Thoughts from a Renaissance man Morocco’s ‘first world’ problems
Thoughts from a Renaissance man Economics & Strategy
29 February 2016
The macro backdrop is the best of the top five equity markets in Africa.
We think Morocco looks good within the frontier space today
This economist’s most recent ‘first world’ problem was being allocated the dreaded middle seat on the Ryanair flight back from
Rabat, landing at midnight, at Stansted (that’s actually four problems in one sentence). Morocco also has little to really complain
about. The country has trains and modern trams you might associate with the Netherlands, and smart airports, roads and buildings
(residential and commercial) similar to Spain or South Africa. Over the past decade or two, Morocco has already delivered the
physical infrastructure that Kenya and Nigeria still aspire to. As a result, car manufacturing (Renault’s capacity is 170k cars a year)
has now become its number one export – and in this regard the country can be compared to frontier peer Romania. With
aerospace components and additional car manufacturing (Peugeot plans 90k vehicles by 2019), Morocco should continue to move
up the value added curve. Morocco’s 34mn people – only a little fewer than Poland or Spain – have a better demographic profile
than either, and, in our view, the $104bn economy looks understated (or everyone else is overstated). Access to banking has
widened sharply; meanwhile Morocco’s banks and telecom companies have used this strong foundation to expand across Africa
over the past 10-15 years.
This has seemingly all been achieved under the benign rule of Morocco’s king (similar to Dubai or Oman, but he’s only 52) and via
Morocco’s very high domestic savings. Unlike Brazil or Russia, it would appear that Morocco’s savings have never been wiped out
by hyperinflation or deep economic shocks. High domestic savings have meant Morocco’s lending to GDP ratio is much higher
than many EM countries at 97% of GDP (source: IMF) and this has not been financed from abroad. External debt was just 32% of
GDP in 2015. The loan-to-deposit ratio is 95% and so in this regard Morocco is more similar to China or Vietnam than most of Sub
Saharan Africa (SSA). As with these two countries, the plentiful supply of savings mean interest rates are low at just 2.5% and the
IMF expects inflation to end 2016 at 1.3%.
So what’s the problem?
The only ‘problem’ is that Morocco is not growing as fast as local officials would like. The prime minister (facing re-election in
October) targeted 7% growth at the last election, but in 2015 the IMF estimates it was 4.7%. Stripping out extremely volatile
agriculture, GDP has risen by just 3% annually since 2013, which we think is pretty good relative to many in EEMEA and given
weakness in Europe (62% of exports in 2014). Officials believe better than 5% should be the target. Morocco, a little like Romania
or Pakistan, is seeing little demand for new loans (credit growth was 1-2% in 2015) after a pre-global financial crisis (GFC) lending
boom. We believe an interest rate cut in March, or further central bank (CB) support for lending growth (similar to Hungary’s
support for SMEs, or the UK’s CB support for lending) is likely.
Exchange rate flexibility is coming
The impressive economic backdrop makes this an ideal year for Morocco to loosen the currency peg (60% euro, 40% US dollar)
according to the IMF. The current account deficit was 1% of GDP in 2015. The currency is fairly valued according to our REER model and
inflation is low. The lack of a significant interest rate premium over the ECB or Fed means even with wider bands – we would guess 3%
bands around a central parity rate as the first move – we see no obvious reason for the currency to move much in any direction.
Macro good – but valuations high
Our data imply Morocco is the second-biggest underweight (after Kuwait) for frontier investors despite offering what we consider to
be the best macro picture among the largest African equity markets. While we are not convinced that either credit or GDP growth
is about to surge, we do like an African currency that is fairly valued and protected by high FX reserves. Daniel Salter, our Global
Equity Strategist, rates Morocco as an Overweight.
© 2016 Renaissance Securities (Cyprus) Limited. All rights reserved. Regulated by the Cyprus Securities and Exchange Commission (Licence No: KEPEY 053/04). Hyperlinks to important information accessible at www.rencap.com: Disclosures and Privacy Policy, Terms & Conditions, Disclaimer.
Charles Robertson +44 (203) 379-7835 [email protected] Mobile +44 7747 118 756
@RenCapMan
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There were two reasons for this week’s visit to Rabat and Casablanca, where we met with
local officials from the public and private sectors.
First, we wanted to find out if there were macro or political risks that we have been
missing. In September 2015, we got more interested in Moroccan macro – particularly in
the African context – because our REER model suggests that unlike overvalued Nigeria,
Egypt or Kenya, the Moroccan dirham (MAD) was marginally cheap compared to its own
history. Our January update reiterated this point. Below we touch on some of the potential
issues, but the short answer is no, we do not see significant risks.
Second, we wanted to understand how Morocco managed to avoid a bust after the private
sector debt boom in the run-up to the GFC. We have been arguing (Frontier and
emerging markets: Reform awakens, published 14 May 2015) that Turkey is vulnerable to
a bust because the only other EM countries that have seen credit/GDP rising as fast as
Turkey in the past decade are Brazil and Greece. All three have seen the credit/GDP ratio
rise by at least 50 ppts of GDP. The result for both Brazil and Greece is well known.
Morocco also saw a credit/GDP boom of 50 ppts but has not crashed. Might this provide a
ray of hope for Turkey?
Figure 1: The rise in GDP vs the rise in credit to ‘other sectors’ (private sector, state owned enterprises, local government but not central government) as % of GDP
Source: IMF
We are not sure we have all the answers to this second question. One official we met said
it may be too early to tell if Morocco has really avoided a crash, but in our view, we would
have seen a blow-up by now if it was coming.
The two key reasons for Morocco avoiding an implosion probably relate to 1) how lending
has been financed; and 2) who has borrowed. It is probably to the great credit of the
banking regulator that the credit cycle has been managed so well.
It is worth noting that the IMF shows Morocco to have the best supervision standards in
the region (see appendix table 1 on page 46 of the IMF’s report) – followed by Kenya,
helped by IRFS standards and (parts of) Basel III capital adequacy standards. IMF stress
tests show the banking sector can cope with either a global shock or prolonged weakness
in the eurozone, and despite expansion to SSA, any problems there too should not impact
too significantly on Moroccan banks. Moroccan bank operations in SSA are funded
locally, unlike Greek bank operations in the Balkans up to the 2007-2008 GFC.
As noted on the front page, domestic sources seem to have financed the lending. Unlike
eastern Europe in the run-up to the GFC, Morocco’s banking system seems to have been
flush with sufficient savings to fund its own growth rate. Until 2007-2008, credit growth
that peaked at 30% pa (see Figure 4) fuelled a big rise in real estate prices, much like in
eastern Europe. As in the Baltic states in 2006-2007, this growth came to a halt because
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house prices reached levels that locals became uncomfortable with, but eastern Europe
relied on foreign funding because local savings had been inadequate to fund demand for
borrowing. When the GFC saw this foreign funding dry up (central Europe) or even
reverse (Kazakhstan, Ukraine, etc), the boom became a bust. In Morocco by contrast,
transactions in the real estate market fell but prices did not fall dramatically. Today the
IMF says it sees little evidence of a housing bubble.
Quite where Morocco’s savings have come from is a good question. Perhaps 500 years of
relative peace since the Moors were expelled from southern Spain has helped. But one
consequence is that there is plenty of bank funds available for loans to companies, which
may have been to the detriment of the stock exchange. In contrast, Kenya or Nigeria have
a shortage of savings that has encouraged growth in their stock markets.
In any case, the loan-to-deposit ratio is far better than in those countries that have had a
boom-bust cycle at around 100-105% from 2012-2014. It gently fell to 95% by September
2015 according to Figure 2 below and page 16 of the IMF report.
The borrowing also appears more sustainable to us. While Russia, or Brazil, or SA have
recently had a problem with consumer finance when debt in this sector reached around
10% of GDP, in Morocco, much of the borrowing was done via mortgages. While
mortgages remain in single digits in Russia or Turkey, in Morocco, helped by government
guarantees, mortgages have now risen to 18% of GDP. Moroccans have proven to be
resolute in meeting their mortgage commitments and as there has been no recession,
there has been no obvious reason for NPLs to pick up significantly. Mortgages also look
affordable. The borrowing rate is around 6-7% now and the maturity is up to 30 years for
younger borrowers.
Figure 2: Mortgages-to-GDP ratio more in line with richer EM countries or SA (1 December 2015, unless otherwise stated)
Note: All data as of 1 December 2015, except SA (1 November 2015), Turkey (1 August 2015) and Morocco
Source: BAM, Renaissance Capital
So Morocco has seen a credit boom that ended quietly as there was no interest rate
shock, nor a withdrawal of foreign funding. The reason Turkey cannot take comfort from
this is that Turkey’s loan-to-deposit ratio is around 120% so foreign financing is an issue,
and the failure to control inflation means that interest rate shocks are a threat too.
What happens next? Access to credit has broadened and both Egypt and Pakistan might
look to Morocco to see how this has been achieved. In 2011, 41% of the population had
access to a bank account compared to closer to 10% in both Egypt and Pakistan1. This
remains well below the 60-70% rates in Greece and Oman, so there is room for further
1 See Figure 2 in Thoughts from a Renaissance Man: Pakistan – thanks for the reminder, 19 February 2015
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growth. Note this comparative World Bank data is different from Moroccan figures cited by
the IMF (see page 11 of the IMF’s report) which shows a rise from 43% of the population
with a bank account in 2008, to 63% in 2015, alongside a 50% rise in bank branches
since 2008. However, in that report the IMF also cites the 41% figure for Morocco.
In addition, when mortgages are 60% of GDP or more in the US or UK, and just 18% of
GDP in Morocco, there is scope for the stock of debt to keep rising. Low interest rates
help. We believe that total credit growth of around 6-7% annually should be sustainable
(when inflation is around 1%). Contrast this with Vietnam, which in our view is risking an
unsustainable boom with credit growth closer to 20% from a high base. We believe even
10-15% would be acceptable for one to two years and high single digits would be
acceptable over three to five years if inflation picked up to 2-3%.
As a result we should assume more CB action to deliver higher credit growth, as early as
the March 2016 CB meeting. The conservative assumption would be a 25 bpts cut; but
the CB could try and shock depositors and potential borrowers by pushing for a 100-200
bpts cut, although 25 bpts is far more likely, in our view. The CB may also lend more to
banks at the deposit rate, for on-lending to the rest of the economy. Already reserve
requirements have been slashed from 16.5% in 2007 to 2% so there is limited scope to
use that to encourage more lending.
We are not sure how effective this will be. Morocco has a high lending-to-GDP ratio
already and perhaps after the boom that ended in 2009, subdued borrowing will continue
in the medium term. Romania and Pakistan have both struggled to get lending up after
their pre-GFC credit booms. Moreover, Moroccan companies seem reluctant to invest
heavily at a time when global growth is weak and the key export market (Europe) is
weaker still.
Figure 3: Claims on ‘other sectors’ as % of GDP in 2014 (DM in red, EM in blue, Frontier in green, Beyond Frontier in yellow)
Note: Some countries such as China and India only provide data on the narrower definition of "claims on the private sector"
Source: IMF
We do not advise that investors should assume a renewed credit boom. We pencil in 4%
nominal growth in 2016, but given the CB willingness to encourage this, we believe there
is potential upside to this figure.
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Figure 4: Morocco's bank lending % ch YoY
Source: IMF
Talking with officials actually reminded us more of the debate in developed markets such
as the eurozone – how to lift borrowing demand – than the typical discussion we might
have in other frontier markets. Morocco shares more characteristics with central Europe
than with most African countries. The eurozone disease of very low inflation and very low
interest rates seem to be contagious.
Figure 5: Inflation is now below that of Poland, Hungary and the Czech Republic
Source: Bloomberg
Figure 6: Interest rates may follow central Europe further down too
Source: Bloomberg
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The currency
As we outlined on the front page, a shift towards currency flexibility is likely. Preparations
have been underway for many years and we believe that only external shocks may have
prevented a move a few years ago. IMF analysis in the latest IMF Article IV (see page 16)
suggests there are minimal risks attached to moving now (assuming no new external
shocks). Low external debt and banks that are long dollars means any depreciation may
actually benefit banks. The pass-through from exchange rate moves is estimated at 0.18.
We do not expect the CB would widen the bands sufficiently to make any currency move
that meaningful for inflation.
Morocco’s fundamentals look pretty good as they are – so we did ask why move at all?
The answer is that Morocco aims to be a hub for Africa and a more flexible exchange rate
regime is seen as a step on the road in helping this process.
Note that while foreigners can put money into and take it out of Morocco with no
restrictions, this is not the case for local citizens. The IMF recommends separating
liberalisation of the currency peg with liberalisation of the capital account. We assume the
latter will come in future years.
The political economy
It is not possible to talk MENA without touching on geopolitical and security risks.
According to the global terrorism database, there have been no fatalities in Morocco from
terrorism since one attack in 2011 and prior to that the only attacks were as far back as
2007. The stability of Morocco is one reason why Renault in 2012, Citroen, Peugeot and
potentially Volkswagen are investing in Morocco.
Political stability may in part be because of the country’s commitment to espousing
moderate Islamic principles, but also reflects the popularity of King Mohammed VI. Born
in 1963, and after studying law (and working in Brussels with the EU Commission), before
taking power in 1999. He has played a key role in overseeing Morocco’s development
since then. In March 2011, just months after the Arab Spring erupted, he proposed a new
constitution that granted more powers to parliament. This resulted in a shift in Morocco’s
political system score from -6 to -4 in the benchmark Polity2 database (where -10 is Saudi
Arabia and +10 is Germany). Morocco may well become one of those countries that
transitions peacefully towards a +10 rating in the coming decades. The king remains the
most powerful political force in the country and his role in the country reminds us of Oman
or Dubai’s experience in recent decades.
The forthcoming elections on 7 October 2016 will be the second since the new
constitution was promulgated. In 2011, the Islamist Justice and Development Party (PJD)
won 107 of the 395 seats and its leader Abdelilah Benkirane became prime minister.
Economic portfolios went to the centre-right RNI, which won 52 seats in parliament.
The 2011-2016 government has made important reforms – “perhaps the most rational
reforms undertaken in the Middle East and North Africa region in many years” according
to a World Bank paper. Faced with a 2012 budget deficit of 7% of GDP and a current
account deficit of 10% of GDP, due in part to subsidies that cost 6.5% of GDP, the
government decided to abolish fuel subsidies. From our conversations with local officials,
we understand that subsidies in 2016 are expected to cost the country no more than 1-2%
of GDP, with sugar subsidies to be phased out too (we were told that just cooking gas
may remain as a subsidised item). The budget deficit is targeted to be 3.5% of GDP in
2016 and the current account deficit is expected to be 1-2% of GDP. There is widespread
praise for these reforms from economists, but there is uncertainty about how the
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electorate will react in the 2016 elections. Elections may jeopardise or delay further
pension reforms planned for 2017, which are needed to address long-term funding issues.
The model of development
A question posed by the World Bank is whether Morocco may reach southern European
levels of development by 2040. That is a little too ambitious, in our opinion, but the
comparison point is accurate. Morocco reminds us of Spain. Mexico is another potential
comparison point – from the impressive pension reforms enacted in the 1990s to the
successful drive to build a manufacturing base aimed at exporting to its northern neighbour.
We were struck by the impressive infrastructure, from transport to electricity. A $7 first
class fare (which breaks our travel policy) on the train from Rabat to Casablanca was
quick and efficient.
Figure 7: Casablanca’s railway station (lhs) – an example of modern infrastructure
Source: Renaissance Capital
Morocco is now advancing solar power – and intends to push renewable energy from a
42% target in 2020, to 52% by 2030. On 4 February 2016, the king switched on the
world’s largest concentrated solar power plant.
The government has also advanced business reforms – pulling Morocco to 75th place
from 80th in the latest Ease of Doing Business survey.
As an aside, we generally do not like excluding volatile data when we analyse Frontier
and EM countries that are by their nature usually a little volatile. However, when it comes
to GDP, we do see why the authorities talk about non-agricultural growth, as the following
table shows clearly. GDP growth in 2016 is likely to be weaker purely because of
agriculture but this tells us little about the Moroccan economy over the medium term.
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Figure 8: For Morocco it makes sense to look at non-agricultural GDP
Source: Moroccan authorities; and IMF staff estimates (IMF Article IV consultation)
As another aside, we were struck by the data showing that government tax revenues
were 26% of GDP in 2015. This is pretty high and we wonder if it implies that GDP is
understated. We heard two estimates that the informal economy may be 30% or 40% of
GDP, but officials we spoke to argued that their GDP figures are accurate, it may be
others who overstate their figures.
Weaknesses
We see one absolute (education) and one relative (peer group comparison) weakness in
Morocco.
Education failed many Moroccans in the past. A recent IMF paper outlined the education
situation in great detail. Since King Mohammed VI took power, we can see strong
government spending on education. At 5% of GDP in 2010-2014, this is now among the
highest in the world but the historical legacy still causes difficulty. The lack of education in
the past means that too many teachers are themselves not educated to university level
(see figure 8 on page 25 of the report). We suspect a lower proportion of Moroccans than
Vietnamese for example are getting a university education abroad. Given the commitment
to education in the budget, we are sure this will change but for now it is a constraint on
Morocco’s development.
Figure 9: Morocco achieved the needed minimum for education in 1983 but then stagnated until around 2000
Source: UNESCO
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The second problem is Morocco’s peer group. We think the economy is the best in Africa
relative to any peers with a significant equity market (SA, Egypt, Nigeria and Kenya). It
has better growth and an elite that is more successful in driving reform than SA. It has a
competitive currency unlike the overvalued and capital account-restricted situation in
Egypt or Nigeria. It has fewer imbalances than Kenya and greater savings than either
Kenya or Nigeria.
However – if we compare Morocco to central Europe – the situation looks different.
Morocco has far better demographics than ageing eastern Europe2 but this is partly offset
by the far better education levels that are the result of communism’s positive legacy from
Poland to Romania. Demographics mean Morocco should be able to grow faster than
most of eastern Europe, but the lower education levels mean we doubt per capita GDP
can converge in the next generation.
To answer the World Bank’s question “can Morocco converge by 2040 with southern
Europe income levels of 2015?” it is worth comparing secondary school enrolment rates.
The latest 2007 figure of 56% for Morocco is below the 58% of Spain in 1971 or the 63%
of Greece in that same year. Education levels are 45 years behind southern Europe, so
we do not see how Morocco can achieve Spain’s current level of per capita GDP in the
next 25 years. By comparison, Romania had 73% secondary school enrolment in 1971
and Poland had 74%. Unfortunately that high level of education could not offset the
income damage caused by communism – hence central Europe being poorer than
southern Europe today.
Figure 10: Secondary school gross enrolment rates (%)
Poland 1971 74 Romania 1971 73 Greece 1971 63 Spain 1971 58 Morocco 2007 56 Egypt 2004 79 Kenya 2009 59 Nigeria 2007 30
Source: UNESCO
In addition, EU membership has two important effects on the investment climate that
should benefit eastern Europe but not Morocco. First, the EU gives 3-4% of GDP a year
to east European EU member states. Nearly half goes to the agricultural sector and the
remainder mainly focuses on infrastructure. Morocco will not get such inflows (although
Gulf money does help).
Second, EU membership improves the legal climate. The Renaissance Capital legal score
for Morocco was around 40/100 (similar to Colombia or Ghana) in our most recent
update. This compares to around 65 for Romania and over 80 for Poland and the Czech
Republic. As we have written previously3, EU membership appears to lift the legal score
well above what per capita GDP data alone might suggest was likely.
This makes east European EU member states a more trusted investment destination for
foreign direct investment (FDI). FDI decision makers do not need to think about the same
level of potential risks when they invest in EU member states as they do when they invest
in Morocco.
Having said all that – there is of course a price for everything. Per capita GDP in Morocco
of around $3,000 compares to $9,000 in Romania and over $12,000 in Poland. When
Morocco is this much cheaper than eastern European countries, and because we assume
2 See The final frontier and beyond 28 April 2014 3 See Thoughts from a Renaissance Man: Are you constrained by the law? 31 March 2015
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that differential is likely to last over decades (because of shrinking labour forces in eastern
Europe and a growing labour force in Morocco, as well as education) – it makes sense
that Morocco should now be attracting automotive sector investments.
Note, however, that per capita GDP might be misleading (it is an average that will include
low value-added employees in agriculture). We do not have reliable data on
manufacturing wages. It was announced in April 2015 that the public sector minimum
wage would be raised to MAD3,000 in July 2015, equivalent to EUR278 today. This is
high relative to per capita GDP (28% above Romania, despite Romania’s much higher per
capita GDP). Nonetheless, we know that Renault, which operates in both Romania and
Morocco, has chosen to build up in Morocco too – implying this makes economic sense
for the company – and is not just investment directed by Paris for political reasons.
Figure 11: Morocco has quite a high minimum wage relative to its per capita GDP
Source: Reuters, Eurostat
Conclusion
In our opinion, Morocco has the best macro situation of any country in Africa with a
significant equity market. We think there is a good chance of (non-agricultural) growth
picking up from 3% in recent years towards 5% by 2020. Broadening access to banking
services in the medium term and broadening access to education in the longer term mean
we are pretty bullish on this country. We are struggling to identify risks but then so is the
IMF in its latest positive reports.
Morocco – Equity Strategy Comment from Daniel Salter
We like Morocco from an equity strategy perspective (particularly against more
challenged markets elsewhere in Africa for Africa funds).
We initiated on Morocco as an equity strategy Overweight in November’s SPECTRE
report.
Since then, Morocco is up 3.3% in dollar terms – on the face of it unexciting, but
actually making Morocco one of the top five performing markets in Frontier, way ahead
of the 9% decline in MSCI Frontier and the top performing African market in MSCI
Frontier or Emerging (the only one in positive territory – Nigeria, Kenya and Egypt are
all down) since then.
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Daniel Salter +44 (203) 379-7824 [email protected]
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We reiterated our Overweight in this month’s The Strategy Show:
Figure 12: Renaissance Capital country summaries – FM (extract)
Country Rec Bull case Bear case
Morocco OW
Morocco is under-owned, yet the currency (and much financing) is euro-linked and not overvalued by our REER measure. The market has de-rated from 19x 12M fwd P/E to 14x over the past 12 months. Investors tell us they are looking for new markets in Africa, given currency questions in Nigeria/Egypt.
Investors tell us that Morocco’s corporate stories are underwhelming – we intend to visit Morocco this quarter to do more work.
Source: The Strategy Show, 19 February 2016
Investors always come back with three pushbacks on Morocco (i) expensive valuations vs
Frontier; (ii) poor liquidity; and (iii) uninspiring corporate stories.
Valuations admittedly have come down, but you still pay 14.7x 12M fwd PER for MSCI
Morocco vs 9.5x for MSCI Frontier, representing a 50% premium. Admittedly, bond yields
in Morocco are very low: 10-year MAD bond yields are about 3.4%, so a premium is fully
justified vs SSA and Egypt, in this strategist’s opinion. This low bond yield might also
tempt local investors to add positions in the equity market that offer a dividend yield of 4-
5%.
Figure 13: MSCI Morocco and Frontier – 12M fwd PER (x)
Source: Bloomberg, Renaissance Capital
On liquidity, the story’s not pretty. There was a burst of liquidity in December 2015, but
that seems to have subsided and over the last month, the market is trading just around
$7.5mn a day (1M ADTV) with only two stocks trading over a million dollars a day (real
estate developer, Douja Promotion and telecoms operator, Maroc Telecom – not
covered). Even market favourite, Bank Attijariwafa (not covered) has traded only $0.9mn
a day over the past month.
We have a BUY rating on Residences Dar Saada (TP MAD 223, CP MAD 152).
As a last aside, this government has not prioritised the stock market. The downgrade from
EM to Frontier status in 2013 was due to a fall in transaction volume that may be a
symptom of this. We doubt this will change in the near term, but the stock exchange is
planning a series of reforms that might encourage more volatility. Allowing short selling is
one such planned reform. The exchange also hopes to see African companies from other
countries list on the exchange, which would give local savings an opportunity to diversify.
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Renaissance Capital 29 February 2016
Thoughts from a Renaissance man
Figure 14: Key data Local currency MAD
GDP/capita, $ (2015) 3,071 Population, mn (2015) 33.7 S&P/Moody's rating BBB-/Ba1 Weight in MSCI FM, % 7.5%
MSCI Index MXMA
2015 P/E, x 15.2 2015 FY EPS growth 7.7% Trailing P/B, x 2.5 Beta to FM 0.3 MSCI full MktCap, $bn 32.6 MSCI free float MktCap, $bn 6.3 No. of companies 9 3M ADTV, $mn, MSCI cos 12.2
Local index MOSEMDX
MktCap, $bn 43.3 No. of companies 54 3M ADTV, $mn 18.4
Figure 15: Index performance
Figure 16: MSCI sector weights
Figure 17: Index and stock data
Ticker Name Sector MktCap FF MktCap 3M ADTV $ performance (%) 12MF Trail 12MF # analyst MSCI
($mn) ($mn) ($mn) 1M 3M 12M P/E (x) PBV (x) RoE (%) Recs wgt (%)
MXMA MSCI Morocco 32,630 6,301 12.2 5.2 4.0 -14.6 15.0 2.5 21.3 47 7.5
IAM MC Maroc Telecom Telecoms 10,551 2,125 1.3 4.8 7.4 -13.4 16.7 6.8 35.2 10 34 ATW MC Attijariwafa Financials 6,796 1,367 5.4 0.4 1.6 -15.6 13.3 1.9 12.3 7 22 LAC MC Lafarge Ciments Materials 3,019 755 1.2 10.4 5.3 -14.6 20.3 6.6 28.2 5 12 BCE MC Banque Marocaine Financials 3,669 566 0.9 -4.4 -5.9 -18.2 15.1 2.2 na 3 9 BCP MC Banque Centrale Financials 3,986 417 1.3 0.8 1.1 -11.8 14.7 1.1 9.4 6 7 ADH MC Douja Prom Addoh Financials 1,033 420 1.6 17.7 12.8 -4.8 8.8 0.9 9.4 4 7 CMA MC Ciments Du Maroc Materials 1,762 352 0.2 10.0 5.6 -2.7 18.3 3.1 16.4 4 6 WAA MC Wafa Assurance Financials 1,127 225 0.2 3.2 -9.6 -30.9 12.1 2.5 16.2 3 4 MNG MC Managem Materials 550 74 0.0 5.7 -30.0 -40.1 na 1.6 8.7 5 1
HOL MC Holcim Materials 899 440 0.1 7.2 2.4 -28.5 16.4 2.3 25.3 4 - TMA MC Total Maroc Sa Energy 515 232 0.2 0.2 -0.4 5.9 na na 39.2 2 - CSR MC Cosumar Cons. Staples 827 231 0.2 8.9 13.4 4.0 10.1 2.2 18.7 5 - TQM MC Taqa Morocco Utilities 1,428 203 1.1 4.2 4.7 15.1 15.7 na 17.5 3 - BCI MC Banque Marocaine Financials 729 186 1.6 2.9 -10.9 -23.1 14.7 0.8 na 2 - LES MC Lesieur Cristal Cons. Staples 341 138 0.2 -0.4 10.6 12.7 15.1 2.3 13.2 5 - ATH MC Auto Hall Cons. Disc. 501 131 0.2 6.2 7.5 5.2 17.5 2.9 14.0 3 - LBV MC Label Vie Cons. Staples 282 123 1.3 -0.7 -1.6 -1.2 na 2.0 8.8 3 - CDM MC Credit Du Maroc Financials 452 114 0.4 1.1 -1.8 -28.0 na 1.0 na 2 -
Figure 18: 3M ADTV, $mn
Figure 19: 12M fwd PE, x
Note: all forward figures for valuations are taken from Bloomberg consensus estimates. Note: 3M ADTV is not representative due to high end-year turnover figures All data as of 25 February 2016
Source for all charts: Bloomberg
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MSCI Morocco, $ MSCI FM, $
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Renaissance Capital 29 February 2016
Thoughts from a Renaissance man
Figure 20: Population, ’000
Source: UN
Figure 21: Export destinations, total $23bn
Source: IMF
Figure 22: CPI average %, CA % of GDP
Source: IMF
Figure 23: Morocco – dirham
Source: Bruegel, Bloomberg
Figure 24: Bank lending growth vs GDP
Source: IMF, Renaissance Capital
Figure 25: Real GDP % change, YoY
Source: IMF
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MAD vs $ MAD vs EUR Morocco REER (Dec 07 = 100)
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Renaissance Capital 29 February 2016
Thoughts from a Renaissance man
Figure 26: Morocco key economic indicators Ratings (M/S&P/F) Ba1/BBB-/BBB- Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Activity
Real GDP (% YoY) 3.3 7.6 3.5 5.9 4.2 3.8 5.2 3.0 4.7 2.4 4.7 3.1 4.2
Investment (% GDP) 27.5 28.1 33.9 39.1 35.0 34.1 35.8 35.0 34.7 33.7 33.3 34.5 35.5
Unemployment rate year-end (%) 11.1 9.7 9.8 9.6 9.1 9.1 8.9 9.0 9.2 9.9 9.8 9.7 9.6
Nominal GDP (lcl bn) 553 604 648 717 748 785 820 848 901 925 1,003 1,048 1,104
Nominal GDP ($bn) 62.3 68.6 79.0 92.5 92.9 93.2 101.4 98.3 107.2 110.0 103.5 108.4 115.3
Population (mn) 30.2 30.5 30.8 31.2 31.5 31.9 32.2 32.6 33.0 33.3 33.7 34.0 34.4
GDP per capita ($) 2,066 2,250 2,563 2,967 2,948 2,927 3,149 3,014 3,250 3,304 3,071 3,188 3,352
Stock of bank credit (lcl, bn) 296 359 462 577 644 715 790 830 859 896 950 1,007 na
Lending/GDP (%) 53.5 59.4 71.4 80.5 86.1 91.2 96.3 97.9 95.3 96.9 90.2 89.8 90.4
Gross domestic saving (% of GDP) 27.3 26.6 31.4 31.9 29.7 29.7 27.9 25.5 26.8 28.2 31.1 32.6 33.6
Prices
CPI (average % YoY) 1.0 3.3 2.0 3.9 1.0 1.0 0.9 1.3 1.9 0.4 1.6 1.5 2.0
CPI (year-end, % YoY) 2.1 3.3 2.0 4.2 -1.6 2.2 0.9 2.6 0.4 1.6 1.6 1.3 2.0
Fiscal balance (% of GDP)
Consolidated government balance -5.9 -1.9 -0.1 0.7 -1.8 -4.3 -6.6 -7.3 -5.2 -4.9 -4.3 -3.5 -3.0
Total public debt (% of GDP) 61.6 56.8 52.0 45.4 46.1 49.0 52.5 58.3 61.5 63.4 63.6 64.4 64.0
External indicators
Exports ($bn) 10.8 12.3 14.5 18.9 13.5 16.6 20.8 17.0 18.3 20.0 18.5 19.9 21.9
Imports ($bn) 20.5 23.3 31.2 40.6 32.4 35.1 43.6 38.9 40.2 40.6 32.5 34.5 37.5
Trade balance ($bn) -9.6 -11.0 -16.8 -21.7 -18.9 -18.5 -22.8 -21.9 -21.9 -20.6 -14.0 -14.6 -15.6
Trade balance (% of GDP) -15.5 -16.0 -21.2 -23.5 -20.4 -19.9 -22.5 -22.3 -20.5 -18.7 -13.5 -13.5 -13.5
Current account balance ($bn) -0.1 -1.1 -2.0 -6.6 -4.9 -4.1 -8.0 -9.3 -8.5 -6.2 -1.6 -0.8 -1.1
Current account balance (% of GDP) -0.2 -1.5 -2.5 -7.1 -5.3 -4.4 -7.9 -9.5 -7.9 -5.7 -1.5 -0.7 -0.9
Net FDI ($bn) 1.6 2.0 2.2 2.2 1.5 0.7 2.4 2.3 3.0 3.1 2.7 3.0 3.2
Net FDI (% of GDP) 2.6 2.9 2.8 2.3 1.6 0.7 2.2 2.3 2.8 2.8 2.6 2.8 2.8
C/A balance plus FDI (% of GDP) 2.4 1.4 0.3 -4.8 -3.7 -3.7 -5.6 -7.2 -5.1 -2.9 1.1 2.1 1.9
Exports (% YoY, value) 9.4 13.3 17.7 30.8 -28.8 23.4 25.2 -18.2 7.6 9.3 -7.5 7.6 10.1
Imports (% YoY, value) 15.1 13.5 34.2 30.1 -20.3 8.5 24.2 -10.8 3.3 1.0 -20.0 6.2 8.7
FX reserves (ex gold, $bn) 16.2 20.3 24.1 22.1 22.8 22.6 20.6 17.5 19.3 20.4 23.5 28.8 32.2
Import cover (months of imports) 9.5 10.5 9.3 6.5 8.4 7.7 5.4 4.6 4.9 5.1 na na na
Gross external debt ($bn) 26.1 28.5 29.2 32.7 31.9 32.7 31.9
Currency and monetary policy
Key policy rate (% YE) 3.3 3.3 3.3 3.5 3.3 3.3 3.3 3.0 3.0 2.8 2.5 2.0 na
Broad money growth (%YoY) 14.1 18.1 17.5 13.3 7.0 4.2 6.4 4.5 3.1 6.2 5.5 6.5 na
Exchange rate (EUR) annual average 11.0 11.0 11.2 11.4 11.2 11.2 11.3 11.1 11.2 11.2 10.8 10.7 10.7
Exchange rate ($) annual average 8.9 8.8 8.2 7.8 8.1 8.4 8.1 8.6 8.4 8.4 9.8 9.6 9.5
Note: 2016-2017E exchange rate forecasts are the IMF implied exchange rates Source: IMF, UNCTAD, Bloomberg
15
Renaissance Capital 29 February 2016
Thoughts from a Renaissance man
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RESIDENCES DAR SAADA S.A. Bloomberg: RDS:MC
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Disclosures appendix
16
Renaissance Capital 29 February 2016
Thoughts from a Renaissance man
Renaissance Capital equity research distribution of ratings
Investment Rating Distribution Investment Banking Relationships*
Renaissance Capital Research Renaissance Capital Research
Buy 144 44% Buy 3 100%
Hold 115 35% Hold 0 0%
Sell 66 20% Sell 0 0%
Under Review 2 1% Under Review 0 0%
Restricted 0 0% Restricted 0 0%
Cov. in Trans. 1 0% Cov. in Trans. 0 0%
328 3
*Companies from which RenCap has received compensation within the past 12 months. NR – Not Rated UR – Under Review
Source: Bloomberg
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Residences Dar Saada share price, target price and rating history
Buy Hold Sell Not covered Cov. in Trans.
Under Review Restricted Suspended Target Price Last Price
Renaissance Capital research team
Head of Research & Turkish Product Michael Harris +44 (203) 379-7982 [email protected]
Deputy Head of Research David Ferguson +7 (495) 641-4189 [email protected]
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Head of South African Research Johann Pretorius +27 (11) 750-1450 [email protected]
Name Telephone number Coverage Name Telephone number Coverage
Macro Oil and gas
Charles Robertson +44 (203) 379-7835 Global Ildar Davletshin +44 (203) 379-7954 EMEA
Yvonne Mhango +27 (11) 750-1488 Sub-Saharan Africa Temilade Aduroja +234 (1) 448-5300 x5363 Sub-Saharan Africa
Oleg Kouzmin +7 (495) 258-7770 x4506 Russia/CIS Evgeny Stroinov +7 (495) 258-7770 x4046 Russia/CIS
Equity strategy Metals and mining
Daniel Salter +44 (203) 379-7824 Global Johann Pretorius +27 (11) 750-1450 South Africa
Michael Harris +44 (203) 379-7982 Turkey Steven Friedman +27 (11) 750-1481 South Africa
Charles Robertson +44 (203) 379-7835 Global Kabelo Moshesha +27 (11) 750-1472 South Africa
Vikram Lopez +44 (203) 379-7974 x8974 Global Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS
Anastasia Burkhanova +7 (495) 258-7770 x4594 Russia/CIS
Financials
Armen Gasparyan +7 (495) 783-5673 Russia, CEE Real estate
Ilan Stermer +27 (11) 750-1482 South Africa Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA
Francois Du Toit +27 (21) 855-2896 South Africa
Adesoji Solanke +234 (1) 448-5300 x5384 Sub-Saharan Africa Telecoms/Transportation
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Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA Artem Yamschikov +7 (495) 258-7770 x7511 Russia/CIS
Omair Ansari +234 (1) 448-5329 CEE Amine Wafy +971 (4) 409-2052 MENA
Consumer/Retail/Agriculture Media/Technology/
David Ferguson +7 (495) 641-4189 Russia/CIS, Africa David Ferguson +7 (495) 641-4189 Russia/CIS, Africa
Kirill Panarin +7 (495) 258-7770 x4009 Russia/CIS, Africa Kirill Panarin +7 (495) 258-7770 x4009 Russia/CIS, Africa
Zaheer Joosub +27 (11) 750-1427 South Africa Ahmed Motara +27 (11) 750-1458 South Africa
Omair Ansari +234 (1) 448-5329 Sub-Saharan Africa/CEE
Olaloye Oyawoye +234 (1) 448-5300 x5377 Sub-Saharan Africa/CEE Fertilisers
Robyn Collins +27 (11) 750-1480 South Africa Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS/MENA/Pakistan
Mohamed Zein +971 (4) 409-2032 MENA Anastasia Burkhanova +7 (495) 258-7770 x4594 Russia/CIS/MENA/Pakistan
Diversified/Industrials Utilities/Electric Equipment
Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS/SSA/Pakistan
Brent Madel +27 (11) 750-1160 South Africa Anastasia Tikhonova +7 (495) 258-7770 x4078 Russia/CIS/SSA/Pakistan
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