Market bearish six months on

via Market bearish six months on – The Zimbabwe Independent September 11, 2015 Financial Matters by IH Securities

THE market continued its retreat for the sixth month in a row, falling a further 7,19% in the month to close at a total market capitalisation of US$3,74 billion. The industrial index dropped 6,82% to 135,43 on the back of losses in all heavyweights with Delta, down 14,58%, Econet down 12,53% and Innscor, down 5,53%. Top gains for the month were recorded in Meikles, up 49,63%, ProPlastics, up 30%, CFI, up 28,21%, RTG, up 25% and Masimba, up 23,75%. The mining index lost a further 10,21% as all counters recorded losses with Bindura, falling 6,67%, Falgold, falling 33,33%, Hwange, falling 17,07% and RioZim falling 14,29%. Other significant losses were seen in Ariston, down 60%, Turnall, down 16,67% and OK Zimbabwe, down 14,63%.

Monthly flows
Activity declined in August with turnover dropping 24,22% m/m to US$15,37 million; average daily trades in August was US$0,81m. Heavyweights made the biggest contribution to total value traded, with Econet, Delta and Innscor contributing 36%, 31% and 10% respectively. Total volume traded fell 35,17% to 76,26m shares.

Financials released during the month showed a slight improvement in topline performance, with an average growth of 9,4% in total income. A lot of focus was put in the financial sector as the Reserve Bank of Zimbabwe (RBZ) put in place interest rate guidelines according to various levels of credit risk in order to stimulate economic activity, in the monetary policy released early in the month. Banks such as CBZ, NMB and Barclays recorded revenue growth as the diversification of income streams started bearing fruit, with these banks having adopted new models to service the informal sector. This has become the trend with most companies as it is estimated that about US$3,3bn, according to the RBZ, is circulating within the informal sector. Other measures highlighted in the monetary policy included the US$210m secured by the RBZ from development finance institutions to fund capital projects in key productive sectors of the economy.

Measures were also put in place by the government to support the development of these projects and to create legal framework for private sector participation in order to attract foreign investors.
The highly-anticipated state of the nation address by President Robert Mugabe came with a proposed 10-point plan focused on maintaining economic growth especially through the creation of jobs. In terms of the market, we expect it to record modest gains in September as Delta and Econet have started to show some support after reaching their three-year and 30-month low respectively.

Key recommendations

  • Delta (market capitalisation US$1,06bn, Rating BUY, TP US$1,18). Despite continued stress on the business given the current consumer environment, Delta maintains a strong product breadth which largely enables the business to capture/retain the consumer at various pricing points. We believe volumes will begin to stabilise going forward though margins will be impacted. Delta trades on a PER (+1) of 11,9x and we believe it is becoming oversold.
  • Econet (mkt cap US$459,1m, Rating BUY, TP US$0,56), trades on a PER (+1) of 9,4x and EV/Ebitda (+1) of 2,2x. Despite short-term headwinds, Econet’s revenue diversification bode well for solid earnings growth in the medium to long-term. The company has recently undertaken cost containment measures that have resulted in savings of up to US$70m. We believe this stock is becoming oversold.
  • CBZ (mkt cap US$61,9m, Rating BUY, TP US$0,20), CBZ’s first half 2015 earnings performance exceeded expectations as the diversification of their income streams began bearing fruit. Non-performing loans were marginally lower h/h, but we believe their strategy going forward in improving asset quality will leave the bank with a cleaner book come FY15. CBZ currently trades at a P/Bk (+1) of 0,20x.
    IH Group is a Zimbabwean financial services boutique offering brokerage and advisory services to local and international clients.