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Investors renew Econet romance

Investors and asset managers have renewed their romance with Econet shares if the sudden interest in the Zimbabwe Stock Exchange (ZSE) is anything to go by.

By Chris Muronzi

Perimeter wall at the Econet Wireless head offices in Msasa, Harare.
Perimeter wall at the Econet Wireless head offices in Msasa, Harare.

After Econet’s share price suffered from its controversial rights issue early this year, plunging from a high of US31c to US13c, it seems the market has renewed its love for the stock and has re-rated the counter.

The company announced plans to raise US$130 million through a rights issue in February at a severely discounted price to retire debt.

The share price was last week trading at US21 cents, which saw the group’s market cap jumping from US$387 million to US$626 million, creating value of US$239 million in capital gains.

Its valuation matrices are looking good, too. Econet’s price-earnings (P/E) multiple has gone up from 13,7 pre rights issue announcement to last week’s 17,4 times. The P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share earnings.

Econet’s price-to-book (P/B) ratio pre-rights offer of 0,75 came down to a low of 0,53 post rights issue announcement.

P/B ratio is a ratio used to compare a stock’s market value to its book value and can be used to determine if a stock is trading at its intrinsic value or is cheaper.

Essentially, Econet, which had been trading at 75% of its book value before the rights issue announcement, traded at a discount of 47% to its book value after the rights issue announcement.

On Tuesday, 322 144 Econet shares were traded with a value of US$87 000 at US27 cents up 3,8% from the day before.

On Wednesday the share firmed 2,6% to close at US27,75 cents.

Econet shares worth US$4,5 million were traded on the exchange this week, representing 65% of the total market turnover.

Valuation matrices on the same day showed Econet had a P/E ratio multiple of 22,96 and P/B ratio of 1,14 from a low of 0,53, showing the counter could be trading at premium to its book value.

On a quarter-to-date basis, Econet is up 72,9% but still down 7,5% on a year-to-date basis.

Econet’s share price had increased by 68% on a like-for-like basis since its highest valuation of US30,06 cents.

Value investors reckon the mobile phone operator is now worth a lot more after retiring debt.
In the six months to September 2016, the company had short-term interest-bearing debt of US$104 million.

The company paid US$15 million in finance charges in the same period.

This means US$15 million, which could have gone to the bottom line, instead went to banks.

Should Econet retire part of the debt, analysts reckon this will significantly alter the group’s capital structure.

Econet as at September had total assets of US$1,190 billion and total liabilities of US$526 million, implying a book value of US$664 million.

Econet owes US$13,2 million to China Development Bank, US$75 million to Ericsson Credit AB, US$15 million to African Export and Import Bank (Afrexim) and about US$6 million to the Industrial Development Corporation.

Analysts see liabilities coming off when rights issue proceeds are applied. When this happens, the stock could continue rising.

But the group’s financial statements due anytime now could accurately reveal the value of the group.

IH Securities (IH) last week recommended Econet as a buy and sees an upside in the counter.

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