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Stock market remains bearish

MARCH was a bearish month with the market losing 4,81% to close the month at a total market capitalisation of US$4,49 billion.

Financial Matters IH Securities

The industrial index fell 5,35% to 158,22 as the heavyweights lost ground, with Delta, Econet and Innscor falling 8,70%, 2,91% and 6,78% respectively.

The mining index dropped a significant 20,68% in March to 43,93 on the back of a 30% loss recorded in RioZim and a 20% loss in Bindura. Other significant losses were recorded in CFI, down 50% and in First Mutual, ZBFH and ZPI, with each of these counters losing 40% in the month. The most significant gains were realised in MedTech, up 100%; Truworths, up 87,50%; Zimpapers, up 42,86%; ZHL, up 20%, and Mashonaland, up 12,50%.

Monthly flows

Activity was subdued in March, with turnover declining 49,13% to US$18,14 million, with average daily trades of US$0,82m recorded for the month. The most significant contributions to total value traded were Dawn, Econet and Delta, contributing 23,94%, 18,14% and 15,44% respectively. Total volume traded went up 236,81% to 363,43m shares.

Outlook

March saw the release of a number of financial results, the majority of which continued to reflect very moderate or negative top and bottom line growth and, in some cases, further pressure on the bottom line from increased provisions and negative revaluations reflecting the deteriorating economic climate.

On the upside, we have seen an increased emphasis on cost containment and improving efficiencies to alleviate some of the pressure on margins, notably in National Foods, Dairibord, Colcom and Padenga, among others.

The tobacco season has kicked off to a slow start, with depressed selling prices affecting value of exports and auctioned tobacco; performance in this sector is therefore likely to come in below our expectations unless there is a recovery in prices. Crop assessments which we hope will shed more light on the agricultural season are yet to be released.

Key recommendations

Innscor (Market capitalisation US$297,1m, Rating BUY, TP US$0,79), trades on a PER (+1) of 13.0x and EV/EBITDA (+1) of 3.9x. Overall we expect a marginal recovery in group revenues from H1 levels driven by a stronger H2 in National Foods volumes and an improving performance in fast foods. In the short to medium-term given the environment, we believe the opportunity firmly lies in Innscor’s ability to optimizse internal efficiencies and extract better margin performance.

CBZ (Mkt cap US$68,7m, Rating BUY, TP US$0,22), trades on a PER (+1) of 1.73x and P/BV (+1) of 0.22x. 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, emenating 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 (Mkt 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 over reacted following the capping of voice tariffs (US$0,15/minute) by the regulator effective January 1, 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.

Market performance % change
Industrial index 158,22 -5.35%
Mining index 43,93 -20,68%
Market cap (US$bn) 4.49 -4.81%
Market cap YTD -0.45%

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