The reporting season has started with good news! Zimplow has posted an excellent set of results. I have always been a fan of cash businesses, and Zimplow falls into this category. In the 12months ended December 2009, Zimplow generated nearly $3m. By the end of the period it still had cash amounting to $1m. That is amazing isnt it? for a company that is in the manufacturing sector, making hoes, plows , bolts and nuts, to make a a cool $2.2 million after tax.
This shows you that there is still room for well run companies in the right sector. Zimbabwe's agricultural sector remains a key pillar of the economy with the right policies in place. The company actually saw an increase in its unit sales, even thogh exports were down. Volumes for Mealie Brand its plows and hoes division were up 18% during the year as local distributors started to rebuild their businesses.
These profits were achieved with very little borrowings. I was surprised to see that the company actually has a line on its income statement called Finance income with $57,362. You wont see this line on too many income statements for a long time to come yet Zimplow did it. What is their recipe.
Net Asset Value per share is actually 3 cents at a time the share price is trading at around 2 cents. This is one company that should really be trading above NAV. I wont hesitate to recommend Zimplow as a SOLID BUY.
Enough said!
Want to know more about this company. Visit their website @ http://www.zimplow.co.zw/index.asp
Friday, February 26, 2010
Tuesday, February 23, 2010
Will the GOOD news lift Investor spirits?
It is not often that you get so much good news in one day on the ZSE. Monday saw a comeback by KMAL (to be known as Meikles Limited going foward after a name change was proposed)on the local bourse, after months of uncertainty. PPC became a fully fungible share, joining OLD MUTUAL . (For those not in the picture, you can now sell your PPC shares if you meet certain conditions on the JSE) Why is this so important? Well PPC on the ZSE is trading at a price nearly half that of the JSE price. No prizes guessing what will happen to the ZSE PPC’s in the next few days if not hours!
You will recall last week that we pointed out that all is not well on the ZSE at the momement. Well, aside from the good news on KMAL and PPC, there is very little else to excite pensive investors. For companies looking to raise money, it is even worse. You can buy the whole of Star Africa for a lowly $25m. They are raising $20 million from the market. This is just one example.
What is happening to our listed companies? I wish i had all the answers. Zimbabwe's listed companies are valued at a collective $4bn. Less than 10 companies account for 80% of this value. In my view the market should be at least double this value. The dillemma facing many company executives today is whether to raise money and risk massive dilution or continue the way things are and risk closure. Most have done the sensible thing, dilute and move foward.
For instance brick and mortar used to be very popular during the heydays of inflation. Investors have largely discounted properties. A look at the market capitalisation of property companies, Pearl ($25m), Mash ($23m), Dawn ($33m)and ZPI ($9m),shows that these companies are cheap. When the economy starts growing, rental yields and property values are expected to rise and infact have started to. Limited development of new sites and a shortage of space has seen rentals double in recent weeks.
My take on the ZSE is that, shares are looking cheap but sentiment is bad so prices wont rise in the short-term. There is also a wait and see mood that has gripped the market. Sadly this means that prices will not move anytime soon, except ofcourse if there is some good news on the GPA front as well as other policy news. As the tobacco selling season wears on expect improved liquidity, which can only push up demand in the economy at large. Investors with money to spend are best advised to take advantage of the market weakness, before improved liqudity hits the market.
You will recall last week that we pointed out that all is not well on the ZSE at the momement. Well, aside from the good news on KMAL and PPC, there is very little else to excite pensive investors. For companies looking to raise money, it is even worse. You can buy the whole of Star Africa for a lowly $25m. They are raising $20 million from the market. This is just one example.
What is happening to our listed companies? I wish i had all the answers. Zimbabwe's listed companies are valued at a collective $4bn. Less than 10 companies account for 80% of this value. In my view the market should be at least double this value. The dillemma facing many company executives today is whether to raise money and risk massive dilution or continue the way things are and risk closure. Most have done the sensible thing, dilute and move foward.
For instance brick and mortar used to be very popular during the heydays of inflation. Investors have largely discounted properties. A look at the market capitalisation of property companies, Pearl ($25m), Mash ($23m), Dawn ($33m)and ZPI ($9m),shows that these companies are cheap. When the economy starts growing, rental yields and property values are expected to rise and infact have started to. Limited development of new sites and a shortage of space has seen rentals double in recent weeks.
My take on the ZSE is that, shares are looking cheap but sentiment is bad so prices wont rise in the short-term. There is also a wait and see mood that has gripped the market. Sadly this means that prices will not move anytime soon, except ofcourse if there is some good news on the GPA front as well as other policy news. As the tobacco selling season wears on expect improved liquidity, which can only push up demand in the economy at large. Investors with money to spend are best advised to take advantage of the market weakness, before improved liqudity hits the market.
Tuesday, February 16, 2010
In Shona we have a saying that goes something like "Kutaura seune kamuti mukanwa", loosely translated " Speaking as if you know what is going to happen" That is basically what happened with me this week when i spoke of impending corporate actions in the first quarter. Little did I know that OK one of my punts for 2010 was going to come out with an action of its own!
OK (one of the country retailers) is proposing to its shareholders the issuing of 5000 Convertible Loan Notes with a value of $5m, accompanied by a rights issue of 250,375,133 shares at a price of 6 cents a share to raise $15m. The detailed document is not yet out, so i cant really say much. Once I get it i will be able to say more. For now all i can say is we live in very interesting times. Nothing at all is what it seems. I didnt see this one coming but it all makes sense now.
When we talk about the Zimbabwean economy recovering it so easy to forget about where we are coming from and most importantly how desperate our companies are for capital injection. Infact we think companies are just going to start trading profitably without any investment! Although some companies are trading profitably, they are not where they used to be because over the years management focussed their attention to surviving rather than growing. It takes a radical shift in the mindset to take that leap of faith. Many companies are doing it because they have no choice, waiting will only increase the burden and chances of a total collapse.
When i see a rights issue from a company like OK, I see management that is looking ahead and trying to grow the company. Today OK has a market capitalisation on the ZSE of $50million. Injecting $20m will see the company easily double its current market cap. Not all shareholders will be able to follow their rights, that is the sad reality of our situation, on the other hand without recapitalisation the company which used to be the largest retailer in the country will be left behind if not forgoten forever. Its closest rival SPAR is opening new stores. New equity allows the company to restock its stores, refurbish or open new stores etc, thereby remaining relevant.
2010 is certainly a different year in many respects. Breaking with tradition, the tobacco selling season began today (16/02/2010, a whole two months before its normal date.) We need the cash man! Remember in Zimbabwe all tobacco must be purchased from off-shore funds. This is a direct injection of cash into our economy. Some curious statistic that i read is that last year's tobacco crop contributed 26% to the country's GDP. Last year only 42million kgs of tobacco was sold at an average price of $3.60 per kg, generating some $150m.
Those who read the papers last year will recall the number of stories about traders reporting brisk business as small-scale tobacco farmers bought anything they could lay their hands on with their cash. What was not bought! Cars,Fridges, Stoves, Generators, hoes, tractors, trailers, you name it! Many expect and with good reason too that there is going to be a replay of this again in 2010. The crop is expected to be around 77 million kgs and if we are to assume that prices average $3,60 again, the sale will generate close to $280 million. To put this into perspective that is over 70% of what was traded on the ZSE in 2009.
I spoke to a farmer yesterday who is still curing his tobacco. He welcomed the early opening of the auction floors because he would be able to liqiduate his loans earlier that usual, easing his interest burden. On the downside he pointed out that buyers would be slow in participating because they wanted a properly cured bale. So expect lower prices to start off with.
Just so you know, there a few stocks directly related to the size and fortunes of tobacco crop in Zimbabwe. These are TSL, HUNYANI, CHEMCO.
OK (one of the country retailers) is proposing to its shareholders the issuing of 5000 Convertible Loan Notes with a value of $5m, accompanied by a rights issue of 250,375,133 shares at a price of 6 cents a share to raise $15m. The detailed document is not yet out, so i cant really say much. Once I get it i will be able to say more. For now all i can say is we live in very interesting times. Nothing at all is what it seems. I didnt see this one coming but it all makes sense now.
When we talk about the Zimbabwean economy recovering it so easy to forget about where we are coming from and most importantly how desperate our companies are for capital injection. Infact we think companies are just going to start trading profitably without any investment! Although some companies are trading profitably, they are not where they used to be because over the years management focussed their attention to surviving rather than growing. It takes a radical shift in the mindset to take that leap of faith. Many companies are doing it because they have no choice, waiting will only increase the burden and chances of a total collapse.
When i see a rights issue from a company like OK, I see management that is looking ahead and trying to grow the company. Today OK has a market capitalisation on the ZSE of $50million. Injecting $20m will see the company easily double its current market cap. Not all shareholders will be able to follow their rights, that is the sad reality of our situation, on the other hand without recapitalisation the company which used to be the largest retailer in the country will be left behind if not forgoten forever. Its closest rival SPAR is opening new stores. New equity allows the company to restock its stores, refurbish or open new stores etc, thereby remaining relevant.
2010 is certainly a different year in many respects. Breaking with tradition, the tobacco selling season began today (16/02/2010, a whole two months before its normal date.) We need the cash man! Remember in Zimbabwe all tobacco must be purchased from off-shore funds. This is a direct injection of cash into our economy. Some curious statistic that i read is that last year's tobacco crop contributed 26% to the country's GDP. Last year only 42million kgs of tobacco was sold at an average price of $3.60 per kg, generating some $150m.
Those who read the papers last year will recall the number of stories about traders reporting brisk business as small-scale tobacco farmers bought anything they could lay their hands on with their cash. What was not bought! Cars,Fridges, Stoves, Generators, hoes, tractors, trailers, you name it! Many expect and with good reason too that there is going to be a replay of this again in 2010. The crop is expected to be around 77 million kgs and if we are to assume that prices average $3,60 again, the sale will generate close to $280 million. To put this into perspective that is over 70% of what was traded on the ZSE in 2009.
I spoke to a farmer yesterday who is still curing his tobacco. He welcomed the early opening of the auction floors because he would be able to liqiduate his loans earlier that usual, easing his interest burden. On the downside he pointed out that buyers would be slow in participating because they wanted a properly cured bale. So expect lower prices to start off with.
Just so you know, there a few stocks directly related to the size and fortunes of tobacco crop in Zimbabwe. These are TSL, HUNYANI, CHEMCO.
Friday, February 12, 2010
Investors react negatively to the empowerment law
The ZSE ended on a very depressing note in a week full of negative news. News of the signing into law of an empowerment bill jolted investors resulting in some heavyweight counters posting huge losses. Old Mutual which trades on the JSE and LSE fell to $1.40 from $1.55 last week. On the JSE Old Mutual touched an equivalent of $1.60 in early trades before rounding the day weaker at around $1.57, creating a gap of almost 12.2% with the ZSE price. Econet, one of my favorite stocks in 2010, bucked the trend, gaining some 14 cents from last Friday price of $4,86.
The service industry and retail counters remain popular with investors it seems. Manufacturing counters on the other hand remain week. Today saw an announcement by Star Africa that it is to embark on a capital raising exercise. The jury is still out on their timing of this transaction. No-one can blame them, money must be raised. Who saw the Empowerment bill muted in 2007 becoming law at a time when we are all trying to smart from one of the worst crises ever! Star Africa dropped to 8.5 cents from 10 cents last week.
As pointed out previously, we will see a lot of corporate actions in coming weeks as companies try and restructure their balance sheets.
The service industry and retail counters remain popular with investors it seems. Manufacturing counters on the other hand remain week. Today saw an announcement by Star Africa that it is to embark on a capital raising exercise. The jury is still out on their timing of this transaction. No-one can blame them, money must be raised. Who saw the Empowerment bill muted in 2007 becoming law at a time when we are all trying to smart from one of the worst crises ever! Star Africa dropped to 8.5 cents from 10 cents last week.
As pointed out previously, we will see a lot of corporate actions in coming weeks as companies try and restructure their balance sheets.
Monday, February 8, 2010
Money market is back too!
We have all been wondering why everything is at a standstill, why there just doesnt seem to be a way out. The economy is ticking along, growth predictions vary from 3.5% to as high as 7%. Great news! The economy shrunk by more than 40% in the last decade. You would think that this good news would be propelling the market forward but no! The stock market has just gone to sleep and for now it just looks like Investors have simply decided to wait for some catalyst! Could it be an anncouncement from the 3 Principals of the GNU, could it be results from the blue chips such as Econet, Delta, Innscor etc out later this quarter. Whatever it is, as long as it is positive news, our market will take off.
For now however we will have to wait and see what happens. Whilst we wait its important to take stock of what is happening around in the investment markets. Clearly the landscape has changed. We can now talk of having an investment on the money market. This is probably why the stock market is also quiet. There is now a real competing asset class, money market.
It is not common knowledge that there are increasingly attractive interest rates that are being offered in Zimbabwe. On the 30-90 day window, rates are ranging from 16-22%. It is also not a secret that most corporates in Zimbabwe are looking for moeny. So liquidity is generally tight. The little money that is available is going to the highest bidder. Rates of between 3 - 6% per month have been thrown around. Now you do your maths and you will agree with me that these rates are very high. Say you put away $10,000 at 16% for 30 days, you will get an investment return of $107 in 30 days after taxes. After 12 months you get $1360 compounded. That is almost a guaranteed return, unless something terrible happens!
In the hyperinflationary environment we all (risk averse investors included ) rushed to the stock market in order to preserve value. Now that money is real there is no pressure on all of us to invest in one asset class. Infact some investors are finding there way back to the money market. Unfortunately there are no clear benchmarks yet on rates because of the absence of government paper, such as Treasury bills and other treasury instruments.
I read an interesting analysis from a collegue which showed that the stock market's performance since the beggining of the year was fairly good and quite comparable to that of a short term money market investment. If you invested $10,000 on the industrial index you would get a gross return of 2.98% in the month of January 2010 compared to a gross return of 1.33% on the money market for the same period. If you had the guts to stomach the risk of putting your money with some of the higher paying banks, you could get more than 2% per month.
This is exciting news isnt? You can actually get an investment return from the money market that is real and the stock market is more stable than before. There some shares that grew by much more than the 2.98% noted above. This is the reason why most seasoned investors will argue that the stock market remains the best vehicle if you want to realise high returns. I agree 100% with that idea, but i am also saying that the time to have a balanced portfolio has arrived. You need to put some of your money on the money market too. After all Zimbabwe is probably the only country in Afica that is giving you double digit US dollar interest rates.
A word of caution to those who wish to invest in the money market. You will be offered very attractive rates but that does not mean ignore the risk profile of the investment house or bank taking your money. If the rate is too be good to be true it probably is! Some companies are paying as much as 6% per month interest as they are desperate to meet working capital demands. This is clearly unsustainable and decreases the investors' chance of getting their money back.
For now however we will have to wait and see what happens. Whilst we wait its important to take stock of what is happening around in the investment markets. Clearly the landscape has changed. We can now talk of having an investment on the money market. This is probably why the stock market is also quiet. There is now a real competing asset class, money market.
It is not common knowledge that there are increasingly attractive interest rates that are being offered in Zimbabwe. On the 30-90 day window, rates are ranging from 16-22%. It is also not a secret that most corporates in Zimbabwe are looking for moeny. So liquidity is generally tight. The little money that is available is going to the highest bidder. Rates of between 3 - 6% per month have been thrown around. Now you do your maths and you will agree with me that these rates are very high. Say you put away $10,000 at 16% for 30 days, you will get an investment return of $107 in 30 days after taxes. After 12 months you get $1360 compounded. That is almost a guaranteed return, unless something terrible happens!
In the hyperinflationary environment we all (risk averse investors included ) rushed to the stock market in order to preserve value. Now that money is real there is no pressure on all of us to invest in one asset class. Infact some investors are finding there way back to the money market. Unfortunately there are no clear benchmarks yet on rates because of the absence of government paper, such as Treasury bills and other treasury instruments.
I read an interesting analysis from a collegue which showed that the stock market's performance since the beggining of the year was fairly good and quite comparable to that of a short term money market investment. If you invested $10,000 on the industrial index you would get a gross return of 2.98% in the month of January 2010 compared to a gross return of 1.33% on the money market for the same period. If you had the guts to stomach the risk of putting your money with some of the higher paying banks, you could get more than 2% per month.
This is exciting news isnt? You can actually get an investment return from the money market that is real and the stock market is more stable than before. There some shares that grew by much more than the 2.98% noted above. This is the reason why most seasoned investors will argue that the stock market remains the best vehicle if you want to realise high returns. I agree 100% with that idea, but i am also saying that the time to have a balanced portfolio has arrived. You need to put some of your money on the money market too. After all Zimbabwe is probably the only country in Afica that is giving you double digit US dollar interest rates.
A word of caution to those who wish to invest in the money market. You will be offered very attractive rates but that does not mean ignore the risk profile of the investment house or bank taking your money. If the rate is too be good to be true it probably is! Some companies are paying as much as 6% per month interest as they are desperate to meet working capital demands. This is clearly unsustainable and decreases the investors' chance of getting their money back.
Tuesday, February 2, 2010
Trading
Could the year 2010 be a year for traders? (Traders are investors who try and make money by timing the market, they try and buy low and sell high.) It is an art that is learnt over time never perfected. In my view it is not easy to buy something at its lowest level and sell out of the position at the very peak. If it was, we would all be retired by now. Still, with a bit of help from technical analysis and trend reading, money has been made. Some investors who have used this approach claim that they know the exact time to get in and out of the market. Having tried it myself a few years ago, it does work but with limitations. There is strong evidence that it will work if you very close to the market or invest with people who are. The ZSE has seen wide fluctuations in share prices, which make it possible for investors to trade profitably.
The study of trends and market behaviour is called Technical analysis and has been used by many investors to decide on when to get in and out of the market. Indeed in some cases, those who use these tools will even tell you that a price will not fall below a certain level and when this is the case its time to buy. When it reaches a certain price on the way up and doesn’t go above it, they will tell you it is its resistance level and therefore time to sell.
I chose to relate this to our local market this week because I have seen wide fluctuations on a number of shares and I believe that with the right tools and advice these can be exploited. Don’t get me wrong you are not going to get all your reads right every time but you are going to make some money on most of them. I say this because I have witnessed this behaviour unfold on the ZSE quite a few times.
Counters like Innscor (63-72cents), Mash (1.2-2cents), CBZ (15-20cents) Seedco (85-105cents). Around the second week of January Innscor was trading at 72c. Today the price has fallen to 65 cents, a difference of 9%. Take out the in and out trading costs of 4.21%; you are left with a decent 5% profit in two weeks. This is just one example of a trading opportunity. It sounds simple but it is not easy to do. There are few factors that will make the scenery I describe above difficult to replicate or even repeat with different counters.
When you buy in a market like the ZSE where the direction of the market is dependent on news and external liquidity you can never be too sure of anything, so be prepared to hold on to your position and wait for the right time to sell. Another problem is a human trait that is found in all of us. Greed! Once a share price rises we think it is going to rise even further and so we hold until everyone else starts selling and then we fail to benefit from our positions.
What I have been describing above is a short-term investment strategy. In the long-term it always pays to pick growth oriented and value stocks as I discussed in my article last week. Blue chips will always perform in the medium to long-term. In the short term these stocks may not look very attractive and there is no reason for you not to take advantage of these trading positions. Infact the more the market is volatile the better it is for traders. Happy hunting!
The study of trends and market behaviour is called Technical analysis and has been used by many investors to decide on when to get in and out of the market. Indeed in some cases, those who use these tools will even tell you that a price will not fall below a certain level and when this is the case its time to buy. When it reaches a certain price on the way up and doesn’t go above it, they will tell you it is its resistance level and therefore time to sell.
I chose to relate this to our local market this week because I have seen wide fluctuations on a number of shares and I believe that with the right tools and advice these can be exploited. Don’t get me wrong you are not going to get all your reads right every time but you are going to make some money on most of them. I say this because I have witnessed this behaviour unfold on the ZSE quite a few times.
Counters like Innscor (63-72cents), Mash (1.2-2cents), CBZ (15-20cents) Seedco (85-105cents). Around the second week of January Innscor was trading at 72c. Today the price has fallen to 65 cents, a difference of 9%. Take out the in and out trading costs of 4.21%; you are left with a decent 5% profit in two weeks. This is just one example of a trading opportunity. It sounds simple but it is not easy to do. There are few factors that will make the scenery I describe above difficult to replicate or even repeat with different counters.
When you buy in a market like the ZSE where the direction of the market is dependent on news and external liquidity you can never be too sure of anything, so be prepared to hold on to your position and wait for the right time to sell. Another problem is a human trait that is found in all of us. Greed! Once a share price rises we think it is going to rise even further and so we hold until everyone else starts selling and then we fail to benefit from our positions.
What I have been describing above is a short-term investment strategy. In the long-term it always pays to pick growth oriented and value stocks as I discussed in my article last week. Blue chips will always perform in the medium to long-term. In the short term these stocks may not look very attractive and there is no reason for you not to take advantage of these trading positions. Infact the more the market is volatile the better it is for traders. Happy hunting!
Subscribe to:
Comments (Atom)