An insipired half-year performance from Turnall

By Admire Mavolwane

AUGUST 16 2005, like December 18 2003, will do down in history as a turning point for investors much as the latter was for bankers and depositors.



dana, Arial, Helvetica, sans-serif”>Who could have imagined that when the Minister of Finance walked into Parliament on that hot afternoon and opened his briefcase in the august House that he was about to unleash untold horrors on equity investors such that things would most probably never be the same again.


By the time the Minister had completed his speech, there were a lot of dropped jaws and plenty of shaking heads as brokers and institutional investors contemplated the damage that was surely to be wrought on the market by the genie that the Minister had let out of the bottle.


The fact that the cellular networks cease to function during the twilight hours compounded frustrations as players tried in vain to exchange notes.

The two issues that have dominated the investment community since then have been:


* The withholding tax on sale of marketable securities and;

* The calculation of prescribed assets ratios based on market values.


The changes can be likened to some momentous decisions that the country has experienced in the past.


Examples of these national markers would include the 1965 Unilateral Declaration of Independence, the payment of unbudgeted gratuities to the war veterans in 1997, the Democratic Republic of Congo intervention in August 1998 and the beginning of the land reform programme in early 2000.


It is now common knowledge that the Zimbabwe Stock Exchange has been experiencing minimal trading since August 17.


Until last Monday, sellers dominated the market with no buyers in sight. Things took a turn for the worse on Tuesday when some of the sellers pulled out resulting in a number of counters having no indicative price.


The earlier scenario, though not ideal, at least allowed for some sort of mechanism of attaching value to the market.


This latest development meant that shares could not be priced and consequently the industrial index could not be calculated.


A raging bull run which had seen the industrial index reach a record high of 4 518 856,38 points was stopped dead in its tracks.


The question of where the index would be now, given the inflation rate figure which came out at 254,8% and the fact that the June reporting period was reaching its climax, is now just an academic exercise. For instance, what price should the underperformers like Barclays and M&R be trading at? What about those at the edge of the abyss like Celsys? And those crawling back into the black like Tedco and CAFCA? The stock market’s function as a price discovery mechanism has been really distorted. The damage may be irreparable.


The real losers at the moment are shareholders in companies like CBZ and Turnall who would have seen the value of their shares appreciate considerably after some terrific interim numbers.


The latter had a remarkable first half buoyed up by frenetic activity in the housing sector, driven mainly by peri-urban housing co-operatives, on both sides of the parliamentary elections before the advent of Operation Restore Order.


Government sponsored programmes like the Parastatal and Local Authority Reorientation Programme (Plarp), Public Sector Investment Programme (PSIP) and Agriculture Sector Production Enhancement Facility went a long way in ensuring buoyant demand of the company’s piping products. Against this background volumes grew by 170%, to 46 300 tonnes, surpassing the 44 800 produced the whole of last year.


Turnover grew by 630% to $145 billion, albeit from the low base of a difficult 2004, courtesy of the strong demand which allowed the company to push through price increases. Operating margins improved significantly from 25% to 39% as the corresponding profits rose 1 030% to $65,7 billion.


Like most companies, cash generation remained a priority with $34,1 billion being generated from operations. Consequently, interest inflows of $8,7 billion compared very favourably with a $1,4 billion outflow in the corresponding period of 2004.


A separate income statement line, which we can reasonably assume management were in a dilemma as to whether to classify as an exceptional or extraordinary item, was the administrator’s fee of $10,1 billion. This was paid to the administrator of the parent company SMM which is currently under reconstruction.


After providing for a further $20,2 billion due to the government coffers in the form of corporate tax, $44,1 billion is what remained as attributable to shareholders, a healthy return of 1 377%.


In terms of earnings per share, the administrator’s fees prejudiced shareholders of an approximate $15,57 per share.


Notwithstanding the obliteration of the housing co-operatives and the informal sector which constituted 45% of demand, the second half still remains promising.


This market segment has been adequately replaced by government’s Operating Garikai.


Demand for piping products emanating from the aforementioned infrastructure development projects has not let up.


Lastly this week, we took a look at the full year to 30 June results of the mobile phone operator Econet.


A 49% growth in the number of subscribers from 173 606 to 258 268 followed the resumption of sales “Buddie” and “Libertie” lines – this decision has been blamed by many for the unbearable slump in network performance but, combined with frequent tariff reviews, ensured that an above-inflation rate increase in turnover of 239% to $679 billion was achieved.


Operating margins improved marginally by four percentage points, to 53% which saw the corresponding profit line experiencing a 264% uplift to $360,4 billion.


With the company generating loads of cash, net financing income shot up 776% to $45,6 billion. This, together with the $42,9 billion profit realised on the disposal of the 14% stake in Mascom Wireless and the $18,2 billion equity accounted earnings of the said entity prior to its sell off as well as those of Kingdom Financial Holdings acquisition, gave a welcome boost to the bottom line which came out at $317,6 billion.


This shows a return of 315% on the prior year and 151 percentage points above the June inflation figure of 164,3%


Demand for Econet’s products remains strong, especially given the fact that TelOne in unlikely to improve its service in the short to medium nor will TeleAccess come online any time soon at a time national demand for mobile phone services is estimated at two million subscribers – roughly four times the three mobile networks’ combined capacity.


So far three switches, four base station controllers and 63 additional base stations have been installed by Econet.


The intention is to improve the performance of the network and also to allow the taking on of new subscribers with a target of half a million subscribers by June 2006.


Hopefully everything will go according to plan; but in the meantime Econet will continue to make super profits while users struggle to make calls.