Stock market continues on dominant run

Royal Bank

THE local bourse continued on its dominant run dragging even the least worthy of counters along with it, to end the week 24% up at 429 716,68, while the mining index was deter

mined not to be left behind with a 17% rise closing at 83 902,34.

The industrial index was firm at the beginning of the week with market players taking positions ahead of the upcoming earnings season.

The market was given added impetus during the week by the president’s speech at the opening of parliament.

On an economic front the president suggested that government would pursue a low interest rate policy thereby reducing their cost of borrowing as well as keeping the battered manufacturing industry on its feet. Investors will have to target the stock exchange in order to realise gains to match inflation.

On the political front the attendance of the opposition leader Morgan Tsvangirai was to be noted and one hopes that it is an indicator of the beginning of the end for the political impasse. Only time will tell.

Notable gains included stocks not normally the choice of investors as speculative buyers pervaded the market.

Some of the counters include Zimpapers, David Whitehead and Willdale.

The international markets were largely flat during the week with Wall Street halting the gains of the previous week due to decent corporate earnings reported by the likes of Texas Instruments.

However, the end of the week saw large gains on all the American indices as traders sensed a continuing recovery in the American economy with sustained strength in the housing market and solid durable goods figures.

Next week’s numbers will largely depend on whether corporate earnings results impress the market.

Closer to home, JSE Securities also experienced sharp rises on Friday as De Beers posted excellent results which in turn boosted Anglo American up 4% in Friday’s trading.

Precious metals remained firm throughout the week as the United States dollar continued to weaken against the euro.

Gold in particular realised a 5% appreciation to US$361,80 per ounce.

Stock picks for the week

Our picks have not changed materially.

We still see value in Afdis, Delta, PG, Cottco and ABCH. However, we believe investors should hold Barclays and we are of the opinion that Interfresh is a good buy.

Company news

Econet: Econet has issued a circular to shareholders regarding the acquisition by Econet Wireless Holdings Ltd (EWHL) of 100% of the issued shares of TS Masiyiwa Holdings (Pvt) Ltd in exchange for 918 705 438 EWHL shares.

This deal has attendant benefits which include EWHL acquiring a foreign currency earning asset which will doubtless aid Econet meet its forex obligations.

However as a result of the deal, the shareholding of the Masiwa family company will be increased to above the 35% threshold which would trigger the takeover mechanism and minority shareholders would be potentially prejudiced.

The net effect of the deal is a fall in the historic earnings per share in the year to December 2002 to 131,11c from 222,75c and a rise in Net Asset Value to 503,98c from 464,37c.

Delta: Delta held an annual general meeting on July 25. The meeting was to conduct ordinary business which included re-electing directors, appointing auditors and setting director’s fees.

Management also gave shareholders a trading update. Turnover for the first quarter of 2004 is around $50 billion.

Alcoholic beverages remain the driver behind the increase in turnover, as soft drinks are only beginning to recover from the price controls era. In actual fact, the soft drinks division is suffering also because of the cold weather.

The group will continue to defend margins by strategically increasing prices of their products.

The company will circumvent consumer price resistance by increasing prices gradually and at regular intervals as opposed to once-off shock price increases. In fact, after the June alcoholic beverage price increase, volumes actually increased by 5%.

The new kid on the block in the alcoholic division stable, Milk Stout is apparently in great demand. This product is set to contribute 3% to total alcoholic beverages volumes and will enhance earnings for the group.

Recommendation: We forecast an earnings per share of 11 025c which would put Delta on a forward P/E of 3,7x. We thus recommend that investors increase exposure in this counter.