By Admire Mavolwane
AS might be expected after an extended bull-run, profit-taking set in on February 2 and continued through to Friday.
In that period the industrial index lost 98 842 points. With returns on the money market continuing to soften, ho
wever, investors have had no alternative but to trickle back into shares.
Consequently, Monday saw the downward trend start to reverse, albeit sluggishly. Wednesday’s jump of 129 688 points recouped all the previous losses and drove the index to a new record high of 2 218 671 points, which translates into a week-on-week return of 4%.
We have noted for some time now that whenever the bulls are on the run, some debatable trades begin to take place in the market. For instance, on Friday last week during the morning call-over, Innscor, one of the heavily weighted companies on the index saw its share price fall by $500, or 13% to $3 300 on a volume of 100 shares.
Similarly this Wednesday, PPC gained $250 000, or 50%, to close at $750 000 on a volume of 200 shares.
Wednesday’s market gain of 6% was in no small measure courtesy of this abnormal rise in the price of PPC.
Innscor’s case seems to suggest more desperation on the part of the seller than normal profit taking. Such cases result in a rather exaggerated movement in the index, especially if one considers the fact that a price volume analysis on such trades gives spurious results.
We suggest that the Zimbabwe Stock Exchange (ZSE), whose mandate, among other things is to “provide a properly constituted and regulated environment that ensures market integrity and fairness among stock market participants as well as to supervise and monitor the trading process to ensure transparency in the market and that no unfair practices are done to manipulate the market”, should scrutinise such trades in the interests of all stakeholders.
On a positive note and without wishing to appear like some of the loss-making utilities which for some reason, no matter how broke always have a budget for condolence and congratulatory press messages, we would like to acknowledge the positive move by the ZSE to follow international trends by showing delayed call over prices on their redesigned website whilst trading is in progress.
Turning to results, we start by looking at the superlative six months to December 31 2004 figures from Econet. A 60% growth in the number of subscribers from 153 167 at the same date in the prior year to 244 435 coming after the resumption of sales of Buddie and the relaunch of Libertie, coupled with phenomenal growth in payphones from 400 to 3 300, saw turnover grow by 281% to $236, 6 billion.
Operating profits at $120,2 billion reflect a 190% growth as operating margins were almost static at 51%. The group earned $17,3 billion in interest income, as opposed to an outflow of $807 million thanks to the massive cash generation capabilities which saw the group generating inflows of $132 billion from operations. As at the balance sheet date cash resources stood at $82,4 billion.
Equity accounting for the 14% stake in Mascom Wireless Bostwana which almost doubled from $5 billion to $9,3 billion, further boosted the bottom line which at, $101,1 billion reflects a 329% return to shareholders. The shares in Mascom were subsequently sold to Econet Wireless Global for US$14 million which will be used in network expansion.
The group also announced the acquisition of a 10% stake in Kingdom Financial Holdings, which ostensibly, is expected to facilitate the development of cellular banking products. After the Mascom deal many market watchers are skeptical of this new transaction, especially given the fact that the cellular banking initiative could have been achieved without acquiring the shareholding. Some contend that just a strategic agreement could have resulted in the same sort of arrangement and could have been much cheaper.
Afdis brewed a solid set of interim results to December 30 2004. Boosted by steady demand across all product categories, as well as the positive impact of new brands, net turnover grew by 144% to $89,5 billion. This growth is more or less in line with the December year–on-year inflation figure of 132,7%.
Operating profits increased by 97% to $38,3 billion as, like most players in the economy, the company experienced margin contraction. In Afdis’ case, the margins deteriorated by about ten percentage points to 43%. Management’s focus on cash generation began to bear fruit with the company generating $38,5 billion from operations.
As a result, interest inflows of $2,1 billion were recorded compared with an expense of $1,3 billion in 2003. The cash generation capacity alluded to above saw the group closing the interim period with cash resources worth $21,8 billion.
Attributable earnings of $27,2 billion were realised, up a below inflation 118%. The group having retired all Productive Sector Facilities borrowings and thus being free of any encumbrances, declared a dividend of $50 per share.
The second half, which is usually slower, is likely to return a similar performance. The reopening of the Gweru Glass factory is expected to reduce reliance on imported bottles and contribute to the cutting of costs. Also, the company is expected to benefit in someway from the $5 trillion released into the economy through the tax concessions announced in the 2005 budget proposals.
In corporate news Kingdom advised shareholders that it intendeds to make a rights offer. The exercise is expected to raise $100 billion earmarked for the funding of the banking group’s on going expansion and treasury activities.
Ariston also announced details of its rights offer exercise looking to raise $15,6 billion which will be utilised to fund the acquisition of two complementary businesses, a flower project and a tea and coffee packing operation, as well as recapitalising the Shamva Frozen Vegetable Plant. In total, the group will issue 124,9 million shares on the basis of one new share for every 1,98 shares already held.
Just two months into the year, three companies — Zimre included — have come to the market seeking to raise a total of $175 billion. Many more such exercises are expected as the year progresses.