Confidence returns to banking sector

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Underperformance of the Zimbabwe Stock Exchange and huge voids in the property sector has seen most insurance companies reducing their exposure to traditional assets

THE Zimbabwe Stock Exchange (ZSE) has maintained its downward trend since February 2015 as it fell once again in the month of February. Total market capitalisation closed 3,24% lower month-on-month at US$2,85 billion.

Financial Matters IH Securities

The ZSE industrial index was down 3,44% to 99,50 weighed down by losses in heavyweights BAT and Econet of 6,25% and 1,78% respectively, offsetting a 3,99% gain in Delta.

The mining index dropped 2% on the back of a 5% loss in Bindura. Notable gains for the month were recorded in GB Holdings, up 100%, Old Mutual, up 5,89%, NMB, up 5,56% and Powerspeed, up 0,83%. The month’s top losers were Cafca, down 43,88%, Mash, down 23,64%, Lafarge, down 22,86%, Masimba, down 22,22% and Proplastics, down 21,74%.

Monthly flows

Activity picked up in February as turnover rose 38,44% to US$15,73 million; average daily trades for the month came in at US$749 100. Econet, Delta and Afdis made the biggest contribution to total value traded, contributing 40%, 35% and 6% respectively. Total volume traded was up 53,89% to 95,86 million shares.

Outlook

We anticipate an active March from a corporate earnings perspective as December year-enders publish reports. We expect to see continued pressure on the consumer space as companies grapple to improve efficiencies and enhance margins amidst lower spending and downward pressure on pricing, from cheaper imports.

Interestingly, bank earnings released so far reflect some measure of confidence returning to the banking sector post-central bank interventions to de-risk the sector, like the Zimbabwe Asset Management Corporation.

However, we do anticipate generally subdued lending in CY16 as macro conditions tighten. At this time, we favour counters like Delta where the rate of earnings decline has decelerated and valuation is beginning to look attractive after a period of aggressive selling.


Key recommendations

l Innscor (Market capitalisation US$97,49 million, Rating BUY, TP US$0,54), trades on a PER (+1) of 4,29x and EV/Ebitda (+1) of 1,39x. We believe it is oversold at current levels. Strategically, it is our view that the current unbundling process will unlock value in the group by creating more efficient standalone units, albeit liquidity will become an issue.

l Simbisa (Mkt cap US$75,82 million, Rating BUY, TP US$0,30), trades on PER (+1) 12,06x to FY16 and an EV/Ebitda (+1) of 4,85x to FY16 which places it at a discount to comparable companies. We believe that the aggressive growth strategy within SSA QSR space bodes well for future earnings.

l Delta (Mkt cap US$662,6 million, Rating BUY, TP US$1,02), though we expect top-line to remain under pressure in 2016, we are starting to see a deceleration in the rate of volumes decline across portfolios. We estimate Delta trades in PER (+1) of 8,98x and EV/Ebitda of 4,62x.

Inter-Horizon (IH) Securities (Pvt) Ltd is a securities trading company facilitating trade on the Zimbabwe Stock Exchange.

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