Delta and Econet could become investors’ favourites on the market after a leading securities firm recommended the counters, among others, as good buys.
IH Securities sees an upside in the counters on the Zimbabwe Stock Exchange (ZSE), according to a report.
The firm recommended in its April Monthly Snapshot a buy on Axia, Delta and Econet based on its analysis that expects a one-year return of at least 20% on the counters.
This is despite a combination of macroeconomic challenges that have seen turnover on the ZSE falling by 58,81% to US$11,13 million with average trades of US$654,870 realised during the month and a 69,5% slump in volumes to 74,03 million shares in April.
“In addition, while the market is trading at relatively high multiples, we believe there is still considerable value in some counters at current levels,” said IH.
On the bourse, said IH, general corrections are visible as prices align with fundamentals, coupled with some support in select names at current levels.
On Axia, IH said it anticipates that the recent addition of a new distributorship at DGA, adding upwards of US$2,5 million in revenue monthly, together with growth at TV Sales and Home will result in an 12,7% increase in revenue during FY17.
On Delta, IH said the business continues to have strong operating cashflows amounting to US$87 million in the first half of 2017, with a reduced capex burden and a strong balance sheet.
“Hence we expect the company to maintain an aggressive dividend policy as reflected by the current dividend cover of 1.2x as at H1. The board has since declared a second interim dividend of 1USc,” said IH.
On Econet, IH anticipates continuous innovation, and greater contribution from EcoCash and broadband will uplift revenue beyond the US$600 million mark.
“We anticipate a rapid jump in net income for FY18 to US$50,5 million,” added IH of Econet.
The market, said IH, rallied in the month of April, gaining 10,11% to close the month at a total market capitalisation of US$4,33 billion with the industrial Index rising 3,05% buoyed by gains in Delta (0,29%), Econet (12,46%) and BAT (1,31%).
The mining index was up 13,27% sustained by a 25% gain in RioZim. Other notable gains were seen in Willdale (40%), Masimba Holdings (26,32%), Barclays (20%) and Ariston (20%). Significant losses were however recorded in Zimre Holdings (-15,15%), Star Africa (-10.71%), Lafarge (-6,77%), Colcom (-0,67%) and NMB (-0,60%).
“While the cash and forex payment challenges persisted during the month of April, with the economy continuing to reel under pressure, new statistics and projections continue to point to economic recovery in the medium-term,” said IH. “The IMF reviewed Zimbabwe’s economic growth outlook for 2017 upwards to 2% from its earlier forecast of negative 2,5%. This comes as farmers have started delivering maize produced under Command Agriculture to the GMB. Zimbabwe is expecting a bumper harvest (a development which will reduce the country’s import bill by around $300mn), on the back of good rains brought about by the La Nina as well as government’s investment into the agriculture programme,” added IH.
The securities firm said efforts by government to reduce the trade deficit appear to be yielding fruit as the March trade balance declined 2,36% year-on-year to US$304,2 million, with exports increasing 35% year-on-year to US$224, 8 million on the back of the 5% export incentive.
“During the month, the country received a much-needed lifeline from the Afreximbank (US$220 million) as part of two nostro stabilisation facilities meant to assist with clearing outstanding forex payments; the RBZ governor John Mangudya insists that the nostro facilities together with the tobacco export proceeds will allow the apex bank to clear all outstanding payments (currently US$185 million) by the end of the year,” said IH.