows a delayed purchase offer from Scancem International D.A to retail shareholders. During the AGM of Twiga Cement Plc (DSE: TPCC) in the beginning of June 2024, the TPCC board hinted that the offer is still held on the valuation and finetuning of the offer price, a statement that added uncertainties around the transaction, further suppressing the price of TCCL to TZS 1,800/- as of 7th June 2024. Similarly, TPCC saw its price fall by 4.65% during the month of May, reasons being lowered revenue and profit for the year 2023, and the uncertainties surrounding the TCCL transaction.

National Investment Company Ltd (DSE NICOL) was the least loser with a 1.25% price drop during the month of May 2024. The price drop follows gentle volatility that is seen on the counter in the last two months as the price hovers between TZS 780 and TZS 800/-. The price of NICOL closed the month at TZS 790/- at the end of May.

Fixed Income Securities

Secondary Market

The bonds secondary market saw a 38% increase in the bonds turnover to TZS 299.89 billion. The total face value traded during the month was TZS 270.57 billion, marking a 10.8% average premium in bonds prices during the month, compared to 7.9% in April 2024. This is consistent with the central bank’s push back against yields in the primary market, as yields have constantly fell since March 2024. Long term tenors, 20 and 25-years, were still dominant, accounting for 74% of the total value of transactions during the month.

Primary Market

In the primary market, the central bank conducted four Treasury auctions during the month, equally distributed between Treasury bonds and Treasury bills. The Bank of Tanzania issued two bonds in May, a 10-years and 15-years bonds. The 10-years bond received only 19.7% subscription rate, and was subsequently cancelled altogether.

The 15-years bond received subscriptions 3.67 times the offer amount. The bond’s offer size was TZS 137 billion, while the tender size from the public was TZS 503.78 billion. The central bank accepted 53% higher than the offer size, leading to a gain of 238bps on the weighted average yield to maturity from the most recent issued 15-years Treasury bond, ignoringthe fact that the bond under review has less than 10 years to maturity.

On the Treasury bills front, the central bank collected a total of TZS 198.11 billion despite a total tender size of TZS 510.24 billion and a total offer size of TZS 169.64 billion. As a result, the 364-days yield to maturity went down from 9.96% at the end of April 2024, to 7.04% at the end of May.

Outlook and Lookouts

Most dividends that were announced in April and May will be paid in June, beginning with CRDB which begins payment on 5th June 2024. Others are NMB on 19th June and TPCC on 30th June. All of these counters have already reached the ex-dividend period, now we wait to see the price reaction after investors have received money in the bank.

Global financial markets also await the Fed’s meeting on 12th June to get a guidance of the future of U.S monetary policy. The most likely outcome is the maintenance of interest rates at the same level, while monitoring inflation direction from the data in May.

We also wait for the last Treasury auction of the financial year 2023/24 which will be held on 19th June 2024 where the central bank shall re-open a 25-years Treasury bond which was initially issued on 22nd April 2021. The bond has 21 years left to maturity and carries an accrued interest of approximately TZS 2.5782/-. We expect a constant marginal suppression of yields consistent with recent long term tenors’ issuances. We also wait for the issuance calendar for the fiscal year 2024/25 which should be released in the end on June or early July 2024.

Above everything else, all eyes will be on the national budget in the end of June 2024 as the parliament discusses the government’s revenue and expenditure for the upcoming fiscal year. The national budget will set a tone for the direction of domestic debt which directly affects Treasury bonds issuances and yield direction. Moreover, investors will be keen to any amendments in the tax codes, and areas of focus for the government in 2024/25.

Head, Research & Financial Analytics

Alpha Capital