DELTA Corporation, the biggest company by market capitalisation on the Zimbabwe Stock Exchange (ZSE), has a growth of above 30%, according to valuations by BancABC Stockbrokers research unit.
Report by Our Staff Writer.
Delta’s share price was on 75 US cents in Tuesday’s trade with a year-to-date gain of 7,94% and market capitalisation of US$894 million. The valuation expects the share price to grow 38% to 93UScents.
Although the research paper says the upside may be considered conservative especially considering the significant discount on ZSE counters, investors in Delta are also buying into its ability to not only provide stable long term gains in the form of share price growth but consistent dividend payouts.
The company’s business model allows it to generate significant cash all-year-round and grow volumes.
Zimbabwe is generally a beer drinking nation and Delta’s products especially the alcoholic beverages can easily fall under staple foods given their rate of consumption.
Essentially, Delta is able to transfer any increase in the cost of production to its consumer without suffering a significant drop in demand.
The earnings before interest tax depreciation and amortisation (EBITDA) level was up 45% to US$118,7 million for the year ended March 2012. The business generated US$121 million from operations and closed the period with cash and cash equivalent of US$56 million. The paper says Delta’s ability to generate cash on a regular basis enables it to attract cheap funding from financial institutions while other players struggle to do the same. Current short-term borrowings are at a cost of 8% and a three-year US$60 million facility is at a cost of 7,43%.
“This clearly places Delta above other Zimbabwean companies whose weighted average cost of debt, according to the Ministry of Finance, is in the region of 14 to 35%,” says the report.
Delta has also seen a rapid growth in capacity utilisation post dollarisation which can be attributed to a robust business model and constant investment in plant and machinery.
The business is ahead in grabbing the opportunities arising from the prevailing macro-economic stability. It has been one of the few manufacturers which managed to attain optimum capacity utilisation after the introduction of the multiple currency system.
The average utilisation levels for the sector, according to the Ministry of Finance, is at 60%.
Delta has now achieved 100% capacity utilisation for its clear beer lines and above market average in sparkling beverages and sorghum beer lines. Generally, Delta continues to be one of the highly- capitalised businesses with an asset base which continues to grow in line with the demand in the market. In the full year to March 2012, the business commissioned a new packaging line for the sparkling beverages.
The business utilised US$87 million in the year ending March 2011 and spent US$77 million in the year ending March 2012 as an indication of the serious drive to fully equip the business to take advantage of the improving economic climate.
The group has also moved into modern packaging like the light 300mls bottle which uses less material in production. The old bottle was 25% heavier than the new one. The new plant for the bottle, reduced rejects and output was enhanced to 42,000 per hour.