Business / Economy
Zimbabwe Stock Exchange Overview - June 2012
08 Jun 2012 at 05:20hrs | Views
Fortune favours the brave....
Recovery on course although beleaguered somewhat by unfavourable atmosphere..
Four years on in a dollarised economic environment and the economy is still on a growth path, beleaguered somewhat by an unfavourable financial and political atmosphere. Despite the global economic crisis, Sub Sahara Africa is set to grow by more than 5%, while the Zimbabwean economy is expected to grow by 9.4%.
Agriculture/mining sectors, the biggest talking point
Major propellers of local economic growth have been the mining and agricultural sectors. The Ministry of Finance estimates that the mining sector (projected to grow by 15.9% in 2012) will remain the major driving force behind overall economic growth. The sector is expected to benefit from firming international commodity prices, strategies to lower electricity supply interruptions and additional private capital injections. The country's annual inflation is also expected to end the year at 5%.
Pell-mell performance on the local bourse due to indigestible policies
For 2011 both the industrial and mining indices were down with the industrial index losing 3.58% whilst the mining index lost 49.75%. Although the performance was in line with regional exchanges and some international indices, the mining index was further weakened by the local policy issues. Year to date, the indices have weakened further with the industrial index down 10.62% whilst the mining index is down 9.51%, this is in contrast to the positive performance on the regional and international bourses, where the regional exchanges are up on average by 7% whilst the main international indices have gained an average of 5%. The poor performance on the local front could be attributed to inconsistency on policy pronouncements mainly relating to indigenisation and elections. For 2012, we expect some improvement driven by improving company performance. The market capitalisation to GDP ratio declined in 2011 to 36% from 45% in 2010, this however still compares favorably with the SSA average of above 50%.
The other side of the coin
Post the hyperinflationary era, most companies are now afloat, after an almost precarious position. A number of corporate earnings statements have been positive in support of an improving economy. The indigenisation issue however remains contentious, with the end document not having been clarified. Investor sentiment has been rattled with minimal foreign direct participation. Consoling, however, is the fact that in October 2011 government released a Gazette revising the indigenisation regulations to state that foreign owned firms could now indigenise their 51% equity over 4 years; with 26% to be localised in the first year, 10% in the second year, 10% in the third year and 5% in the fourth year. Despite talks of elections, we see them as unlikely to occur in 2012, as the liquidity strain continues to bite. The constitution making process is yet to be finalised, then the referendum has to follow before we can have elections. We forecast that at the earliest, we could have the elections late 2013, however, the noose is still ominously around the neck as politicians continue to issue divergence statements.
Jump onto the bandwagon..
Despite top line growth ahead of inflation, heavy interest costs continue to negate positive performance in many listed companies. A classic case is that of PG Industries, whose gearing stands at a high of 136%. Several other companies remain hugely undercapitalised hampering earnings growth and curtailing share price performance. RioZim recently concluded a rights offer which should see its huge debt being paid, thus lowering finance costs and possibly returning the group to viability. Several other companies are also carrying out corporate activities, and although the prospects of deleveraging are attractive, other factors such as the unclear indigenisation policy and likelihood of elections continue to draw back significant progress. The economic recovery should however continue and is likely to accelerate if further reforms are enacted by the authorities. It is our view that Zimbabwe offers great potential as a recovery play and we urge investors to take positions in rapidly growing, dominant, well managed and strong cash generating companies such as BATZ, Dairibord, Delta, Econet, Innscor, OK Zimbabwe, Padenga and SeedCo.
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Imara Holdings is a pan-African financial services company specialising in corporate finance, asset management and securities trading.
Recovery on course although beleaguered somewhat by unfavourable atmosphere..
Four years on in a dollarised economic environment and the economy is still on a growth path, beleaguered somewhat by an unfavourable financial and political atmosphere. Despite the global economic crisis, Sub Sahara Africa is set to grow by more than 5%, while the Zimbabwean economy is expected to grow by 9.4%.
Agriculture/mining sectors, the biggest talking point
Major propellers of local economic growth have been the mining and agricultural sectors. The Ministry of Finance estimates that the mining sector (projected to grow by 15.9% in 2012) will remain the major driving force behind overall economic growth. The sector is expected to benefit from firming international commodity prices, strategies to lower electricity supply interruptions and additional private capital injections. The country's annual inflation is also expected to end the year at 5%.
Pell-mell performance on the local bourse due to indigestible policies
For 2011 both the industrial and mining indices were down with the industrial index losing 3.58% whilst the mining index lost 49.75%. Although the performance was in line with regional exchanges and some international indices, the mining index was further weakened by the local policy issues. Year to date, the indices have weakened further with the industrial index down 10.62% whilst the mining index is down 9.51%, this is in contrast to the positive performance on the regional and international bourses, where the regional exchanges are up on average by 7% whilst the main international indices have gained an average of 5%. The poor performance on the local front could be attributed to inconsistency on policy pronouncements mainly relating to indigenisation and elections. For 2012, we expect some improvement driven by improving company performance. The market capitalisation to GDP ratio declined in 2011 to 36% from 45% in 2010, this however still compares favorably with the SSA average of above 50%.
The other side of the coin
Post the hyperinflationary era, most companies are now afloat, after an almost precarious position. A number of corporate earnings statements have been positive in support of an improving economy. The indigenisation issue however remains contentious, with the end document not having been clarified. Investor sentiment has been rattled with minimal foreign direct participation. Consoling, however, is the fact that in October 2011 government released a Gazette revising the indigenisation regulations to state that foreign owned firms could now indigenise their 51% equity over 4 years; with 26% to be localised in the first year, 10% in the second year, 10% in the third year and 5% in the fourth year. Despite talks of elections, we see them as unlikely to occur in 2012, as the liquidity strain continues to bite. The constitution making process is yet to be finalised, then the referendum has to follow before we can have elections. We forecast that at the earliest, we could have the elections late 2013, however, the noose is still ominously around the neck as politicians continue to issue divergence statements.
Jump onto the bandwagon..
Despite top line growth ahead of inflation, heavy interest costs continue to negate positive performance in many listed companies. A classic case is that of PG Industries, whose gearing stands at a high of 136%. Several other companies remain hugely undercapitalised hampering earnings growth and curtailing share price performance. RioZim recently concluded a rights offer which should see its huge debt being paid, thus lowering finance costs and possibly returning the group to viability. Several other companies are also carrying out corporate activities, and although the prospects of deleveraging are attractive, other factors such as the unclear indigenisation policy and likelihood of elections continue to draw back significant progress. The economic recovery should however continue and is likely to accelerate if further reforms are enacted by the authorities. It is our view that Zimbabwe offers great potential as a recovery play and we urge investors to take positions in rapidly growing, dominant, well managed and strong cash generating companies such as BATZ, Dairibord, Delta, Econet, Innscor, OK Zimbabwe, Padenga and SeedCo.
------------------
Imara Holdings is a pan-African financial services company specialising in corporate finance, asset management and securities trading.
Source - imara.co
