ZPI still dazed by the tumultous 3rd quarter

Admire Mavolwane



ZIMRE Property Investments (ZPI) made it to the main board on July 23, joining fellow siblings from the ZHL group, namely Fidelity and NicozDiamond. As

fate would have it, a day after the initial public offer opened on June 25, an entity that was to prove not only very powerful but would dictate the direction of the country in the third quarter, code named the Cabinet Taskforce on Price Monitoring and Stabilisation (CTPMS), ordered the whole economy to revert to prices that were in effect on June 18.


Surely, June 26 2007 will join December 18 2003 (Gideon Gono’s maiden monetary policy statement) and November 14 1997 when the Zimbabwe dollar crashed from $14 to $26 to the US dollar, as watershed dates in the minds of many Zimbabweans. Unfortunately, for ZPI what had looked as the most opportune time to list turned to be otherwise as conditions on the bourse moved from very bullish to extremely bearish.


In subscription terms, the offer was severely undersubscribed, with only 48% of the shares being taken up by IPO investors. The counter then debuted at $2 000 per share, giving it a market cap of $3,4 trillion or US$24 million, using the Old Mutual Implied Rate (OMIR) that day of $143 793,13 to the US dollar. Its sectoral peers Dawn and Mash had market capitalisations of US$58 million and US$39 million respectively. This insipid performance on listing by ZPI was attributed to the then bearish market conditions. Thus the counter was given the benefit of the doubt with people content to wait and see how it would perform in a fully-fledged bull run.


On the day that it listed, Pearl Properties, another property company to come to the market as an equity carve-out from First Mutual, opened its composite transaction, which comprised an IPO and an offer for sale by the then two main shareholders. The counter, which expanded the property sector to four, listed exactly 29 days later, after an 80% subscription rate. If ZPI’s listing was lacklustre, then Pearl’s was tepid, with the share closing at its offer price of $4 200 on marginal volumes. The same factors that were at play on the day ZPI listed gave Pearl a not-so rousing welcome.


In the same manner, on that day the market capitalisations in the sector were US$56 million; US$33 million; US$41 million; and US$20 million, in the alphabetical order of Dawn, Mash, Pearl and ZPI. Reflecting the bearish trends in the market the applicable OMIR had trended downwards to $127 797,27.


Besides the uninspiring debuts, the developments seem to indicate that most investors are either not reading the research notes produced by analysts or ignoring the advice proffered therein. It would appear analysts are losing their power to significantly influence the market. For instance, most analysts indicated that the fair value for ZPI at that time was $3 000 and Pearl was said to be worth at least $6 000 per share.


As such, one would have expected the two companies to quickly trade at these levels notwithstanding the bearish market conditions. In any case besides the relatively small exposure to retail properties and the rent freeze, these companies, in theory, should not have been greatly affected by price controls.


Last Friday, the curtain came down on what can be described as an eventful three months, which witnessed the emergence of the CTPMS, two listings, and the banning and subsequent suspension of the ban on fuel coupons, among other events. For investors it is time not only to review past performance but also to formulate new and hopefully winning ones for the final quarter. The property sector, with two listings in two months, obviously hogs the limelight.


Taking August 22 as the starting date and tracking the performance of the sector, ZPI not only comes last on the alphabetical list but on performance as well. Using prices of October 3, and the OMIR, which on the day was $588 391,48, we get the market capitalisations as US$53 million for Dawn; Mash, US$25 million; Pearl, US$27 million; and ZPI, US$7,2 million. In other words, ZPI’s market value has depreciated by 64% since August 22. Dawn stands out as the leading store of value, with a marginal 6% drop in value in the same period. Mash and Pearl lost 24% and 33%, respectively. Is ZPI destroying value or is it one of the cheapest stocks around?


The third quarter was so eventful that the governor of the Reserve Bank of Zimbabwe, during the presentation of the delayed monetary policy statement on Monday, described the period as “the most traumatising” for the economy. “Stressful” and “breathtaking” were some of the adjectives used by the governor to describe some of these developments. It would appear that the thrust of the policy was the stimulation of the supply-side of the economy; hence the policy statement was christened “Production the solution”.


Having acknowledged that the past three months were trying times indeed, the governor was obviously in a pacifying and benevolent mood. Some sectors will be chaffed with their handouts whilst others will be a little disappointed.


However, the overall impact of the policy was summed up under points 3.20 and 3.21 which read: “The outlook in the short-term is that our No 1 enemy — inflation — remains angry and formidable. In the medium term, however, we see a steep deceleration of the pace at which the enemy will be charging towards us, on the back of improved production and supplies. The inflationary pressures in the short-term are also expected to come from ‘once-off’ election-related expenditures which are both constitutional necessities and consumptive in nature, quite different from money directed to support industry and agriculture.”


Investors like cues and having been forewarned of the impending inflation storm, they sought to be one step ahead of the game, piling into the stock market on Tuesday. Consequently, the market, as represented by the industrial index, gained 39,64%, the second highest daily gain after the 54,63% that was notched on June 13 this year. Going forward, investors will keep at the back of their minds this short-term prognosis and will continue to seek ways of preserving value.


But how long is short-term and when do we enter into the medium term realm?

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