Sneak peek into the 2020 quoted companies survey

Ceteris Paribus:Respect Gwenzi

IT is time of the year when listed companies are recognised for their financial performances. The Zimbabwe Independent holds its 23rd annual Quoted Companies Survey 2020 under the theme “Soaring Under Turmoil, Business Beyond Covid-19”. This year it has partnered Equity Axis as Research Consultants for the initiative. The Independent recognises that the research and analysis of financial performance as well as objective analysis is best conducted by independent researchers.

This increases reliability and objectivity of the analysis and adjudication processes.

At Equity Axis, we are very pleased for the recognition and having such a huge responsibility bestowed upon us. It is, however, very befitting given our stellar run, coming from nothing barely five years ago, to become the leading economic and financial research house in Zimbabwe.

Our research work covering the areas of economics and finance has placed us at the pinnacle of business research in Zimbabwe. Daily, we check the pulse of the economy and of business through analysis of economic and financial data. This data on the economic front includes inflation, trade, government revenue and expenditure performance, exchange rate, GDP and specific sectorial performances.

On the financial front we have, over the last four and half years, analysed annual and half year financials for listed and non-listed entities such as banks and insurance companies. By analysing these financials and publishing our findings, forecasts and recommendations to management and investors, our service has become highly sought after by business executives and investors.

As the most prestigious business event on the calendar, I have indeed followed it closely since my early days as a junior financial analyst working for a pension fund and later a stockbroking firm. I have things that I thought would make the event better and the panel of analysts I seated with to adjudicate the 2019 financial performance concurred on some the proposed changes. While elating, being given the chance to do this type of special work, in a very unique year such as 2019, was a very tall order.

At the outset, as I explain on the adjudicators’ page, 2019 was a unique year in a very significant way. Financial performance as seen through the lenses of financial reports was highly distorted. First, through Statutory Instrument (SI) 33, which introduced the RTGS currency and fixed its conversion at parity to the United States dollar. This was inconsistent with IAS21, an accounting standard which deals with effects of changes in foreign exchange rates as well as the Companies Act Chapter 24:03. The fundamental impact of assuming or converting the US dollar at parity with RTGS was that the financial position of reporting companies could no longer be relied upon for purposes of financial analysis.

The discrepancy therefore discredited most analysis techniques conventionally applied when rating companies. In our analysis we, however, still realised that there are some financial matrices that are independent of the impact, such as volumes performances and some liquidity ratios and therefore with a degree of moderation of the earnings, a reliable analysis would be conducted. We did just that.

However, 2019 was not only unique because of the impact of SI 33, but also because the currency changes brought about a lot of volatility in the economy which fundamentally changed the operating environment. As a consequence, inflation stemming from exchange rate weakness resulted in sharp contraction in sales as purchasing power was eroded.

Earnings were generally inflated showing wide swings abated by the distorted aforementioned positions. All these are, however, known challenges, but we went beyond this and took a moment to study other markets and took note that emerging and winning companies under Covid-19 are those that put technology in the front.

At present the top four companies on the NYSE are tech companies with business models that defy Covid-19. We, therefore, decided to include an award recognising innovation and technology. We also noted increased investor conscience on sustainability matrices and we included categories awarding companies doing well in this regard.

Zimbabwe will sure move beyond the turbulence but companies that survive and maintain market leadership are those that will self-disrupt.

Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net.