Stock valuations skyrocket

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Discounted market capitalisations are prevailing on the Zimbabwe Stock Exchange.

STOCK valuations are at historic highs, thanks to the devaluation of the local currency with some counters commanding price-to-earnings (P/E) ratios as high as 862 and trading at massive premiums to their book values.

Chris Muronzi

As at October 31, stocks had surged to their highest valuations ever, after investors dumped cash and near-cash asset classes amid fears the currency would be left to freefall by the central bank.

Reserve Bank of Zimbabwe chief John Mangudya announced plans last month compelling corporates and individuals to open new foreign currency accounts (FCA), a move construed as government’s admission the local currency introduced two years ago on a par basis with the US unit was no longer valuable.

The current market valuations are the highest the Zimbabwe Stock Exchange (ZSE) has ever reached since dollarisation and the introduction of the bond notes two years ago.

Meikles Ltd had the highest P/E ratio at 862. This means an investor would need to invest US$862 for a dollar in Meikles earnings and a price-to-book premium of 1,72.

PPC has a P/E ratio of 224 and a P/B ratio of 0,26, showing a discount of 74%. Ariston had a P/E ratio of 205,08 and P/B premium of 2,77.

While shares are at a peak in terms of market valuation, the local currency is trading at a discount of as much as 300% to the US dollar.

With a US$17,28bn valuation as at 31 October 2018, the market was valued at around US$5,7bn, a realistic valuation of the market.

In the same period prior year when the market first rallied ahead as inflationary pressures rose after successive bond notes issues the highest P/E valuation recorded in the period at 519,38 for PPC. This meant an investor had to invest US$519 to get a dollar in PPC earnings and P/B premium of 8,86.

General Beltings had a P/E ratio of 459,8 and P/B ratio 2,10. BAT had a P/B premium of 62,98 and a P/E of 84,44 to October 31 2017.

As at October 31 2018, the stock had a P/B ratio of 48,72 and a P/E of 58,46.

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