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Market maintains downward trend

THE market maintained a downward trend month, falling yet again for the seventh month in a row; total market capitalisation closed 3,10% lower at US$3,63 billion.

Financial Matters by IH Securities

The industrial index fell 2,58% to 131,93; heavyweight counters recorded losses across the board with Delta down 2,34%, Econet 4,64% and Innscor down 0,84%. The mining index lost a significant 31,07%, weighed down by a 50% loss in Binudra.

Top gainers for the month included Falgold up 25%, Fidelity Life 15,38%, CFI 13%, Turnall 11,11% and DZLH up 10,93%. Among top fallers, Zimplow down 33,33%, African Sun 20,80%, Radar 17,33% and Meikles down 16,67%.

Monthly flows

Activity improved in September with turnover rising 13,04% m/m to US$17,37 million; average daily trades in September came in lower at US$0,79m however, due to less trading days in August.

Heavyweights made the biggest contribution to total value traded with Delta and Econet contributing 33,87% and 25,72% respectively. Mid caps weighed in with CBZ and National Foods contributing 10,85% and 5,85%. Total volume traded rose 37,26% to 104,68m shares.

The International Monetary Fund (IMF) has cut Zimbabwe’s economic growth forecast to 1,5% from the initial projection of 2,8% due to drought and declining international prices. The latest revised forecast by IMF comes after Finance minister Patrick Chinamasa in July also revised Zimbabwe’s economic growth rate from 3,1% to 1,5% due to drought-induced underperformance in agriculture.

While macro indicators remain weak, it has been encouraging to see continued thawing in international relations demonstrated by increased funding into the country. Zimbabwe and EU this month signed five financial agreements amounting to €89m (part of a larger available tranche of €234m earmarked for Zimbabwe) for support in health, agriculture and institution building.

Corporate earnings continue to show headwinds in the consumer environment: Innscor reported a 6,5% fall in revenue as volumes and average prices contracted. However the group managed to reduce Opex by 2% supported by continued restructuring of operations. This has become a key theme where in the absence of consumer liquidity and demand to effectively stimulate run-rates, corporates wil have to focus on improving efficiencies to defend profitability. We do believe that there are opportunities in select counters that are becoming oversold at current levels.

Key recommendations
lDelta (Market capitalisation: US$1,01bn, Rating BUY, TP US$1,18). Delta this week commissioned the Fairbridge Brewery which will produce an additional 1m hectolitres of the higher margin Chibuku Super (new overall capacity 3m hectolitres in this segment). Management has also reduced prices in the mainstream beer category this week ahead of the festive season to defend volumes. Delta is trading on a PER (+1) of 15.6x and we believe it is becoming oversold at current levels.

lOK Zimbabwe (Mkt cap US$70,2m, Rating BUY, TP US$0,10), trades on a PER (+1) of 12.6x and EV/Ebitda (+1) of 4.2x. Despite short-term headwinds; we believe this remains a well managed business with significant footprints countrywide; management remains focused on cost reduction and margin defence (FY15 GP margin 17,8%). We believe this stock is becoming oversold at current levels.

lCBZ (Mkt cap US$68,72m, Rating BUY, TP US$0,20), we maintain our view that CBZ’s 1H15 earnings performance exceeded expectations as the diversification of their income streams began bearing fruit. NPLs were marginally lower h/h, but we believe their strategy going forward in improving asset quality will leave the bank with a cleaner book come FY14. CBZ currently trades at a P/Bk (+1) of 0.20x

Inter-Horizon (IH) Securities is an independent advisory boutique facilitating trade on the Zimbabwe Stock Exchange.

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