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The last shall be first

By Admire Mavolwane



LAST week, South African financial and economic chiefs Governor Tito Mboweni and Finance Minister, Trevor Manuel could literally be heard whistling a

slow melodious tune. The whole financial sector, particularly the stock market, was waltzing to the beat.


On Thursday, obviously breaking the afternoon siesta, Standard Bank Group Limited of South Africa, known here as Stanbic, announced the proposed acquisition by Industrial and Commercial Bank of China (ICBC) of a 20% stake in the issued share capital of the group.


This proposed transaction brings the total foreign investment inflows into South African financial sector since the Barclays Plc investment in Absa in 2005 to R150 billion.


Of this amount R72 billion was in the form of portfolio investments on the Johannesburg Securities Exchange.


The Stanbic deal is worth R36,7 billion (US$7,9), of which R20,7 billion will be paid to current shareholders, whilst R15,9 billion will augment the bank’s coffers. The whole deal values Stanbic at US$39,5 billion or R183,5 billion which is not chump change by any measure. According to available statistics, the bank is trading at a huge discount to its normalized asset base of R979 billion as at end of December 2006.


Whilst this is a matter for the South African analysts what it nevertheless does in the bigger scheme of things, is to make Zimbabwe look very small. The cruel fact is that a fifth of Stanbic is more than twice the whole Zimbabwe Stock Exchange market capitalisation of around US$3 billion calculated using Old Mutual Implied Rate. In theory really, the Chinese bank could have just signed a cheque and bought the whole ZSE.


This latest investment in South Africa comes on the back of R25 billion takeover of Edgars Stores by Bain Capital, and the much talked about R33 billion acquisition of 56% of Absa in 2005. One is obviously inclined to compare the two figures, R33 billion for 56% and $36,7 billion for 20%.


Furthermore it is unavoidable, in the same manner that we could not resist the temptation to compare the deal with the total ZSE capitalisation, to contrast this with our own recent foreign investor deal.


This deal which may not necessarily be accounted for as foreign direct investment is the much touted acquisition of 60% of ZSE listed Celsys plus 100% of Millpall, by Lonrho Africa, for US$5,5 million.


Those guys south of the Limpopo are obviously doing a lot of things right. It could be argued — for the sake of arguing — that had it not been for the illegal sanctions and all that other staff, some of these funds could have found their way into Zimbabwe.


May be, may be not. For the introspective ones, however, the conclusion is that as a country we have a lot to learn from our neighbours, regardless of the fact that we were well into our teens when they got their liberation and majority rule in 1994.


Coming back to our “small market”, with two months to go before investors bid farewell to the eventful 2007, it is time to go for the kill. Unfortunately, the remaining months do not give enough time for anyone to do much, even in terms of portfolio restructuring.


Not to lose heart though, as it sometimes does happen that in a quarter, one counter hogs the limelight and in hindsight it is this share that the treasure hunters will look back on and say; “we should have bought this one”.


Starting with the third quarter of 2006, First Mutual Limited rose from $1,80 to $80 using the pre-consolidation prices and moved into the top tier of heavily capitalised counters.


This gain of 4 344% not only outshone the closest contender, Bindura, at 2 150% or the industrial index at 608% but saw FML rubbing shoulders with the elite.


It is unfortunate that FML has since lost most of this weight and has retreated to familiar waters.


The second quarter of 2007 saw the emergence of CFX as the most lucrative buy. The share price started off at Z$11 and relentlessly went up to close at Z$800, reflecting a 7 173% gain, in the period in which the benchmark industrial index returned only 971%.


In fact, in three months, CFX moved from being a US$2,2 million bank to US$20,1 million, which is not a disappointing return even in hard currency terms. Suffice it to say that the two counters, FML and CFX were takeover targets when the share prices appreciated significantly.


If FML was the hero, in the 2006 quarter of zeros and heroes, then Falgold, amid the price controls and general market uncertainty, came out at the other end with the gold medal for the third quarter of 2007.


The gold miner, well known in the market for always threatening to close, gifted its shareholders with a 823% uplift in value. This could be a vote of confidence in the new chariot driver, Central African Gold.


Even so, compared with the 385% gain in the mining index and the other two cases mentioned earlier, this performance was not that inspiring though.


Now, one month into the quarter, the top performer is the rather sleepy General Beltings (Genbelt), which rose by 975%, followed closely by Circle at 900% and Zimplow a few steps behind with a 700% gain.


Whilst Circle did vividly illuminate the quarter, Genbelt stealthily beat it to the podium. The lame ducks were Zimnat, making the tip of the tail, followed by Halogen, Phoenix and Pelhams.


Herein lies the investor’s dilemma. How can one pick a company that is a target for takeover, a sure winner in any market? May be a visit to a clairvoyant will do the trick or rely on insider trading, because analysts are not of much use in this regard.


The other is to select between either going for the top performers in the hope that the fine run continues or for the laggards and pray that they catch-up or even overtake the current leaders. The latter strategy of picking the bottom performers borrows from the biblical notion of: “…the last will be first, and the first will be last”.

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