WITH sterling earnings that beat analysts’ expectations and blew the minds of asset managers, Seed Co Ltd CE Morgan Nzwere has solidified his position in the market as every investor’s dream manager in terms of value creation.
And after taking analysts and journalists through his full year financial results to March 31 2017 (FY17) last week, Nzwere put a cherry on top with an ordinary dividend of 2,92 cents and 1,46 cents special dividend, a three times dividend cover.
“We were sitting on this much cash and we didn’t know what to do with it,” he says. “We decided to give it to shareholders.”
In the words of Imara Asset Management Ltd chief, operating officer Simba Chopera, who has a position in the counter, the results blew his mind.
“Mine is not really a question but a complement to the management team. You just blew our minds with this performance. Congratulations to you and your team,” he said at the end of Nzwere’s presentation in the capital. He had every reason to say this. As at 31 May, Seed Co was among the top 20 ZSE- listed companies with the highest dividend yield, widely seen by some investors as a return on investment.
At position 20 in terms of dividend yield at 1,02%, Nzwere’s company has remained a firm favourite and an enduring blue chip over the years.
The earnings quickly triggered a run for Seed Co stock, up 8% on Friday to close at US$1,10, a day after the company announced its financials.
On Wednesday the stock was trading at US$1,12.
But analysts say the stock has already benefitted from Nzwere’s strong leadership as evidenced by the share price.
The counter, which has a book value of US$163m, is trading at a premium of 62% to its book value with a market cap of US$262m. On a quarter-to-date basis Seed Co shares are up 185%.
A better-than-expected demand for maize seed in Zimbabwe thanks to the government’s command agriculture exercise, saw Seed Co sales jump dramatically.
After closing FY16 with net borrowings of US$9m, the group found itself in FY17 sitting on cash amounting to US$18m on its books.
“If we need money from shareholders, we will come back to them,” Nzwere says.
“For now, shareholders can decide what to do with their money. We could have bought real estate for them with the money. But we want them to do that on their own. They can buy shares in real estate companies on the exchange.”
A combination of growth in profitability, increased cash sales, aggressive debt collection, reduction in inventories and the liquidation of Treasury Bills saw the group’s cash position improve significantly. After tax profit was up by 40% at US$20,7m from US$14m in FY16.
Seed Co turnover jumped 40% to US$135m helped by increased maize seed sales volumes.
“The group closed the year with a net cash position of almost 20% of annual sales which is the desired position. However, due to anticipated increased demand in the new selling season, seed production has been increased by 20% including some winter production to ensure that all markets are adequately serviced,” the group said in a statement attached to its results.
On the upside, Seed Co enjoys gross profit margins of 54%, up 1% from FY16.
Profit after tax was up 41% at US$20,7 m.
Of its current borrowings, US$30m is a Botswana debt, attracting 3% interest, Nzwere said.
He said borrowings in Malawi were punitive at 30-35% in the market.
Nzwere added his company had invested US$7,5m in research and development in the just-ended financial year. Seed Co has operations in Zimbabwe, Zambia, Kenya, Malawi, Tanzania and Rwanda.