The sad reality on the Zimbabwe Stock market today is that more than 80% of listed counters are undervalued and yet investors continue to sell out of positions they have long held. For some, these positions have been held from as far back as 1997 when the currency began to weaken and for many during the heydays of hyperinflation in 2007/8, when it was fashionable to be holding real assets. I looked at the Price/earnings ratios of all listed companies today and found many to be trading below the market average of 12x. Some solid counters are trading below 5x most around 7x. A number, such as Old Mutual are trading on a dividend yield of almost 2% and BAT has a dividend yield of 7%.
Our Stock market is being held hostage by a number of things we never imagined could stall progress since dollarization. I met with some guys who were promoting their company the other day and the minute a colleague of mine said, “Until the referendum and elections are out of the way there will be very little investment or activity in .....” My colleague was cut off mid-sentence. “The problem is that we keep saying this and use it as an excuse not to make business decisions and its getting us nowhere as businesses” the business promoter cut in abruptly.
He went on to explain that this is why the economy is not growing and why deals are not happening that can create jobs and grow the country’s GDP. I found this quite amusing not because it wasn’t true, but because here is someone who wanted investors to come into his project, with no money of his own, asking someone else to put our money in his! We are all in the same boat and want desperately to see the situation changing for the better.
Whats more the results that are being released covering the first six months of the year are coming in mixed. Companies involved in the real sector of our economy are now posting lower earnings and are failing to increase their sales.
How many people have money and are taking their chances or making a call to invest in Zimbabwe today? Very few, most of us are in the situation that most businesses are in. There is no cash to spare and we are knee deep in debt! The figures that have been pushed around on FDI are improving on year on year basis but nowhere near what they were when the country was at its peak.
The environment is very much better than the 80s or 90s when inflation was rising and businesses were trading in a weakening currency. You can barely say the same of liquidity conditions today. “ A US dollar is a US dollar”! But the dollars are becoming scarce. This is a mere reflection of how difficult things for most people. If things were easy, no-one would really worry about someone from Japan, India or Europe coming in to setup a business that they own 100%. This doesn’t make it right for us to stop investors from coming into our economy and setting up by setting onerous legislation. It doesn’t solve the problem that the country is facing. We need money to flow in, we need jobs, we need to export, we need technology transfer, we need new markets. The list goes on and on.
Every now and then when I get a chance I watch Bloomberg and CNBC and a story or two catch my attention. A story about the tax regime in the States caught my attention this week. A US company executive was speaking on why American companies that are creating jobs outside America should be punished by higher corporate taxes than local American companies. It is like saying run your business in the US when your biggest market is Africa. The guy did well as he mentioned that for his business markets where outside America and that is why it made sense for his company to setup a business in that market. What he did mention was that it was also cheaper to produce there etc. Should companies be penalised for doing what makes perfect economic sense?
It just got me thinking about our own situation as a country where we are not seeing any response from Tax authorities that encourages companies to invest locally even under the stricter company ownership laws. Imagine if there was a law that incentivised 51% locally owned companies to be formed via a lower tax rates or other fiscal benefits. We should be putting in place laws that encourage our businesses local or foreign to employ more, invest more etc. I rest my case.
Friday, August 31, 2012
Friday, June 8, 2012
Business evolution part 2
Zimplow (market cap $24m) has issued a cautionary advising shareholders that it is seeking their permission to acquire 57% of Tractive Power Limited (market cap $18m). For those not in the know Zimplow is one of the country's oldest OX-drawn implements manufacturers() while Tractive is also a long established supplier of tractors and mining eqiuipment visit here for a full profile . I am really impressed by management's move especially after my blog on their future which can be read here.
Tractive is one of the investments being sold by the RBZ in its long drawn restructuring exercise. Zimplow is a manufacturing company that has survived the harsh economic environment of yesteryear. Although this acquisition was largely unexpected, it makes perfect sense and is a sure way of ensuring that Zimplow survives for years to to come. Most farming equipment suppliers the world over had long made the move to diversify their income sources. Zimplow has really done well on this one!! Market watchers are a little surprised that Zimplow which appears large in terms of market capitalisation has pulled off this deal in a company that should in practice be larger than them, if you read their profile.
If everything goes according to management's plan, this deal is a deal made in heaven for Zimplow shareholders for a number of reasons. Apart from building a a diversified business, Zimplow will have access to new markets and customers, at a scale they could never have managed on their own. The enlarged business will scale up and enjoy economies of scale. And most importantly a combined market cap of over $50m will push Zimplow towards the bigger cap counters on the ZSE if they decide to buy out minorities at some stage. So all in all this is good for everyone!!
Tractive is one of the investments being sold by the RBZ in its long drawn restructuring exercise. Zimplow is a manufacturing company that has survived the harsh economic environment of yesteryear. Although this acquisition was largely unexpected, it makes perfect sense and is a sure way of ensuring that Zimplow survives for years to to come. Most farming equipment suppliers the world over had long made the move to diversify their income sources. Zimplow has really done well on this one!! Market watchers are a little surprised that Zimplow which appears large in terms of market capitalisation has pulled off this deal in a company that should in practice be larger than them, if you read their profile.
If everything goes according to management's plan, this deal is a deal made in heaven for Zimplow shareholders for a number of reasons. Apart from building a a diversified business, Zimplow will have access to new markets and customers, at a scale they could never have managed on their own. The enlarged business will scale up and enjoy economies of scale. And most importantly a combined market cap of over $50m will push Zimplow towards the bigger cap counters on the ZSE if they decide to buy out minorities at some stage. So all in all this is good for everyone!!
Wednesday, March 7, 2012
Liquidity problems
Could this be the year for Blue Chips? Going by the results that have been trickling out since the reporting season started; it could very well be! The last 6 months of 2012 and possibly January and February 2012 have been difficult months for many companies in terms of growing sales. Not even promotions will cut it when people have generally less in their pockets to spend. Costs, especially rentals and wage costs have also put downward pressure on margins. This has been quite clear in a number of trading updates given since the year started.
The first confirmation of this disturbing trend came this week from Truworths. Sales for the retail clothing company were down in the six months ended December 2011 by 10%. There is nothing wrong with Truworths – http://www.truworths.co.zw as a company; many will agree it is among the better run companies on the ZSE. When you are broke and there is little credit available you have no choice but to postpone unnecessary purchasing decisions. Let us be honest the last thing you will think of when ‘money is tight’ is to buy a new suit or shoes. What you can’t do without you will make a plan e.g. food and beverages! OK, Delta, Econet, Innscor and could very escape with fewer bruises than most.
What is my point in all this? Truworths is a well run company but sometimes when liquidity is as tight as it has been there is very little that you can do to raise sales. You can run promotions and offer the best deals in town but customers have no money, they can’t buy. The ball is firmly in the government’s court on this one. Without the right moves being made to encourage the loosening of the noose tying our economy, few companies will be able to report good sales figures next year. Without alarming anyone, this is just the sad reality. A number of companies have already reported that demand is not the problem (Cafca, Turnall) but the problem is people want things that they can’t afford to pay for right now. How many companies sold some goods and discovered that people couldn’t pay after the sale had been completed? What will happen to these bad debts?
As things continue to get better in our economy consumer wish lists are getting longer! But there is simply no cash so a lot of the demand in economy remains unmet. One of things I remember being taught in my college economics class was that the government particularly the Ministry of Finance (Reserve Bank included) has tools that can be used in controlling the flow of money in an economy. The most direct being cutting taxes in order to leave more in the tax payer pocket! When the consumer has more to spend government generates more taxes and creates jobs etc.
If the truth be told, economic growth is shaped by the players in an economy and most of these players, especially the ones involved in what are considered luxury commodities will not grow this year, meaning the government will end up collecting less than it collected last year in taxes. My advice to the government is to arrest this decline without further delay as the consequences of reduced fiscal revenue will only make things worse. We are already halfway through the first quarter and the pace of economic activity is slowing down. Each day the government delays implementing measures that encourage an immediate improvement in the liquidity in our economy, is a step backwards for the economy. It is also time to take stock of our investment promotion policies.
I have just been to a Fidelity analyst briefing were I have been forced to eat some, but not all of the words I was writing. The company posted a strong set of results for 2011 driven by high premium growth, contained claims and a huge growth in investment income. When I say huge growth in investment income, how does a growth of 524% sound to you? Unreal! Well that’s what I thought. But the company actually has $4,8m dollar cash stash to validate their results. Impressive I say.
What this shows is that it won’t be all doom and gloom for all Zimbabwean companies; there are some that have found a way of beating the ‘system’ – cash shortages etc. These companies are unfortunately not common and the jury is still out on whether such earnings are sustainable, after all the economy doesn’t lie!
The first confirmation of this disturbing trend came this week from Truworths. Sales for the retail clothing company were down in the six months ended December 2011 by 10%. There is nothing wrong with Truworths – http://www.truworths.co.zw as a company; many will agree it is among the better run companies on the ZSE. When you are broke and there is little credit available you have no choice but to postpone unnecessary purchasing decisions. Let us be honest the last thing you will think of when ‘money is tight’ is to buy a new suit or shoes. What you can’t do without you will make a plan e.g. food and beverages! OK, Delta, Econet, Innscor and could very escape with fewer bruises than most.
What is my point in all this? Truworths is a well run company but sometimes when liquidity is as tight as it has been there is very little that you can do to raise sales. You can run promotions and offer the best deals in town but customers have no money, they can’t buy. The ball is firmly in the government’s court on this one. Without the right moves being made to encourage the loosening of the noose tying our economy, few companies will be able to report good sales figures next year. Without alarming anyone, this is just the sad reality. A number of companies have already reported that demand is not the problem (Cafca, Turnall) but the problem is people want things that they can’t afford to pay for right now. How many companies sold some goods and discovered that people couldn’t pay after the sale had been completed? What will happen to these bad debts?
As things continue to get better in our economy consumer wish lists are getting longer! But there is simply no cash so a lot of the demand in economy remains unmet. One of things I remember being taught in my college economics class was that the government particularly the Ministry of Finance (Reserve Bank included) has tools that can be used in controlling the flow of money in an economy. The most direct being cutting taxes in order to leave more in the tax payer pocket! When the consumer has more to spend government generates more taxes and creates jobs etc.
If the truth be told, economic growth is shaped by the players in an economy and most of these players, especially the ones involved in what are considered luxury commodities will not grow this year, meaning the government will end up collecting less than it collected last year in taxes. My advice to the government is to arrest this decline without further delay as the consequences of reduced fiscal revenue will only make things worse. We are already halfway through the first quarter and the pace of economic activity is slowing down. Each day the government delays implementing measures that encourage an immediate improvement in the liquidity in our economy, is a step backwards for the economy. It is also time to take stock of our investment promotion policies.
I have just been to a Fidelity analyst briefing were I have been forced to eat some, but not all of the words I was writing. The company posted a strong set of results for 2011 driven by high premium growth, contained claims and a huge growth in investment income. When I say huge growth in investment income, how does a growth of 524% sound to you? Unreal! Well that’s what I thought. But the company actually has $4,8m dollar cash stash to validate their results. Impressive I say.
What this shows is that it won’t be all doom and gloom for all Zimbabwean companies; there are some that have found a way of beating the ‘system’ – cash shortages etc. These companies are unfortunately not common and the jury is still out on whether such earnings are sustainable, after all the economy doesn’t lie!
Friday, February 24, 2012
Business evolution
On my way back from the Zimplow analyst briefing yesterday something crossed my mind and I shared it with a colleague. “African farmers will not use hoes and ox-drawn ploughs. 10 years from now farmers could be tilling the land using better, cheaper and easier technology.” What is profound about this is that it is so true and somewhat frightening. We already use tractors don't we? Somewhere in Asia they even push tractors. The world is evolving very quickly, and one day we won’t be relying on these implements. It may not be next year or even in our lifetime. My question is what are Zimbabwean companies doing to ensure that they are in existence and still building shareholder value 5 or even 10 years from now.
In an earlier article (16 November 2010) I wrote about business models and I focused among other things on how businesses such as Delta were anchored on the premise that people drink beverages. That habit will probably never change at least not in our life time. You can read it here http://briefviews.blogspot.com/2010/11/business-models.html. Will Zimplow be producing the same ‘badza’ (hoe) and gejo (plough) and still find customers for it? A friend of mine shared with me a book called “ The Singularity is near written by Ray Kurzweil.” I haven’t read it myself but I saw a few excerpts that were fascinating and insightful. The little that I gleaned from this book left me with little doubt this guy was onto something not that I agree that computers should be part of our bodies etc. I agree with the fact that things are changing and one can be left behind if they are unprepared to embrace or profit from them.
All I am asking is are we preparing for the future enough? Or we are just doing what our predecessors have always done and hope that it will never change. In this week’s press there was an article that caught my attention. Scores or clothing companies have been closing down every year because of cheap imports, high labour costs etc. Yet Zimbabwe has some of the best tailors and cotton! There are several other companies in our other industries facing the same plight in Zimbabwe and are on the brink of collapse.
Do Zimbabwean companies purposefully invest in Research and Development? I love getting dividends but would rather hear a company saying that they are forgoing paying a dividend because they are investing in the new way of ensuring that profits continue growing. It will be interesting to see how companies like Zimplow evolve. Time will tell.
In an earlier article (16 November 2010) I wrote about business models and I focused among other things on how businesses such as Delta were anchored on the premise that people drink beverages. That habit will probably never change at least not in our life time. You can read it here http://briefviews.blogspot.com/2010/11/business-models.html. Will Zimplow be producing the same ‘badza’ (hoe) and gejo (plough) and still find customers for it? A friend of mine shared with me a book called “ The Singularity is near written by Ray Kurzweil.” I haven’t read it myself but I saw a few excerpts that were fascinating and insightful. The little that I gleaned from this book left me with little doubt this guy was onto something not that I agree that computers should be part of our bodies etc. I agree with the fact that things are changing and one can be left behind if they are unprepared to embrace or profit from them.
All I am asking is are we preparing for the future enough? Or we are just doing what our predecessors have always done and hope that it will never change. In this week’s press there was an article that caught my attention. Scores or clothing companies have been closing down every year because of cheap imports, high labour costs etc. Yet Zimbabwe has some of the best tailors and cotton! There are several other companies in our other industries facing the same plight in Zimbabwe and are on the brink of collapse.
Do Zimbabwean companies purposefully invest in Research and Development? I love getting dividends but would rather hear a company saying that they are forgoing paying a dividend because they are investing in the new way of ensuring that profits continue growing. It will be interesting to see how companies like Zimplow evolve. Time will tell.
Tuesday, February 21, 2012
Head on the block
Zimplow (http://www.zimplow.co.zw) will be the first company to put its head on the block when it releases its full year results covering the period January to December 2011 on Thursday the 23rd of February 2012. The market already knows one or two things about these results judging from the share price movement in recent days! They must be good! The share price which had dropped to 6c is trading just short of 9c, a 50% jump in one week. WOW!Some will say dont read too much into this. i have witnessed this trend being repeated over and over again in Zimplow and a few other counters over the years.
Zimplow’s half year results to June 2011 met the market’s expectations and the fact that no interim dividend was declared on account of the need to conserve cash meant that the market was indifferent, as the price more or less stayed the same. The company was one of the first to declare a dividend in the dollarized environment and being predominantly a cash business it is expected to continue paying a dividend. The company’s management is very aggressive and at the company’s AGM last year they said they were confident they would post results that were above an earlier guidance given to analysts at Interim stage. Aggression is good but I hope a few lessons have been learnt after the company had $400,000 trapped in soon to be resuscitated Renaissance Merchant Bank.
NSSA has generously rescued the company and its shareholders from a potentially embarrassing loss of value! If management announces that they have since recovered that money, the share price could jump based on this news as it means the company will be able to pay a handsome dividend.
I always want to look at both sides of the coin. Steel prices, fuel costs, transportation costs might diminish operating margins going forward; impacting on the company’s bottom line. The Agricultural sector is in its third straight year of growth and this is good news for Zimplow, which is a direct beneficiary of increased output. I particularly like the company's business model which is really a simple one, turn steel into implements, nuts and bolts that are direct inputs in productive sectors of the economy. The company is and will always be a clear barometer of what is happening in our economy, and i sense that Thursday will be a good day as the company releases its results. Those of you who enjoy charts can enjoy the Zimplow chart below covering a three year period. Notice how the share price seems to move in steps. Could we see Zimplow stepping up again in coming weeks.
It will be important to see how the well documented liquidity challenge will have affected the company. The second half of the year is always good for the company. The coming back on stream of Zisco (now Newsteel) will reduce operating costs etc and may very well improve margins in the future. This is one good company that has got lot going for it, I say. There you have it, Let us see what Thursday has in store for us.
Sunday, February 5, 2012
Old Mutual comes to the rescue!
What a week last week was. I recall pointing out that the year 2012 was to be a year of corporate actions and my observation is proving to be correct. Last week alone we heard from Ariston, CFI and Rio Zim, Aico. They were all advising investors to exercise caution as they were engaged in one activity or two. The most significant of them all is the news that Rio Zim has secured $35m which will allow it to move foward if banks and creditors accept the proposal. I am personally pleased with the fact that one of the largest shareholders in the company Old Mutual has stepped foward to rescue its investment. (totally unrelated to this there was also news that Old Mutual will be issuing a special dividend to its shareholders of 1billion pounds, more on this when i find out more)
When the price of Rio was plummeting on the back of threats to place it under judicial management i was one of those who wondered why this should happen at all. After all Rio Zim is one of the largest listed mining companies in the country at least by assets. I said to myself if management could just sell its 19% in Murowa and wash its hands of Diamonds that surely could add a substantial amount of money that would see it pay off its shareholders and recapitalise its gold business. I guess i wasnt the only thinking this. A solution involving major shareholders is always the best approach to solving any problem within a company and i hope creditors and bankers respect and accept the proposed offer.
Clearly the benefits of having a functional Rio Zim far outweighs the short-term benefit of being paid back. If things return to normal at Rio Zim there will be more jobs created, more business for the current creditors and more deposits for the banks, we all know they need them.
When the price of Rio was plummeting on the back of threats to place it under judicial management i was one of those who wondered why this should happen at all. After all Rio Zim is one of the largest listed mining companies in the country at least by assets. I said to myself if management could just sell its 19% in Murowa and wash its hands of Diamonds that surely could add a substantial amount of money that would see it pay off its shareholders and recapitalise its gold business. I guess i wasnt the only thinking this. A solution involving major shareholders is always the best approach to solving any problem within a company and i hope creditors and bankers respect and accept the proposed offer.
Clearly the benefits of having a functional Rio Zim far outweighs the short-term benefit of being paid back. If things return to normal at Rio Zim there will be more jobs created, more business for the current creditors and more deposits for the banks, we all know they need them.
Tuesday, January 31, 2012
Ensuring Financial Sector Stability....
"Ensuring Financial Sector Stability". What a fitting theme for the Monetary Policy Statement issued by the Reserve Bank of Zimbabwe today. As i read through the document and i am still reading it, (its only 57 pages for a change! straight to point) the underlying theme appears to capture exactly what is happening and what needs to happen in our beloved Zimbabwe.
Its interesting to note that the Global financial crisis has affected everyone in almost equal measure. The uncertainty in the world means few institutions are willing to offer lines of credit to anyone, which in itself means less money to our very own financial institutions and less returns to the lending countries. If Zimbabwe had its own currency would the situation be any different. I personally think it would be worse and i will try and show why. The reason Zimbabwe is where it is today is because Zimbabwe has very few options to play around with interest rates or any other policies to influence the RAND or USD. Its ironic is it not. Investors trust our policies because there is very little we can do. Lets face it our record with managing our own currency is well known and documented. We need more time to redeem ourselves and build confidence back in our economy. Surely it would help if we could print our own currency, its been easy for some countries to do "Quantitative Easing"- printing money in simple english. But has it helped? NO.
For us to have little control is a good thing, because it allows us to focus on other more important things. I think that this is a good thing and should allow our monetary authorities to concentrate on policies that encourage money that is already in the country to stay and attract even more money that is hunting for a good return on capital to come and stay in Zimbabwe. The capital account is in a mess despite the increase in our exports. Imports have ballooned and clearly authorities must find ways of encouraging more exports, assuming that all imports are necessary to close the gap. Strengthening our financial sector and ensuring that money flows freely is also a measure that should be pursued vigorously. After all most of the growth opportunities are here and will be for a long time to come because of the country's abundant primary resources. All the authorities need to do is to ensure that our banks are running properly and are well capitalised.
Its also interesting to note that the level of deposits in the economy has somewhat slowed down and struggling to break $3.3bn, despite significant economic growth. Government Revenue collections are on the rise too, surely this an indication that there is more money circulating in our economy. The smaller banks were singled out as being of less systematic importance - they account for 5% of total deposits in the country. Unfortunately in banking a bank failure is a bank failure and it affects the way we think about all banks. In one of the boldest moves yet the RBZ has given a deadline to under-capitalised institutions to make amends or be shut down. This will certainly lead to a few interesting transactions/or court actions or both in coming weeks! Watch the press! Depositors' funds need to be protected. Its the right thing to do. No capital no bank licence! Why extend and postpone bank failures.
A raft of measures to ensure that banks stay within their mandates was also announced. All this is welcome news and should give depositors some comfort. I hope its not too late though. The acknowledgement of a liquidity challenge whilst welcome is worrying and points to reduced participation of local investors in our markets because of these constraints. What i haven't picked up so far is how the country will attract more inflows into the economy to deal with this challenge. Limiting cash withdrawals for high value transactions of 10,000 will be useful in the short-term but it sends the wrong message to the banking public and may very well encourage them to keep cash at home. I hope that this will be lifted in a week or two.
The introduction of a International Financial Services Centre to ensure the free flow of funds in the country will be a welcome move and one that should be implemented without delay if Zimbabwe is enjoy Foreign Direct Investments and foreign cash inflows in general. For the uninitiated this has worked well in Botswana follow this link http://www.ifsc.co.bw or this IFC review http://www.ifcreview.com/default.aspx
The full monetary policy statement can be downloaded here http://www.rbz.co.zw/pdfs/2012%20MPS/MPS%20JANUARY%202012.pdf
Its interesting to note that the Global financial crisis has affected everyone in almost equal measure. The uncertainty in the world means few institutions are willing to offer lines of credit to anyone, which in itself means less money to our very own financial institutions and less returns to the lending countries. If Zimbabwe had its own currency would the situation be any different. I personally think it would be worse and i will try and show why. The reason Zimbabwe is where it is today is because Zimbabwe has very few options to play around with interest rates or any other policies to influence the RAND or USD. Its ironic is it not. Investors trust our policies because there is very little we can do. Lets face it our record with managing our own currency is well known and documented. We need more time to redeem ourselves and build confidence back in our economy. Surely it would help if we could print our own currency, its been easy for some countries to do "Quantitative Easing"- printing money in simple english. But has it helped? NO.
For us to have little control is a good thing, because it allows us to focus on other more important things. I think that this is a good thing and should allow our monetary authorities to concentrate on policies that encourage money that is already in the country to stay and attract even more money that is hunting for a good return on capital to come and stay in Zimbabwe. The capital account is in a mess despite the increase in our exports. Imports have ballooned and clearly authorities must find ways of encouraging more exports, assuming that all imports are necessary to close the gap. Strengthening our financial sector and ensuring that money flows freely is also a measure that should be pursued vigorously. After all most of the growth opportunities are here and will be for a long time to come because of the country's abundant primary resources. All the authorities need to do is to ensure that our banks are running properly and are well capitalised.
Its also interesting to note that the level of deposits in the economy has somewhat slowed down and struggling to break $3.3bn, despite significant economic growth. Government Revenue collections are on the rise too, surely this an indication that there is more money circulating in our economy. The smaller banks were singled out as being of less systematic importance - they account for 5% of total deposits in the country. Unfortunately in banking a bank failure is a bank failure and it affects the way we think about all banks. In one of the boldest moves yet the RBZ has given a deadline to under-capitalised institutions to make amends or be shut down. This will certainly lead to a few interesting transactions/or court actions or both in coming weeks! Watch the press! Depositors' funds need to be protected. Its the right thing to do. No capital no bank licence! Why extend and postpone bank failures.
A raft of measures to ensure that banks stay within their mandates was also announced. All this is welcome news and should give depositors some comfort. I hope its not too late though. The acknowledgement of a liquidity challenge whilst welcome is worrying and points to reduced participation of local investors in our markets because of these constraints. What i haven't picked up so far is how the country will attract more inflows into the economy to deal with this challenge. Limiting cash withdrawals for high value transactions of 10,000 will be useful in the short-term but it sends the wrong message to the banking public and may very well encourage them to keep cash at home. I hope that this will be lifted in a week or two.
The introduction of a International Financial Services Centre to ensure the free flow of funds in the country will be a welcome move and one that should be implemented without delay if Zimbabwe is enjoy Foreign Direct Investments and foreign cash inflows in general. For the uninitiated this has worked well in Botswana follow this link http://www.ifsc.co.bw or this IFC review http://www.ifcreview.com/default.aspx
The full monetary policy statement can be downloaded here http://www.rbz.co.zw/pdfs/2012%20MPS/MPS%20JANUARY%202012.pdf
Monday, January 23, 2012
Of Cautionary statements and Profit warnings
Quite a few companies have issued cautionary statements lately advising shareholders to trade cautiously for one reason or another. A few come to mind CFI, AICO and Radar. It is quite interesting to see corporate activity so early into the year, but who knows, some of these deals may not happen and trust me no one will even make an issue of it. It is just so common in Zimbabwe. Clearly for any company to caution shareholders it must be doing something, otherwise what is the use of causing investors anguish or excitement? Well in my experience cautionary statements have been issued and we have waited for months even years in some extreme cases before seeing any action.
Corporate transactions in Zimbabwe are affected by a number of things, management interest, regulatory approvals, valuation disagreements, shareholder issues etc. You see the era of hyperinflation left many people thinking their assets are worth more than they really are when it comes to concluding deals. I am hoping that this year will be different and we will see all parties accommodating each to save companies and ultimately jobs. We need some action here!
The Zimbabwe stock exchange sees very few earning warnings, save for Star Africa and Art who warned of losses before releasing their numbers. You really never see too many managers sticking their necks out! It is even less common to see companies warning shareholders that they will be posting results ahead of expectations. It is very rare and almost never happens!! Everyone wants to surprise the market and cash in i suppose when speculators and investors alike react in awe at huge profits and even dividend by pushing share prices through the roof. Its only a few days before we see the early birds posting their results. I have a very good feeling that most wont disappoint.
Friday, January 20, 2012
ZSE Movers and Shakers
It was generally a good week for Old Mutual and PPC, both counters recorded gains during the last fortnight and ended the week firm. African Sun which the local papers said is in the process of renaming its Holiday Inn Hotels and cutting off ties with the Holiday Inn brand was surprisingly firm too. Colcom was definitely trading in an oversold territory having dropped to 30c, as was Astra. Other notable movements up for the two weeks in review were Ariston and Zimpapers.
Deep in the red and now in an oversold territory is Econet. In 6 successive trading sessions the share dropped to 360c on Friday. The counter wasnt alone in this predicament!Fidelity and AICO after a fine run were being sold for a nice profit. The three counters had seen a good run which ended Friday on profit taking.
In the two weeks ahead watch out for a recovery in CFI, M&R, Econet and Truworths. They have all been oversold. Watch out for these stocks too in coming weeks Hwange @30c target 43c and Barclays @ 4c target 5.5c
If you require a better view of this photo please email me. You can also download it here
Friday, January 13, 2012
24,686,561 is no small number!!!
Just yesterday we were all whining about the low share volumes going through our exchange. Well today we were left with very few words to describe this epic trade. 24,686,561 Delta shares changed hands today. Such deals happen when you least expect them, and when analysed they make a lot of sense too,especially to the exchanging parties. For the seller its cashing in for the buyer its a brand new acquisition. I take my hat off to whoever bought these shares because they have made a sensible decision. Delta has not disappointed in terms of earnings in the last two years and it appears poised for an even better year with what has been happening in our economy.
To the seller, well they made their money and have decided it is time to exit and leave some on the table for the new owner of 24.7m Delta shares. This is what makes the market. Great stuff! It is not every day that a broker convinces a client to part with a cool $17.2m and another that it is time to exit and live to trade another day in one trade!! (unless of course it was a forced trade) Consensus estimates place the Delta share price at between 90 and 100 cents by March 2013. That means the new owner of the shares could be $7,5million richer if the Delta share price goes up to $1. This makes a lot of sense doesn’t it? Buy when everyone is reluctant to buy or keep solid business that have stood the test of time (in Delta’s case, hyperinflation, competition you name it)
I am particularly mesmerised by this trade because some investors seem to be convinced the same way i am that buying into selected ZSE shares now is the right thing to do. If there is anything that i have learnt through this Delta Deal, it is that no share overhang lasts forever when things are going right for a company. Someone clever enough to see value almost always comes and snaps up a bargain when they see one. The Delta deal is important as it highlights to stockbrokers and local fund managers alike that deals are still possible in Zimbabwe if we apply the right attitude and talk to the right people. If you decide that there is value in the share that you are buying or that you have made enough money and want to sell why wait? JUST DO IT as Nike says!
This is really exciting. Serious decisions are starting to happen and surely this deal is not the last one we are going to see on our bourse. It all began in December and now that we are two weeks into the year it seems the buying momentum continuing! In other trades today the stock market was firm. AICO which i also highlighted as a counter to watch remains firm and traded at 20c today, picking up a solid 4c in thin volumes. A number of other counters are also making a significant comeback, CBZ, MEIKLES, ZIMPLOW, INNSCOR and HUNYANI to name a few.
To the seller, well they made their money and have decided it is time to exit and leave some on the table for the new owner of 24.7m Delta shares. This is what makes the market. Great stuff! It is not every day that a broker convinces a client to part with a cool $17.2m and another that it is time to exit and live to trade another day in one trade!! (unless of course it was a forced trade) Consensus estimates place the Delta share price at between 90 and 100 cents by March 2013. That means the new owner of the shares could be $7,5million richer if the Delta share price goes up to $1. This makes a lot of sense doesn’t it? Buy when everyone is reluctant to buy or keep solid business that have stood the test of time (in Delta’s case, hyperinflation, competition you name it)
I am particularly mesmerised by this trade because some investors seem to be convinced the same way i am that buying into selected ZSE shares now is the right thing to do. If there is anything that i have learnt through this Delta Deal, it is that no share overhang lasts forever when things are going right for a company. Someone clever enough to see value almost always comes and snaps up a bargain when they see one. The Delta deal is important as it highlights to stockbrokers and local fund managers alike that deals are still possible in Zimbabwe if we apply the right attitude and talk to the right people. If you decide that there is value in the share that you are buying or that you have made enough money and want to sell why wait? JUST DO IT as Nike says!
This is really exciting. Serious decisions are starting to happen and surely this deal is not the last one we are going to see on our bourse. It all began in December and now that we are two weeks into the year it seems the buying momentum continuing! In other trades today the stock market was firm. AICO which i also highlighted as a counter to watch remains firm and traded at 20c today, picking up a solid 4c in thin volumes. A number of other counters are also making a significant comeback, CBZ, MEIKLES, ZIMPLOW, INNSCOR and HUNYANI to name a few.
Wednesday, January 11, 2012
Investors await the release of 2011 financials
Corporate profits as reported by ZSE listed company could have risen to $500m in December 2011 if the financial results that will be reported in coming weeks are aggregated. This figure will be up by 50% from the year 2010 and must come as a huge surprise to investors who have all but ignored the stock market in recent months. Stock prices have plummeted and valuations plunged to levels not seen since October 2009.
Since the dollarization of the Zimbabwean economy early 2009, listed companies have continued to report improved financial results. In 2010 alone listed companies generated a net profit figure of nearly $300m. This figure excludes the profits generated outside Zimbabwe by Old Mutual and PPC, and is fast becoming an important number to watch. Highlighting the importance of Blue Chip counters on the ZSE, nearly 90% of the profits are being generated by 10 companies namely Econet 39%, Delta 12%, Innscor 7%, CBZ 6%, Hippo 6% and Seedco 5%.
It will be interesting to see whether financial counters which contributed over 15% of 2010 corporate profits will do any better in 2011. If the half year results released in 2011 are anything to go by and barring huge provisions for bad debts, it is very likely that their contribution will exceed 20% and stop shy of 25%.
Will the dominance of Econet be challenged by Delta whose profitability continues to rise following its well timed expansion program. Time will tell! Another point to emerge from the above analysis is the lack of any meaningful contribution from our listed mining companies. Despite double digit growth at industry level, the 4 listed mining houses save for Falgold which has just turned the corner after reporting a $1.5m profit we have not seen anything corporate profits from them in the last 3 years. What is wrong here? None of these companies have been recapitalised over the last 10 years!!!!
Monday, January 9, 2012
2012
2012
What does the year 2012 have in store for us now that 2011 is behind us? Here are a few important stats to help us understand what the year 2011 was all about. The ZSE’s main industrial index closed in the red down 3.6%. Inflation was on the up and but was expected to be more or less contained by the end of the year.(lower than 4.5%) Money market investment rates were around 10-15% per annum as the credit crunch took centre stage.
These figures do little justice in showing what really happened in 2011. Following a lull in the implementation of the GPA, the economy seemed to stall but this was not evident in the numbers that listed companies continued to release. In fact production rose resulting in a number of our local companies operating two shifts to increase operating capacity. This did not bring much cheer to investors who appeared unmoved by these impressive numbers.The stock market lost value as investors simply ignored valuations.
What was their focus? Politics, politics and more politics! It wasn’t just about Zimbabwean politics it was about European politics and West Africa you name it! Anything to blame the lack of confidence on! The debt crisis and unrest in parts of Africa played havoc on investor expectations damaging confidence. Investors questioned the world order and wondered when and how the chaos would end. There were and still are few answers to these questions.You take your pick. The answer is the same. There is so much uncertainty in our world today and unfortunately markets require some sort of certainty to move, anything, something, to clutch on and support that investment decision.
There are very few signs that we are anywhere near finding an answer to the World Economic Crisis that has engulfed us. Turn on CNBC, Bloomberg, read the Wall street Journal, the Herald, the Financial Gazette, the story is the same. There is very little confidence in the current financial order.
But one thing is certain, the Zimbabwean economy is growing and that is one fact that no one can dispute. This is one positive that we are carrying into 2012 and one that gives me enough confidence to say that the ZSE is very much undervalued. We are talking about a market that has an average dividend yield of nearly 4% and an average P/E ratio of 6.75 times.
Having been away from the market for the last four weeks, I am shocked at the stock prices that I am seeing on the market for some quality stocks. Forget the traditional “Econet is cheap!" talk. I am talking about Astra at 1.5c, Old Mutual at $1.25 (when did Old Mutual last trade at a P/E of 5.6 times and a dividend yield of nearly 5%, SERIOUSLY!!). These valuations make no sense to me at all. When you look at the numbers from Old Mutual and a number of other listed companies there is lots of value in these counters, yet they remain irrelevant to what is going on now. Things have changed, haven’t they? There was a time when all you needed were numbers to support an investment decision. Those days appear to be long gone now and we all need something more.
That something is proving elusive to many. The following chart is a summary of my thoughts on the year 2012!
Happy investing. Stay away for the dogs!
What does the year 2012 have in store for us now that 2011 is behind us? Here are a few important stats to help us understand what the year 2011 was all about. The ZSE’s main industrial index closed in the red down 3.6%. Inflation was on the up and but was expected to be more or less contained by the end of the year.(lower than 4.5%) Money market investment rates were around 10-15% per annum as the credit crunch took centre stage.
These figures do little justice in showing what really happened in 2011. Following a lull in the implementation of the GPA, the economy seemed to stall but this was not evident in the numbers that listed companies continued to release. In fact production rose resulting in a number of our local companies operating two shifts to increase operating capacity. This did not bring much cheer to investors who appeared unmoved by these impressive numbers.The stock market lost value as investors simply ignored valuations.
What was their focus? Politics, politics and more politics! It wasn’t just about Zimbabwean politics it was about European politics and West Africa you name it! Anything to blame the lack of confidence on! The debt crisis and unrest in parts of Africa played havoc on investor expectations damaging confidence. Investors questioned the world order and wondered when and how the chaos would end. There were and still are few answers to these questions.You take your pick. The answer is the same. There is so much uncertainty in our world today and unfortunately markets require some sort of certainty to move, anything, something, to clutch on and support that investment decision.
There are very few signs that we are anywhere near finding an answer to the World Economic Crisis that has engulfed us. Turn on CNBC, Bloomberg, read the Wall street Journal, the Herald, the Financial Gazette, the story is the same. There is very little confidence in the current financial order.
But one thing is certain, the Zimbabwean economy is growing and that is one fact that no one can dispute. This is one positive that we are carrying into 2012 and one that gives me enough confidence to say that the ZSE is very much undervalued. We are talking about a market that has an average dividend yield of nearly 4% and an average P/E ratio of 6.75 times.
Having been away from the market for the last four weeks, I am shocked at the stock prices that I am seeing on the market for some quality stocks. Forget the traditional “Econet is cheap!" talk. I am talking about Astra at 1.5c, Old Mutual at $1.25 (when did Old Mutual last trade at a P/E of 5.6 times and a dividend yield of nearly 5%, SERIOUSLY!!). These valuations make no sense to me at all. When you look at the numbers from Old Mutual and a number of other listed companies there is lots of value in these counters, yet they remain irrelevant to what is going on now. Things have changed, haven’t they? There was a time when all you needed were numbers to support an investment decision. Those days appear to be long gone now and we all need something more.
That something is proving elusive to many. The following chart is a summary of my thoughts on the year 2012!
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