ZIMBABWE Stock Exchange-listed NMB Zimbabwe Holdings’ (NMBZ) top line in United States dollars in the first half of the financial year 2025 was nearly 50% lower compared to the prior period, mainly due to a decline in revaluation gains.
Lending and fees income were more than 40% higher due to a sector-wide increase in deposits and transactional activity, but this was not sufficient to offset the impact of the foreign exchange revaluation losses.
The cost-to-income ratio rose to 84% because of one-off restructuring costs that were incurred during the period. As a result, net earnings in the first half of the financial year 2025 were significantly lower compared to the prior period.
Interim dividend forfeited
Total asset growth was largely driven by growth in the loan book, which leveraged increased deposits. NMBZ’s net cash position, however, was slightly weaker because of net outflows from operating, financing, and investing activities. No interim dividend was declared.
Forecasts
NMBZ’s recovery in depositors’ funds will likely be sustained in the second half owing to a bumper harvest in the agriculture sector, and this will underpin higher interest income in financial year 2025 regardless of tighter lending margins. The stable Zimbabwe Gold (ZiG) will continue to soften foreign exchange- and fair value-related gains, and we opine that fees and commissions will somewhat cushion the impact on total non-interest income. Although we expect operating expenses to soften in the second half, net earnings in financial year 2025 will likely be lower than the prior year, and we expect a recovery as early as financial year 2026.
Valuation
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We revise our financial year 2025 price target for NMBZ downwards to US16,47c because of weaker earnings expectations. However, the counter continues to hold strong upside potential due to price weakness and an improvement in its liquidity on the Zimbabwe Stock Exchange. Regional peers were used to generate forward-looking multiples, and these were adjusted for differences in country risk. In addition, a liquidity risk discount was applied because the counter is tightly held. We maintain our BUY recommendation on the counter.
Investment thesis
The Reserve Bank of Zimbabwe is expected to maintain a tight stance on monetary policy throughout the year, and banks’ credit creation ability using local funds will remain constrained. We also add that the cost of credit lines — which is cutting into lending margins — has added to the drag. That said, NMBZ’s recovery in depositors’ funds will likely be sustained in the second half owing to a better agriculture marketing season, and this will underpin higher lending income in financial year 2025 regardless of tighter margins.
The stable ZiG will continue to soften foreign exchange- and fair value-related gains, and we opine that the group will look to fees and commissions to somewhat cushion the impact on total non-interest income, given the continued growth in formal United States-dollar transactions. While earnings are expected to dip in the financial year 2025 because of restructuring costs, we expect a recovery from financial year 2026 onwards.
- This article was written by Morgan & Co, a securities firm for a new era, whose local knowledge and expertise is twinned with international experience to grow the Zimbabwean capital markets.
