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Taking Stock with Barbican Asset Management

Art results reflect management innovativeness

AMALGAMATED Regional Trading (Art), a company founded in 1997 and listed in 2000 through a dividend in specie, released its remarkable results for the

full year ended September 30. Art is an industrial concern involved in paper manufacturing, paper converting, pen manufacturing and lead-acid battery manufacturing and distribution.

Divisional operations

Paper manufacturing – Art owns four machines, two of which produce board and newsprint in Mutare and the other two producing fine paper and tissue in Kadoma.

Stationery and tissue converting – this division encompasses such firms as Fleximail, a manufacturer and distributor of paper-based stationery; Eversharp, a manufacturer and distributor of ink-based writing instruments; and Softex, a converter of bulk tissue.

Battery manufacturing – a division of Art Corporation, Chloride Zimbabwe, manufactures lead-acid batteries from imported lead for the automotive and tractive power markets in Malawi, SA, Zambia and Zimbabwe.

Under the Barbican sectoral Indices, this counter falls in the Barbican Consumption Index. This is the index that tracks down the performance of all listed counters that are associated with the private consumption and expenditure (PCE) part of GDP.

Financial performance

Turnover went up by 564% from $12,3 billion in 2002 to $82 billion this year. This was due to local inflation and the growth in volumes of paper-based stationery, board, and fine paper and writing instruments which went up by 21%, 50% and 13% respectively, against volume declines in newsprint and tissue manufacturing. Sales to foreign markets constituted 43% of total turnover this year compared to 24% in 2002 and this ability to generate forex hedges the firm against the adverse effects of hyperinflation.

Operating profit grew by 904% to $32 billion this year which translated into a net margin of 29% (up from 19% in 2002). Significant exchange losses came from borrowings in foreign currency, but were however compensated for by gains on the revaluation of export receivables. This shows excellent management innovativeness and high cost containment as they translated their marginal growth in turnover into huge profits.

They managed a growth in earnings per Share of 877%, which was well above year on year inflation. This shows management’s effectiveness in adapting to the ever-worsening operating environment.

The company managed to create wealth for its shareholders, as is evidenced by the increase in their return on equity ratio from 55% in 2002 to 84% this year.

Return on Assets also went up from 22% in 2002 to 29% for the year ended September. This shows improved efficiency and utilisation of the company’s assets.

Their levels of liquidity were relatively stable, as shown by the marginal increase in their current ratio from 1,51 in 2002 to 1,54 for the year ended September.

The gearing ratio, which was at nil in 2002 went up to 3% this year, being local borrowings to finance Working Capital Investment, which was beneficial in this hyperinflationary environment as interest rates continued to lag behind the inflation rate and the rate of depreciation of the local currency.


Art is a well-diversified manufacturing group. It has well diversified markets,

in Malawi, Zambia and South Africa, thereby reducing its trade risk and ensuring a ready market for its goods. Its US dollar denominated pricing strategies ensure above inflation returns, and its regional market guarantees a stable foreign currency inflow for the counter.


The hyperinflationary environment has caused the growth in operating costs and eroded the purchasing power of local customers as evidenced by the reduction in volumes in some of their business entities. Price controls that were introduced in the first part of the year confined the growth in turnover. The company has overcome these by increasing operations in its foreign markets.


If the current growth in earnings is anything to go by we expect a forward EPS in excess of $600 in the counter’s next reports.

The growth in exports are expected to spur subsequent growth in earnings and the recent scramble for shares on the market and a jump in price from $295 to $405 in one trading session is just testimony of the great upside potential that the counter possesses.


Based on the above valuations and the fact that Art has a good foreign hedge against the ever-worsening operating environment, we view the counter as trading at a discount to its intrinsic value, which cannot be expected to go on uncorrected even in a market where the least or slightest level of efficiency exists.

We therefore recommend a buy.

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