HARARE — The Zimbabwe Stock Exchange (ZSE) is seen weakening in the short term as the reporting season begins, with investors expecting the economic slowdown of 2013 to be reflected in poor company financials.
The market traditionally rallies ahead of the reporting period, which began this month for companies releasing December 31 financials. Instead, the market has been bearish in 2014 as investors largely expect disappointing earnings from listed companies.
In the nearly two months since the start of the New Year, most counters are in the red, with Cottco losing about 92% of its value. Furniture retailer Pelhams shed off 90% while Hunyani and Willdale saw their value fall by 50%.
As of Friday, only 13 of the total 67 listed companies have seen their share prices appreciate.
Bellwether stock Delta’s share price has fluctuated wildly since the turn of the year, peaking at 142 cents and dropping as low as 116 cents before closing at $1,25 on Thursday. Delta, the largest company on the ZSE, accounting for a third of its total market capitalisation, reported a 3% decline in turnover for the third quarter ending December 31 due to depressed consumer spending.
“The environment has been tough with the prevailing liquidity issues incapacitating market players from actively participating on the exchange. Prices will remain suppressed. What will stimulate the market would be positive economic news,” FBC Securities analyst, Albert Norumedzo said.
“The quality of earnings is going to be the key issue going forward. Industry players may try to beef up the accruals component of earnings to defend margins. So analysts should question unjustified increases in margins, given the operating environment.”
Norumedzo said while weak consumer demand would affect the bulk of listed companies, exporting firms such as such as Padenga were likely going to register strong growth. Non-consumer facing companies such as financial institution NMB have already issued profit warnings with many more expected to post lower earnings.
The three companies that have released the December 31 financials so far — Afdis, TSL and Barclays, however show that there are areas where above average growth took place in 2013 and that astute investors can make good returns through selective stock picking.
Afdis, an associate company of Delta Corporation, reported that turnover for the six months to December 31 rose to $12,7 million from $12,5 on the back of weakening consumer spending.
TSL recorded a 27% growth in revenue and a 43% growth in operating income. Driving up the growth in turnover was the 15% growth in the national tobacco output.
Barclays reported an after-tax profit of $3 million driven by growth in net interest income.
Net interest income was up 61 percent to $12,3 million as gross loans and advances to customers increased by 26% to $117,7 million as the bank adopted an aggressive lending approach on the back of liquidity constraints besetting the economy.
“Given the funding requirements of the economy that continue to outstrip supply, Barclays may have been forced to become more aggressive or borrowers knocked harder on its doors,” noted AfrAsia in its weekly analysis.
Analysts said the winding up of local operations by fund managers such as Renaissance Capital that had a strong exposure on the equities market could be interpreted as a vote of no confidence on frontier markets like Zimbabwe.
RenCap began investment banking operations in Africa in 2006, committing over $5 billion in capital-raising and financial advisory transactions. The group was the financial advisor in the Essar Africa Holdings Limited’s $750 million acquisition of Zimbabwe Iron and Steel Company, now NewZim Steel. ReNaissance Partners, RenCap’s principal investment unit, is a major shareholder in Bubye River Conservancy, Africa’s largest privately held wildlife conservancy, encompassing 324 000 hectares in south-east Zimbabwe. It is located in the Lowveld, 60km from the South African border, straddling the Bubye River.
“The retail sector is reflecting an underperforming economy. Delta and Meikles already indicated in their trading updates that weak consumer demand is affecting their retail divisions. Given the size of these companies, this would ordinarily cascade downwards,” an economist who declined identification on professional grounds, said.
Such a trend may force market watchers to revise earlier projections that consumer facing companies would register strong growth this year. MMC Capital’s Kudzai Samudzi said the economy urgently requires a stimulus package for growth.
“There is not much to expect from the reporting period judging by the earnings reports that have been released so far. As it stands there is no impetus to drive the market,” Samudzi said.
Meanwhile, the industrial index lost 0,08 points to close at 190,71 points on Friday. On a weekly basis, it gained 1,72 points. The resources index was flat throughout the week at 33,61 points.
— The Source