The good, the bad and everything in between

IT is only a fortnight before the curtain comes down on 2010 and the usual end-of-year hype, which had disappeared during the hyperinflation period, is already evident.

Having reached the end of the year, it is worthwhile to reflect on it taking note of the good, the bad and everything in between. Without doubt 2010 was a better year for the country than 2009 and incomparable to the five years prior to dollarisation. The economy is expected to grow by 8,1% in 2010 against 5,7% in 2009. Off course the outturn in 2009 was perhaps more pleasing because it was the first year in more than a decade for the economy to post a positive growth rate.   
Just as was the case in 2009, growth in 2010 is underpinned by the strong resurgence in the agricultural and mining sectors although the absolute output figures are still a pittance compared  to  their  heyday. The manufacturing sector, which is predominantly skewed towards import substitution, however remained depressed with capacity utilisation averaging 40% and hence a modest growth of 2,7% is anticipated.
The local equities market had its own share of events, as the mainstream industrial index see-sawed in response to the entry and exit of foreign money. Conspicuous in 2010 was the hive of activity on the corporate front with some companies undertaking massive recapitalisation programmes. Fast movers — such as Econet and Delta, to name only two — managed to continue from where they left in 2009 and are already reaping the rewards. Due to lack of funding most local investors were unable to heed the capital calls and as a result external investors who underwrote the offers ended up with significant shareholdings in those companies.
Looking at performance, the ZSE was rather sluggish as evidenced by Industrial index which is down 1,98% since the beginning of 2010 to December 13. Very little activity is expected in the final fortnight of the year meaning the market is likely to end 2010 lower than or equal to its closing in 2009. With dollarisation, the market was always going to depend on foreign capital until liquidity among local participants improves. Unfortunately 2010, unlike 2009 which had better prospects, had several developments which upset foreign capital. By far the most damaging was the confusion surrounding Indigenisation and Economic Empowerment regulations which many investors misconstrue to mean nationalisation of investments.
Ironically, the much talked about sector of mining within indigenisation discussion seems to end the year on a higher note as reflected by 22,33% jump on the resource index over the same period.  That upsurge is underpinned by leaps in Hwange and Falgold which amassed 121,43% and 28,57%, respectively. Hwange is the only one among the resource counters operating profitably and is in revival mode due to the recapitalisation exercise currently underway. Pre-tax profit in first half of 2010 was US$3,3million. In contrast, other mining counters are battling to secure new capital with Bindura still under care and maintenance while Rio Zim’s proposed rights issue has not yet materialised.  There is a glimmer of hope for Falgold after it was taken over by new shareholder, New Dawn. Still on mining, there is definitely a need for more listings particularly by big mining houses because the current group on the ZSE is not representative of the sector. The sector is expected to grow by more than 40% in 2010 but it seems none of the listed resource companies is likely to achieve that growth rate in revenue.   
To date, Colcom has emerged as the top performer with a gain of 127,27% over 2009 price of 22 cents and is currently trading at its peak price of 50 cents.  The share price rallied after the release of impressive yearend results where net profit clocked US$4,7 million and a dividend was paid. Related to this was the unbundling of the crocodile business by Colcom’s parent company, Innscor Africa. Niloticus changed its name to Padenga and it debuted on the ZSE on November 29.
Other counters that have had fine runs this year include Zimplow and Truworths.
The worst performers of the year include Zeco, Redstar and African Sun.  Zeco lost 85% of its value and is currently the least capitalised counter with a market value of US$460 000. There is very little interest in Zeco because business at the heavy engineering company is low. Red Star, likewise, has failed to turnaround its operations after dollarisation and as a result the major shareholder, starafricacorporation, wants to delist it. It seems there is now investor fatigue on African Sun’s much-hyped turnaround and the success of the company’s regional forays.
On to the capital raising programmes the market witnessed a combination of debt and equity arrangements. For instance the duo of OK Zimbabwe and Starafrica Corporation raised US$20 million apiece through a combination of the two. Art Corporation and FBC Holdings had successful rights offers in which they managed to raise US$4,4 million and US$8 million, respectively.
Recapitalising programmes are definitely crossing into 2011 because companies need funding.  Investors certainly hope that the bad spell on the ZSE does not continue into 2011.

 

By Linda Tsarwe

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