At The Market with Tetrad

Spirited demand drives Afdis earnings

By Brian K Mugabe

THE industrial index, having reached an all-time high of 754 608 points on August 28, has subsequently lost 12% over the past

week, as what began as routine profit-taking subsequently deteriorated into panic selling precipitated by the announcement of the suspension of NMB’s forex trading licence and the release of some good but below expectation results.


Of the 80 listed counters, only 12 experienced gains, the highest being a 50% appreciation in the share price of Border to $1 500. Three counters were unchanged while 65 recorded losses with the aforementioned NMB holding the wooden spoon, down 44% for the week to $114.


Does this herald the end for the stock market? I think not. We have been here many times before over the past two years but the market has always rebounded, going on to even greater heights, driven by hugely negative real interest rates and hyperinflation. And those two factors have not changed.


They have in fact, been reinforced by the actions of the Central Bank yesterday, which saw money market rates tumble from as high as 140% to between 70% and 75% for overnight money, after it issued a directive slashing the premium placed on the repo rate, ie the rate at which banks borrow from it and which currently stands at 65%, from 20% to 5% for secured borrowings and 40% to 10% for unsecured borrowings.


This suggested that the policy will be to keep interest rates low and under these circumstances, the stock market will surely keep its pride of place with investors.


Two sets of recently published company results which failed to live up to their share price appreciation are Afdis and RTG. The former’s share price went from $1300 on August 22, the trading day before results were published, to a close of $900 on August 25 when it released its interim performance.


RTG went from a high of $56 a week before results came out, before dropping to $38 a day after they were published.


Buoyed by the consumptive nature of the economy and the continuation of informal exports fuelled by the devaluation of the currency on the parallel market, Afdis saw demand for its products remaining strong during the year to June. As a result, net turnover increased by 302% to $16,1 billion.


Operating income, courtesy of the ongoing realignment of the sales mix towards higher margin spirit products and a tight rein on costs that saw them increasing by a sub-inflation 195%, grew at a higher rate than revenues, up 487% to $6,2 billion. The operating margin improved by an impressive 12% to 38%.


The interest charge went up 14 times to $414 million as the company increased its borrowings to help fund working capital and capex. An exceptional charge of $155 million was incurred relating to the company’s reorganisation and bottom line earnings came out at $3,8 billion, up 457% on last year.


With local tourism still largely in the doldrums, RTG’s results were pleasing under the circumstances, though still in no way justifying a share price of $40.


Turnover was up 364% to $4,2 billion as the group benefited from the movement in the official exchange rate as well as pricing in line with the inflationary environment.


As a result the average room rate improved in local currency terms while higher city hotel occupancies offset disappointing resort property numbers.


Operating expenses growth was managed to below the rate of inflation, going up 270% to $2,9 billion, and operating profits of $505 million were earned. This compared with a loss of $42 million at the interim stage last year.


Net interest income arising from substantially improved operational cash-flows and a very low tax rate at the half year of just 6% boosted attributable earnings to $416 million, against a loss of $52 million last year.


The short-term outlook for tourism does not suggest any significant rise in arrivals, but with a review of the export support rate expected to occur in the second half, as well as the likelihood of ongoing room rate adjustments and of course the advent of the festive season, (though how “festive” people will be feeling come December is another story!), the remainder of the year should see an even better performance from the group.


Lastly we look at the vastly improved results of TA for the six months to June.


Turnover was up 320% to $21,1 billion, $12,3 billion being attributed to Zimnat Lion’s gross premium while the hotels contributed $8,8 billion. The local hotel operations maintained their profitability, enjoying occupancies of close to 65%. The Botswana hotels, however, had a subdued first half with revenue declining by 5% in Pula terms.


Operating profits were up 615% to $2,5 billion. Included in this figure were profits on disposal of $1,3 billion and $100 million arising from the sale of Blue Ribbon Foods and Sabata Holdings respectively.


Along with significantly improved yields on the hotel side, group operating margins improved by 5% to 12%. The group remained in a net interest paying position, with $56 million in net interest charges compared with $17 million in 2002.


The lifting of price controls which had severely hampered performance last year, benefited the group’s associates, namely Sable Chemicals, ZFC and United Refineries whose total contribution to group earnings went up 344% to $2 billion. Attributable earnings at $2,7 billion were 861% up on $277 million achieved in June 2002.


With additional reviews having been made of the price of fertilisers subsequent to the half year, the associates are set to drive improved earnings growth in the second half as will any changes in the export exchange rate and the expected enhanced performance of the Botswana and other regional initiatives.

Top