Tetrad – ZSE embarks on million point march

By Brian K Mugabe

HAVING looked for much of last week as if it was beginning to lose a bit of steam, with daily percentage gains having declined from 3,16% on Friday July 2 to between 1,5% and 2,5% from Mond

ay 5 to Friday 9 July, the industrial index has in fact seen an increase in momentum during this week.


Monday saw the index put on 3,55%, Tuesday 3,33% and Wednesday 5,86%, representing a points total of 105 989 points or a combined 13% in three days, as it closed the latter day at a then record 904 235. In the week to Wednesday, this translated into an 18% rise, as 52 counters registered gains, 12 traded unchanged and 16 declined.


Whilst big caps remained the tour de force behind the week’s rally, the top 10 performers were dominated by counters which had largely been ignored in the current bullrun and had now decided to play catch up. Thus the top 10 comprised CFI, up 139% to $55; Turnall 67% to $30; Apex 63% to $130; Tedco 59% to $35; Gulliver 53% to $130; NMB 50% to $135; Interfresh 49% to $119; Steelnet 48% to $37; OK 46% to $38 and Tractive Power 45% to $160.


The bottom 10 were anchored by Zimnat which fell 25% to $7,50, and Medtech, Bindura, TA, Willdale, Dawn, Phoenix, Wankie, Truworths and Fidelity, with losses of between 24% and 5%, respectively.


As mentioned above the big cap stocks have been the major catalysts behind the current run being experienced by the market. This is borne out by an analysis of all the ZSE listed counters to gauge how many of them have actually reached all time highs in line with, in particular, the industrial index, as the mining index is currently trading at below its peak. Only 11 of the 80 listed counters are currently trading at all-time highs. These are Innscor, Delta, Meikles, Finhold, Rio Tinto, ZSR, Natfoods, Econet, Barclays, Dairibord and PPC.


This list highlights the impact these titans have on the local market which is weighted according to market capitalisation. What it also suggests is that whilst any slowdown in the index will in all likelihood be triggered by the heavyweights, the fact that the other sixty nine counters are still to reach their peaks means that the index is likely to continue pushing upwards.

With this slow down seemingly reluctant to manifest itself however, crossing the one million point mark suddenly does not seem like such an unlikely event, particularly as the continued issuance of “special” Treasury bills has kept the money market square and, in turn, interest rates fairly static.


Turning to corporate news, TZI on July 8 published a further announcement to shareholders following the one dated May 19 where it had advised of the delay that would occur in publishing its results upon the discovery of “certain material accounting and financial irregularities” at its Zambian subsidiary, Agriflora. This discovery had led to its voluntary, and ongoing, suspension on the ZSE.


The latest update advises shareholders that Agriflora has now in fact been placed into receivership by its main creditors, having incurred more debt than its underlying assets, and made write downs of previously inflated debtors and sales balances. Current indications are that there is little likelihood of any recovery of capital for Agriflora shareholders. However, TZI will be making a claim in respect of loans advanced to Agriflora, whilst the company is further exposed to Agriflora by way of a $5 billion contingent liability in relation to a guarantee it provided to Agriflora’s bankers, claims against which are yet to be activated.


The board of TZI is now of the opinion that the value of its interests in Agriflora should be written down to zero. To compound the problems, the announcement also mentioned that 50% owned Fresca Holdings was currently engaging its bankers with a view to restructuring its debt, pointing to possible financing difficulties. Given these issues, the board had requested that the suspension of TZI remain in force.


Of concern to TZI shareholders, (other than the fact that they currently cannot sell their shares!), must be the future of the company now that Agriflora has been placed under receivership, as well as what impact on the results the implied problems at Fresca may have. If a recovery does not materialize, this will basically leave TZI with its 50% shareholding in Fresca, following the disposal and distribution of 19% and 81% of Strategis Africa to management and the AZ Trust respectively, the latter’s beneficiaries being the TZI shareholders. This will obviously have negative ramifications for its share price going forward.


As most TZI shareholders will bitterly remember, of course, this is not the first time they have felt short-changed by the company in particular in relation to the Agriflora investment. In 2002, the company published a trading update on Wednesday November 13 in which it alerted shareholders to the fact that Agriflora had decided to charge significant provisions and exceptional items against insect infestation that had arisen in the first quarter, some twelve months previously, which would materially reduce earnings expectations.


The disgruntlement among investors arose from the fact that just 6 weeks before, on Thursday October 3, the company had published a very upbeat update in which the said provisions were not even mentioned and forecast earnings were stated to be approximately 25% above forecast. The share price subsequently plummeted 58% in just two weeks, much to the chagrin of many.


The adage “once bitten twice shy” will no doubt be reverberating in the minds of investors who may have in fact now been bitten twice. One must also feel for the new major shareholder who must be wondering what he got himself into!

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