CBZ’s jewel sparkles as Kingdom crown loses lustre

By Admire Mavolwane

WITH the parliamentary elections now firmly in the rear view mirror, investors are taking stock and weighing their options as to the best home for their monies.


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FONT face=”Verdana, Arial, Helvetica, sans-serif”>Early indications seem to point to the stock market. Since March 31 the industrial index has gained 258 539 points or 9,60% in the week to Wednesday. Different conclusions can obviously be drawn from this as the stock market reaction is usually used as a litmus test to watershed events. So is it an endorsement of the election outcome, or are market participants saying nothing has changed?

On the other hand, the election euphoria appears to have vanished quickly as the voters went to the shops over the weekend, only to be met by a “mini” price explosion. If the headlines we have been seeing in the print media are anything to go by, then the statement that “nothing has changed” is far from being correct — but rather that the more things change, the more they stay the same as the captions bring back the memories of 2002 and 2003.

Whilst the stock market has had a favourable week, it has not been sweet music to some investors particularly, those holding Tedco and Celsys shares.

The two companies released some very poor financials, coincidentally on the eve of the elections.

Starting with Tedco, after a dismal first half, in which the group suffered from the negative effects of the high interest rates, depressed local demand and unviable exchange rate (which meant suspension of exports) the second performance was commendable. The first six months saw an attributable loss of $15 billion being recorded.
 
The benefits of the capital injected in September through a rights issue which raised $11 billion began to be felt at the same time that trading conditions improved ensuring that the group achieved a profit of $5,9 billion in the second period. Thus, full year losses of $9,2 billion were realised. The group however remains in a precarious position as the balance sheet is still highly leveraged with a net gearing of 140%.

Tedco also has the dubious distinction of having changed senior management teams nearly as many times as Real Madrid has changed coaches and the results speak for themselves.

Previously high-flying Celsys sprung a bitterly disappointing surprise to many shareholders as it would seem that many were apparently not prepared for the numbers, notwithstanding that they had been forewarned through a cautionary statement published in December 2004.

In the announcement, the market was advised that the results for the six months to December 31 2004 would be significantly below their expectations as profitability had been constrained by high financing costs.

The main driver of earnings, the payphone business C-phone, grew marginally as the group couldn’t access sufficient foreign currency to procure the handsets. Consequently, turnover of $52,9 billion was recorded, lagging that of the corresponding period by 2%. Operating margins crumbled, losing 64 percentage points to settle at 17%. Thus operating profits recorded negative growth of 80% to $9 billion when compared with the $44,1 billion achieved in 2003. An interest charge of $4,1 billion and a write-down of the debtors’ book of $26,4 billion necessitated by interest rate fluctuations, saw the group recording an attributable loss of $14,9 billion.

Now having counted the losses, we look at the topical banking sector. That was a mixed bag of results we saw over the past week. We have already looked at the results of Barclays, which were disappointing to say the least.

FBC Holdings numbers were respectable, although many were of the opinion that they did not warrant the share price of $120 prevailing prior to their publication.

After reporting earnings of $95 billion for shareholders and declaring a $15 dividend, the share price has re-rated to around $95.

Kingdom’s financial problems and their source have been well-documented in the past, especially in the run-up to the mega rights issue which raised $100 billion. In short, the trials and tribulations saw the group record earnings of just $4,9 billion compared with $20,6 billion in 2003. The commercial bank was the biggest drag, posting a full year loss of $21,9 billion.

On the positive side, the Jewel Bank (CBZ) true to first half form produced some superlative numbers, with the bottom line showing a 1 739% growth to $310,1 billion, outclassing Barclays by a good $50 billion.

What made the results more interesting is the fact that after having made $107,2 billion in the first six months, the second half outcome of $202,9 billion left many breathless. Concerns over the future sustainability of such earnings as well as profit taking have seen the counter weakening.

After CBZ, banking behemoth Standard Chartered only served to dispel the myth of a weaker second half for the banking sector. Having posted $185 billion in the period to June, the second half weighed in with $381,6 billion bringing the total for the year to $566,6 billion. Giants will always be giants!

We sign off by leaving you to digest the graphical comparison of commercial banks’ earnings (listed and non-listed) for 2003 and 2004. The data excludes NMB which had not released its 2004 figures at time of publication.