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Weak financials to depress the ZSE further

NOT that we were expecting huge profits this reporting season, but still the financials released so far have largely been lifeless. Performance for the six months to June of many companies was hampered by inactivity in the first quarter.

Every company in the country literally started from scratch after the Zim dollar was suspended in early February. Few had foreign currency in the form of cash or offshore accounts whilst Zim dollar cash and bank balances were summarily demonetised. Business conditions improved in the second quarter for a number of companies, albeit not enough to offset the huge losses incurred in the three months to March.
The first companies to announce June figures were Rio Zim, ABCH,TA, NMB, Pearl Properties, and Nicoz Diamond. AFRE and FBCH were due to announce their numbers at the time of writing this article.
Once again, ABCH, which recently rebranded to BancABC, has shown that investing in the region is not a stroll in the park, especially for Zimbabwean companies. For instance, Econet struggled in Kenya and Nigeria before eventually moving out of those markets; Kingdom Financial Holdings’ FDH in Malawi has not been operating to expectation. FICO in Uganda has not be as successful as Nicozdiamond expected; while TA shareholders have not really benefited from the company’s investments in the region.
Whilst a 9% growth in total income to BWP235m for BancABC was laudable, bad loans in Zambia and Tanzania negated the commendable work in Mozambique. Problems within the credit department have become endemic to the group, partly because of shaky risk management and also because the group may be aggressively trying to grow its loan book.
In 2008 a colossal impairment was booked after a client in Botswana defaulted on a loan. That was supposed to be adequate school fees for the company but unfortunately it seems no lesson was learnt. Bad debts provisions in the first half of 2009 amounted to 41 million pula with Zambia and Tanzania being the major contributors.
It was convenient to blame the bad loans in Zambia on problems in the copper industry although the real problem could be inept credit personnel. In fact, the management admitted the shortfall of the team in that country and revealed that changes have been made to strengthen risk and credit management.
The impairments and, to a lesser extent, rising costs in Zimbabwe after dollarisation wiped out the profits made in Mozambique and Botswana. Earnings from banking operations declined by 70% to 14,5 million pula while the head office added on 22 million pula to put attributable profit at 36,4 million pula.
Be that as it may,  few banks in the country, if any, will achieve a bottom-line of US$2m –– as BancABC did on its banking operations. Unlike other banks which may have to look to foreign funds for recapitalisation, BancABC is resorting to investment-equities and properties built up during hyperinflation for recapitalisation.
If only ABCH can further strengthen its risk management then surely a market cap of US$16m could be considered a serious undervaluation. Otherwise a tendency of losing as much money in another territory as they would have made elsewhere will not be taken kindly by the market.
Subdued nickel prices and low gold output in the first quarter were blamed for the US$7,3million loss incurred by Rio Zim in the six month to June. However reforms in the marketing of gold, dollarisation and relaxed exchange controls have contributed to improvement in production. Gold output was 10 401 oz compared to 7931 oz last year and is expected to increase further in future provided the current economic policies are improved, and not reversed as proposed in other circles.
The property sector which boomed during hyperinflation has suffered significant reduction in values since dollarisation.
Whereas many property companies were generous with their revaluations in hyperinflation, it seems, they are reluctant to extend their generosity on write downs; now that property prices have come down. Pearl Properties sparingly wrote off 20% of its property portfolio to US$69m despite having marked it up to US$88m in 2008.
At it’s initial public offering in 2007, the same portfolio was valued at US$32m. Given this figure and that property prices have declined by as much as 45%, the market indeed expected more, not the meagre 20%. This message is clearly reflected on the market capitalisation, currently at US$19m.
With such miserable numbers, the lethargy on the stock market may be long-drawn-out.
After having led the other markets in six months to June, the ZSE has slipped to the bottom.
A recovery in other markets could hamper the country’s chance of attracting foreign capital as some prospective investors may rethink about coming to Zimbabwe.
Political uncertainty in the country remains high and the current debate on the proposed return of the Zim dollar is not helpful. In contrast, economies elsewhere are continuing to stabilise and are becoming more predictable.


Ranga Makwata

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