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ZSE shows first sign of recovery

THE market returned to the green in the month of April, as it rose for the first time since February 2015; total market capitalisation closed 7,91% higher month-on-month at US$3,03 billion.

Financial Matters,IH Securities

The industrial index was up 8,38% to 105,79 buoyed by gains in all heavyweights with BAT, up 8,84%, Delta, up 24,44% and Econet, up 2,33%.

The mining index was up 3,23% on the back of gains in RioZim and Bindura of 5,77% and 2% respectively. Other significant gains for the month were seen in Proplastics, up 52,78%, OK Zimbabwe, up 4,11%, Innscor, up 17,46% and Art, up 16,67%).

The month’s biggest losers were Radar, Hippo, Ariston, Seed Co and ZPI, down 35,08%, 18,52%, 13,46%, 12,5% and 8,42% respectively.

Monthly flows

Activity remained depressed as turnover dropped by 14,5% in April to US$14,05 million; average daily trades for the month came in at US$702 290. Delta, National Foods and Econet made the biggest contribution to total value traded, contributing 38%, 10% and 7% respectively. Total volume traded rose 93,06% to 188,43 million shares.


Both Delta and Econet are due to announce their full-year earnings soon, we anticipate the numbers to reflect the increasingly difficult operating environment in which both companies have had to navigate.

Following the 4Q16 trading update from Delta, where the company continued to leverage its product mix, we saw a decline in volumes across all beverages y/y, however on a q/q basis, SBs and sorghum volumes recorded a 6% and 15% increase respectively reflecting the beginnings of some recovery albeit off a low base.

We expect Econet to report lower revenues as voice remains affected by the shift to VoIP and the regulatory tariffs effected by government. We, however expect the full extent of reductions in salaries to filter through and for cost optimisation to remain a priority.

Despite strained corporate earnings, the market has started registering notable gains and we expect the industrial index to remain in the positive as bids improve in counters such as Delta, BAT and Innscor where valuations have started to become attractive.

Key recommendations

l Delta (Market capitalisation US$871,02 million, Rating BUY, TP US$1,03), though top-line remains under pressure, we have started seeing some stability beginning to come through in select lines, granted off a low base. We estimate Delta trades in PER (+1) of 11,4x and EV/Ebitda of 5,9x.

l CBZ (Market cap US$75,60 million, Rating BUY, TP US$0,23), trades on a PER (+1) of 1,7x and P/Bk (+1) of 0,2x to FY16 which places it at a discount to comparable companies. We believe that the bank’s continued efforts to diversify income streams and rolling out new products bodes will see earnings performance remain high come year-end.

l National Foods (Market cap US$143,64 million, Rating BUY, TP US$2,65), trades on PER (+1) 10,5x to FY16 and an EV/Ebitda (+1) of 7,0x to FY16. 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.

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

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