TANZANIA’S economy maintained a strong performance in the first three quarters of 2019 with GDP growth averaging at 6.9 per cent.
The growth was attributed to public sector investments and strong private sector performance. The main contributors to this growth were construction, agriculture and transport activities.
Annual headline inflation stagnated at 3.8 per cent in December 2019 from the same rate in November after rising 0.2 per cent from 3.6 per cent in October 2019.
Headline inflation is expected to remain low and below the medium term target of 5.0 per cent in the remaining part of fiscal year 2019/20 owing to subdued non-food inflation rate.
Twelve-month inflation rate for food and nonalcoholic beverages remained on an upward trend to 6.3 per cent in December 2019 from 6.1 per cent in November and 5.1 per cent in October 2019.
The increase was mainly due to a hike in prices of maize grain, maize flour, rice and beans following increased demand in domestic and regional markets and food shortages in some parts of the country.
Likewise, on monthly basis food and nonalcoholic beverages inflation increased to 1.3 per cent in December 2019 from 0.8 per cent in November 2019 compared to 1.1 per cent in December 2018.
Money supply remained robust whereby M3 (extended broad money supply) grew by 9.6 per cent in the year ended December 2019 compared to 4.5 per cent in December 2018.
This increase was driven by expansion in foreign assets of the banking system (which grew by 13.2 per cent in December 2019 compared to contraction of 8.3 per cent in December 2018) and growth of credit to the private sector (with 11.1 per cent in December 2019 compared to 4.9 per cent growth in December 2018).
M2 (broad money supply) also registered annual growth of 11.8 per cent in December 2019 compared to 3.8 per cent in the year ended December 2018.
Tanzania Equity Market Overview
In Q4 of 2019, the equity market experienced an upward trend spearheaded by increased foreign investors’ participation at the bourse. The DSEI, TSI, and IAI closed the quarter up by 6.47 per cent, 2.98 per cent, and 5.19 per cent, respectively.
The market activities in terms of volume and turnover were higher in Q3 with the total turnover of TZS 526.91 billion compared to TZS 33.32 billion in Q4 2019 and a total of TZS 560.24 billion in the entire 1H of 2019.
This year the market hit key support levels thus implying the market is reverting to upward trends.
Equity market performance in 2019 was highly driven by the appetite of foreign investors for Local stocks and positive expectation on the overall performance of the economy, which drives the market upwards.
With the polices and Government efforts to attract foreign investors it’s expected that year 2020 will be glamorous.
In January 2020, the market turnover recorded an increase to TZS 45.36 billion which is 2.44 folds of the TZS 18.52 billion recorded in December 2019.
The banking sector is expected to perform well in the year 2020. Banks, both locally listed and cross-listed, reported increases in profits.
The two largest banks, CRDB and NMB, posted profits of TZS 120 billion and 148 billion respectively for the year 2019.
Before 2019 the sector endured rough pathways that saw heightening NPLs which affected the banks’ balance sheets and interest income hence the overall performance.
This doom and gloom period saw a decline in lending activities, pushing banks’ excess liquidity into Treasury assets.
The expected growth in credit to the private sector following the burgeoning performance will boost bank interest income and will expand their balance sheets.
Therefore, this expansion in credit to private sector will have a positive effect on spreads that banks will be making as opposed to current/ recent reliance on the Treasury securities whose returns are lower by considerable margins compared to lending.
The expected performance supported by the growth in interest income will boost the banks’ profits and hence their attractiveness to investors. CRDB has been the most active counter at the bourse while the NMB counter continues to be one of the least active.
If the banking sector maintains the 2019 performance including the decreasing trend in NPLs, we foresee brighter prospects for the industry in 2020.
Industrial and Manufacturing Sector
At DSE the following companies are listed under this sector: TCC, TBL and TPCC posting good financial results.
The sector’s performance on the stock exchange during the year 2019 remained stable. With the expected strong economic growth, it’s envisaged that in the year 2020 the sector will maintain its good performance. In the market, the TBL counter has remained the top mover in this sector during the year.
The largest brewer in Tanzania, TBL recorded a 7 per cent increase in gross profit to TZS 183 billion in 1H 2019 from TZS 170 billion in the similar period of 2018, while operating profit increased by 28 per cent to TZS 114 billion from TZS 89 billion. EPS grew by 14 per cent to TZS 241 per share from TZS 211 per share.
TCC’s 1H results of 2019 show that revenue grew by 7.8 per cent to TZS 227 billion from TZS 211 billion in the similar period of 2018.
Profit after tax increased by 16.8 per cent to TZS 26.6 billion from TZS 22.8 billion in 1Half of 2018, while EPS increased to TZS 267 per share from TZS 229 per share in the 1Half 2018.
TPCC has almost 40 per cent market share of the cement industry in the country and is expected to maintain its strong performance at the bourse due to high demand for cement following the government’s on-going infrastructure development activities.
Earnings and Dividends are expected to increase which makes TPCC as the stock of choice to many investors with appetite for moderate risk but stable cash flow needs.
The telecommunications sector represented by Vodacom Tanzania Plc at the DSE, for the year ended March 2019 saw a decline in profit to TZS 90 billion from TZS 170 billion in the year ended 2018.
Following this faltering in earnings performance, EPS nose-dived to TZS 40.28 per share from TZS 83.81 per share in the same period of 2018.
The telecom’s main growth driver of service revenue will continue to be M-Pesa based on this line’s consistent incremental revenue contribution for the past 4 years.
M-Pesa revenue contributed TZS 333.5 billion or about 32.73 per cent of the total service revenue in the financial year ended March 2019.
For the coming financial year, we expect the sector’s performance to improve given the anticipated listing of other telecommunications companies at the bourse.
Commercial Services Sector
Commercial sector stocks continue to perform moderately represented b Uchumi, Swissport, Precision Air, Kenya Airways and Nation Media Group.
Swissport’s performance in the 1H of 2019 was poor, revenue decreased by 34.41 per cent to TZS 17.4 billion and profit dropped by 55 per cent to TZS 2.2 billion. Precision Air decreased its loss to TZS 24 billion in 2019 from TZS 40 billion in 2018.
Cross-listed counters such as Kenya Airways, Nation Media Group, and Uchumi Supermarket saw their performance improve in 2019.
This indicates that the future of the commercial sector is green from the standpoint of cross-listed stocks. For the locally listed stocks in the commercial sector the future remains uncertain.
- Ombeni N. Uhuru is a Senior Investment Analyst at Tanzania securities Ltd www.tanzaniasecurities. co.tz info@tanzaniasecurities. co.tz o m b e n i @ tanzaniasecurities.co.tz