Inflation muddles Mash Holdings valuation

Source: Inflation muddles Mash Holdings valuation | Herald (Business)

Tawanda Musarurwa Business Reporter
The prevailing inflationary environment has affected the valuation of listed property firm Mashonaland Holdings.

Inflationary pressures have affected several entities, but — all things being equal — the property sector is usually regarded a hedge in instances of economic volatility.

But the local property market seems not to have been spared.

Analysts say the classic discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money has meant that Mashonaland Holdings currently appears heavily discounted.

“The intrinsic valuation of Mashonaland Holdings Limited by making use of the discounted cash flow method poses significant uncertainty concerns that arise mainly from currency stability issues as well as the question of which discount rate is appropriate.

“Under the current economic environment, we have observed that the loss of currency value has resulted in a general heavy discount of the company’s profitability in real currency terms and subsequent free cash flows to the firm, which is the general starting point for intrinsic valuations,” said analysts at Akribos Research Services.

The prevailing difficult operating environment is also expected to negatively affect the company’s numbers in the interim.

“Secondly, the volatility in the market combined with associated inflation and country risk premiums results in a significantly higher discount rate that heavily discounts the company’s bottom-line.

“Added to that, there are questions that arise over the inflation adjusted numbers which make use of an inflation index that is viewed as too conservative in tracking actual price movements.

Mashonaland Holdings’ portfolio consists of 37 properties distributed across Zimbabwe with a gross lettable area of 110 068 square metres. Its property portfolio is distributed across office, retail, industrial, residential and health segments with a bias towards office space and industrial properties.

One of its big projects in the capital is the proposed conversion of Charter House into a hotel property.

The analysts however, maintain that investors can benefit from anticipated strong upside in the value of the property firm’s stock.

“Notwithstanding the aforementioned our discounted cash-flow valuation of Mashonaland Holdings under the current conditions gives a minimum valuation price of $0,09 per share.

“However, we believe that the current scenario is temporary and that the current valuation would need to be revised when a more stable environment prevails under which an appropriate discount rate and reliable financial statement numbers are obtained.

“We additionally valued the company using relative valuation methodologies and arrived at a valuation price of $0,38 per share. We believe that the earnings multiple valuation is more suitable under the current environment as it has less uncertainty inputs whilst speaking to current market trading conditions,” said Akribos.

For its first quarter to December 31, 2019, Mashonaland Holdings’ rental income grew by 45 percent to $10 million over the prior comparable period.