Exotix Partners has added Ghana’s and Cameroon’s sovereign bonds as well as the Guaranty Trust Bank bond to its Top-5 picks, while removing Kenya 24s and Nigerian T-bills.

Stuart Culverhouse, Head of Research at Exotix, said: “Ghana and Cameroon are now one of our strongest Buy views in SSA in part as others have been downgraded on either fundamental or valuation grounds.” 

Exotix added Ghana 2026s to its Top-5 with a yield of 9.6% (z-spread 744bp) on a mid- price basis on Bloomberg as of December 1. 

“The bonds have been one of the stronger performers in the EMBI this year, with a total return in the EMBIGD of 25% YTD to cob November 30. This compares to a 9% total return YTD on the overall EMBIGD index,” he said.

The IMF completed the third review of the programme in September, and according to Culverhouse, there has been good progress on the macro-stabilisation front.

He warned, however, that there are now two key risks - the scheduled presidential election, which is due on December 7, and the evidence of fiscal slippage. 

“The budget deficit was reported at 5.9% of GDP against a target for the period of 3.9% of GDP, and this compares to the full year target in the IMF programme of 5.2% of GDP,” he said.

Additionally, the central bank cut interest rates at its November meeting, reducing the policy rate by 50bp to 25.5%.

“Given these risks, and their “proximity”, adding Ghana to our top picks might be a brave call, but we’re willing to take the risk even if there might be a bit of near-term mark to market risk. The election might also be a reason why the bonds have weakened in the last week or so, with the 26s down 2-3 points this week (yield up about 40bp),” said Culverhouse.

Commenting on Cameroon bonds, Culverhouse said: “We add Cameroon 2025s to our Top-5 with a yield of 8.7% (z-spread 664bp) on a mid-price basis on Bloomberg as of December 1.” 

“We see Cameroon as the strongest credit in the CEMAC region, a region where finances are coming under increasing pressure given it has a high dependency on oil (although Cameroon less so), but with the least appetite for any kind of serious structural adjustment. And of course, the bond’s partial AFDB guarantee helps, albeit its nature is somewhat opaque,” he said.

In regard to the Guaranty Trust Bank (GRTBNL) bond, Culverhouse said: “We believe the Guaranty Trust Bank bond still offers value at current levels (mid yield 6.4%, z+503bp). This short-dated bond is less likely to be impacted by a rise in US rates and is still quoted below par. YTD performance at GT Bank has been exceptionally strong. In a uniquely challenging environment, GT Bank has generated a return on equity of over 35%.”

“Fundamentals are similarly strong, in our view. The capital ratio was over 18% at the end of September and GT Bank’s non- performing loans ratio improved to 4.1% in the third quarter. Coverage is approaching 1.9x. We have stressed the asset quality of Nigerian banks with Eurobonds outstanding and GT Bank comes out best. The bank’s NPL ratio could rise to 20% and GT Bank would still maintain an equity/assets ratio of over 15%,” he added.

Exotix’s Top-5 generated an average (unweighted) return of 10.6% since the last update. 

That compares to a return of -4.2% on the EMBIGD over the same period.