HomeBusiness DigestMarkets to remain in a subdued state

Markets to remain in a subdued state

THE market staged a moderate recovery in February, rising 0,22% to close the month at a total market capitalisation of US$4,73 billion.

Financial Matters Inter-Horizon Securities

The industrial index rose 1,37% to 167,16 on the back of a 3,51% gain in both Delta and Innscor and a 3% gain recorded in Econet.

Large-cap Seed Co also recorded a 10,53% gain in February.

The Mmining index dropped a further 4,73% in the month to 55,38, weighed down by losses in Falgold and RioZim of 16,67% and 33,33% respectively. Other notable losses were seen in CFI, down 23,08%, Cafca, down 20% and Lafarge, down 20%.

The most significant gains in the month were recorded in Radar, up 50%, Zimplow, up 36,36%, Masimba, up 33,33%, Powerspeed, up 30,56% and Barclays, up 28.57%.

Monthly flows
Turnover rose 93,53% in February to US$34,35 million, with average daily trades of US$1,72m recorded for the month. The most significant contributions to total value were Delta, Econet and Seed Co contributing 46,05%, 33,44% and 3,46% respectively. Total volume traded went up 97,73% to 107,90 million shares.

Financial results are expected for a number of major counters in March, including notably FMCG associates, Innscor and National Foods. We expect flat to marginal growth in the top-line, supported by defensive lines in National Foods and some recovery in Innscor’s fast foods segment.

In addition, most of the banks’ financials will be released in March; we expect these to reflect flat to contracting bottomline growth on the back of increased provisioning as banks continue to focus on cleaning up their balance sheets.

March should bring more clarity with regards to the performance of the agricultural season, following the imminent release of crop assessments from the Ministry of Agriculture.

Early indications are that yields have been negatively affected by initial heavy rainfall, followed by a dry spell in the second half of the season. We expect the market to trade in a relatively subdued fashion amidst a lack of any catalysts.

Key recommendations

National Foods (Market capitalisation US$212m, Rating BUY, TP US$3,87), trades on a PER (+1) of 14,3x and EV/EBITDA (+1) of 9.4x.
We believe that the stock is one of the more defensive consumer names on the local bourse.

In the short to medium term, we believe National Foods is also well placed to invest in new categories that can leverage off an existing admin and distribution network to positively impact earnings in the short to medium term.

CBZ (Market cap US$68,7m, Rating BUY, TP US$0,22), trades on a PER (+1) of 1.64x and P/BV (+1) of 0,20x. CBZ’s FY14 results showed considerable growth in non-interest income (+21% y/y), which we expect to continue into FY15.

We also expect lower costs in FY15, emanating from management’s cost containment drive. We therefore expect net income to grow 4% y/y. We believe the bank is unduly discounted to peers (PER (+1) of 8.8x and P/BV (+1) of 1.8x).

Econet (Market cap US$844,6m, Rating BUY, TP US$0,61), trades on a PER (+1) of 8.1x and EV/EBITDA (+1) of 3.6x. We believe that the stock has overreacted following the capping of voice tariffs (at US$0,15/minute) by the regulator effective January 1 this year, presenting an opportunity to buy into weakness.

Given Econet’s dominant position in the telecoms space, and growth potential particularly from data and EcoCash, we believe the counter has defensive qualities in this challenging economic environment.

Inter-Horizon Securities, a member of the Zimbabwe Stock Exchange, is a securities trading company which has assembled a well-regarded equity research team.

The scope and quality of its research gives a deeper understanding of local businesses and markets.

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