INVESTORS NOTEBOOK

Wankie shows signs of upside potential

By Reuben Alberto

THE period ending June 30 has seen another set of impressive interim results being achieved by listed companies.
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Wankie Colliery Company Ltd (Wankie) – the sole producer of coal and its related products in Zimbabwe – is one of the companies that have notched impressive results.


In the past, Wankie has been operating dismally, a result attributed to management inefficiencies. This has led to management restructuring early this year bearing fruits.


Shareholding


As at September 7, Wankie had about 171 million shares in circulation, with the top five shareholders being the government (39,49%), Edwards Nominees (17,65%), Messina Investments (11,69%), London Register (7,32%) and Edwards Nominees (2,8%).


The shareholding structure is biased towards institutional investors, which tend to stabilise the price of the counter on the market. The company’s free float can be estimated at around 17%.


Financial analysis


The period to June 30 has been a challenging one for most of the firms in Zimbabwe and Wankie not been spared either. Operating in an environment characterised by hyperinflation and shortage of foreign currency among other factors, the company has emerged with above market expectation.


Turnover went up by more than 1 700% to $164 billion compared to the same period last year, an increase far above the record high annual inflation figure of 622% experienced in January.


This resulted in the operating profit increasing to $25,1 billion up from $921 million.


Thus the company has witnessed an increase in profits from its operations. The directors attributed this to what they called “the company’s turnaround efforts that emphasised on increased production volumes and reduction in costs”. The company’s earnings per share were up by more than 3 500% to $133,81 for the current interim period.


A clear testimony of the company’s benefit from the productive sector facility can be seen through its ability to move from negative net interest of $119,5 million to a positive net interest of $9 billion for the periods ending June 30 2003 and this year respectively. The company’s interest cover also significantly improved from a negative 4,80 during the same period last year to the current positive 2,78.


Also of importance is the fact that shareholders have got something to smile about even though no dividend had been declared following an increase in the rate of return on equity from as low as 23% to 85% for the comparative periods ending 2003 and this year respectively.


Opportunities


Monopoly – Wankie happens to be the sole producer of coal and its related products (gas and coke) in the country. Thus the company enjoys a monopoly in terms of its business, resulting in the demand of its products being above the supply side always.


Agrarian reform – with the government and private sector taking initiatives to support the production of tobacco in the country, expectations are that more of the product will be produced from the next season onwards. This will definitely put pressure on the demand for coal,


Productive sector facility – Wankie has immensely benefited from the facility resulting in a significant reduction its costs on borrowings. This resulted in the company going to the extent of even cutting the coal prices, and

Unexploited resources – Wankie continues to explore new resources that it intends to start working on in the near future. Currently the company has appointed some local financial advisors in its bid to raise US$25 million required to kick off the new 3 Main Underground Mine.


Foreign currency shortages – this has resulted in the company failing to service its offshore loans from Common Development Corporation, West LB and Africa Export Import Bank, which were overdue.


However, frantic efforts are underway and the loans have been converted into current liabilities. Also with the demand for coal emanating from other countries like Zambia, more hard currency will be expected to make inflows into the company.