ZSE maintains downward trend

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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 a downward trend since February 2015 as it fell once again in March. Total market capitalisation closed 1,27% lower month-on-month at US$2,81 billion.

Financial Matters IH Securities

The industrial index was down 1,9% to 97,61 weighed down by a 5,59% loss in heavyweight BAT offset by gains in Delta and Econet of 4,17% and 8,29% respectively.

The mining index rose 2,04% to 19,53 on the back of a 5,26% gain in Bindura.

Top gains for the month were recorded in ZHL, up 44%, starafrica, up 25%, Old Mutual, up 22,36%, Art, up 20% and Willdale, up 20%.

The month’s top losers were Hippo, down 22,64%, Seed Co, down 22,19%, Cafca, down 19,82%, Dawn, down 19,5% and Barclays, down 17,65%.

Monthly flows

Activity picked up slightly in March as turnover rose by 4,44% to US$16,43 million; average daily trades for the month came in at US$782 430. Delta, Innscor and Econet made the biggest contribution to total value traded, contributing 38%, 21% and 15% respectively. Total volume traded was up 1,82% to 97,60 million shares.

Outlook

March saw the release of a number of financial results, the majority of which continued to reflect declining running rates at both revenue and earnings levels. Average revenue growth for the 30 reporting companies was 1,6%.

Encouragingly, we saw a lot of companies making considerable effort to contain costs through various rationalisation measures to defend margin. The banking sector surprised on the upside; listed banks showed a combined revenue/income growth of 9,7%; total deposits were up by 10,7% to US$2,7 billion.

We did however see a more cautious approach to loan book growth; with average advances dropping by 2,6% to US$1,8 billion. Non-performing loans visibly declined given interventions from Zimbabwe Asset Management Corporation.

The tobacco season opened in the last week of March with the opening price coming in 29% higher than last season’s opening price at US$4,50 per bale versus US$3,50 in 2015.

It is, however, difficult to tell at this point what total output for 2015/16 season will be given effects of the El Nino-induced drought.

Key recommendations

l Delta (Market capitalisation US$662,6 million, Rating BUY, TP US$1,02), though we expect topline to remain under pressure in 2016, we are starting to see some stabilisation in volumes across the portfolios. We estimate Delta trades in PER (+1) of 9,5x and EV/Ebitda of 4,9x.

l National Foods (Mkt cap US$143,64 million, Rating BUY, TP US$2,64), trades on a PER (+1) of 9,4x and EV/Ebitda (+1) of 6,3x. We believe it is oversold at current levels. The maize division generally performs better in seasons where national agriculture output is low, therefore we expect continued growth in this segment to FY16.

l CBZ (Mkt cap US$75,6 million, Rating BUY, TP US$0,23), trades on PER (+1) 1,7x to FY16 and a P/Bk (+1) of 0,9x to FY16 which places it at a discount to comparable companies. We believe that the bank’s continued efforts to diversify income streams bodes well for them particularly in tapping into the growing informal sector.

Inter-Horizon (IH) Securities is a securities trading company facilitating trade on the ZSE.

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