DSE sees decline foreign investment in November

ACTIVITIES on the Dar es Salaam Stock Exchange (DSE) slowed in November compared to October 2024, as both equity and bond turnovers declined.

Equity turnover decreased by 70 per cent, driven by fewer block transactions during the month, while bond turnover fell by 22 per cent, following three successive long-term bond auctions since late October 2024.

Total equity turnover for November 2024 amounted to 12.63bn/-, a significant decline from 42.70bn/- in October 2024.

CRDB Bank Plc and Tanzania Breweries Ltd (TBL) continued to dominate trading activity during both months, alternating as top movers.

Together, these two counters contributed 72 per cent of November’s turnover, down from 90 per cent in October. TBL emerged as the top mover in November, accounting for 40 per cent of monthly turnover, while CRDB led in October with a 47 per cent contribution. Notably, turnover on these two counters declined by 76 per cent.

Other notable performers in November included NMB Bank Plc, which accounted for 21 per cent of the month’s total turnover, with its monthly turnover more than doubling, growing by 131 per cent. Similarly, Tanga Cement Plc (TCCL) experienced a 31 per cent increase in turnover, as investors grew cautious about the delayed offer to retail shareholders.

Foreign participation remained skewed towards the selling side, mirroring October’s trend and underscoring that the net inflows recorded in September 2024 were an outlier.

Foreign investors accounted for 16.23 per cent of equity sales during November but contributed only 2.04 per cent of equity purchases. The net foreign outflow for the month was 1.79bn/- (0.66 million US dollars), a significant decrease from 18.82bn/- (6.97 million US dollars) in October 2024. This decline in net foreign outflows coincided with reduced market turnover.

Despite a marked improvement in the national foreign exchange position since mid-October 2024, the increased inflows have yet to translate into capital market investments, as Foreign Portfolio Investments (FPIs) continue to decline.

The improvement in foreign exchange reserves stems from seasonal inflows from agricultural exports, particularly cashew nuts, with approximately 600 million US dollars worth of raw cashew nuts (RCN) traded in auctions since mid-October.

Additionally, the tourism sector has been gaining momentum since the start of Q4 2024, with activities expected to peak in December. Consequently, the shilling appreciated by 2.2 per cent in November alone and by 3.7 per cent from its record low in early October 2024.

These developments coincide with the US Federal Reserve’s recent expansionary monetary policy, which saw two rate cuts within three months. This policy has facilitated a global flow of US dollars, particularly into developing economies, reversing a liquidity crunch that persisted for two years due to stubborn inflation.

However, the longevity and impact of this policy remain uncertain, given potential policy shifts by the newly elected US administration, including tax cuts and heightened trade tensions with rival nations. This introduces uncertainties regarding the direction of FPIs in developing markets like Tanzania.

In Tanzanian equities, the two major indices recorded declines during November, driven by the underperformance of key counters. The Tanzania Share Index (TSI) fell by 0.78 per cent, with nine of the eleven counters that experienced price movements closing in the red. The biggest loser was DCB Commercial Bank Plc, whose price dropped by 6.06 per cent, attributed to an ongoing rights issue priced at a 29 per cent discount to the market price.

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Other decliners included National Investment Company Ltd (NICOL, -5.48 per cent), CRDB, -2.94 per cent, Maendeleo Bank Plc -2.86 per cent, Afriprise Investment Company (AFRIPRISE, -2.08 per cent), Swissport Tanzania (SWISS, -1.64 per cent), Tanga Cement Plc (TCCL, -1.03 per cent), NMB, -0.93 per cent) and DSE, -0.8 per cent.

While price movements in most counters reflect general market volatility, declines in TCCL and DSE prices are rooted in fundamental factors. TCCL’s price decline is linked to delays in a retail investor offer related to a complete takeover by Scancem International D.A., which investors had expected to follow the announcement of a price settlement in late October 2024. This delay has created uncertainty and speculation regarding the offer price.

The decline in DSE’s share price reflects a 25 per cent drop in net profits for the first nine months of 2024 compared to the same period in 2023. This was driven by a 5.5 per cent decline in revenue and a 16 per cent rise in operating costs. The revenue decrease is largely due to a 14 per cent drop in listing fees, stemming from the Bank of Tanzania’s reopening of previously issued Treasury bonds.

Under DSE’s fee schedule, the additional listing fee for reopened bonds is half that of initial listings, reducing government payments. Furthermore, revenue from Central Securities Depository and Registry (CSDR) services fell by 20 per cent, reflecting a 30 per cent drop in secondary market bond transactions in the first nine months of 2024. In 2023, bond transaction fees accounted for approximately 40 per cent of total CSDR revenue.

Conversely, the only counters to post gains were Mkombozi Commercial Bank (MKCB), which appreciated by 3.7 per cent and Twiga Cement Plc (TPCC), which rose by 2.3 per cent. MKCB’s price increase reflects growing investor appetite driven by the bank’s improving profitability and a relatively low price-to-earnings ratio of 1.05x.

Additionally, the bank has achieved regulatory thresholds for dividend payments, with its non-performing loans (NPLs) and cost-to-income ratio (CIR) standing at 5 per cent and 55 per cent, respectively, as of September 2024.

Twiga Cement’s price initially declined due to weak financial performance in the first half of 2024, with profits falling by 38 per cent due to an 18 per cent drop in revenue. This was attributed to the company’s saturated production capacity, which constrained growth.

Despite these challenges, Twiga Cement has maintained a stable dividend policy, consistently paying 390/- per share annually over the past four years. This translates to an attractive dividend yield of approximately 10.8 per cent at current prices, prompting investors to push the price upward in anticipation of continued dividends for 2024.

In the fixed-income securities segment, bond turnover fell by 20 per cent to 241.45bn/- in November, impacted by three consecutive long-term bond auctions. The 25-year bond auctioned on November 13, 2024, raised approximately 367bn/-, draining liquidity and reducing appetite in the secondary market. Collectively, the three auctions raised 602.7bn/- during the month.