Economy recovering in fits and starts

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The economy appears to be recovering in fits and starts, with different sectors leading the way. A look at the performance of the listed companies on the ZSE provides a glimpse into the economy as a whole, and the factors affecting each sector. Many would have guessed that the retail sector would perform the best this year, rising 35% in value to $130 million. All companies in this sector, whether selling furniture, clothing or FMCG goods, has posted an increase in both operating performance and value. Truworths has led the way, closely followed by Pelhams and Edgars. A return to Zimbabwe’s well-established credit culture has seen an outstanding recovery in this sector, and the recent increase in civil servants’ salaries should provide even greater growth.

The mining sector deserves special mention, as its performance on a year-to-date basis is showing a 20% decline in value. The only profitable company in the grouping is Hwange, whose board was recently sacked amid mysterious circumstances. The other companies, namely Bindura Nickel Corporation, RioZim and Falcon Gold all exhibit declines in excess of 40%. Bindura and Rio are desperately in need of recapitalization, and the former is still under care and maintenance. It is reported that between the two companies they need to raise capital amounting to $90 million, a mammoth task considering the value of the entire sector is just $138 million. Indigenisation remains a major hindrance to their capital raising initiatives. On the other hand, Falcon Gold was recently acquired by New Dawn Mining, a Toronto-listed mining company with a number of other assets in Zimbabwe. They have been able to provide the requisite funding to allow for a restart of operations at the Dalny and Golden Quarry mines, and recently signed a Memorandum of Understanding with government concerning their indigenisation plans.

Recovering from a decade of economic turmoil, Zimbabwe is underinsured. This sector is at a more-or-less breakeven position when compared to its value at the beginning of the year, but its performance has largely been carried by one company. Fidelity Life witnessed a 431% increase in attributable profit in its latest interims published today, and has grown 445% since January 3. Most other counters have performed poorly, with Afre Corporation posting a 44% decline owing to the recent scandals that affected their operations. A number of the significant players in the insurance industry have bemoaned the weak barriers to entry in this sector, due partly to the low minimum capital requirements stipulated by the regulator.

The building and associated industries sector has witnessed a decline in value of over 7%, as a number of counters have published poor results. Turnall is still the champion of the sector, having risen 48% this year, but has recently suffered a decline in margins which hit the share price hard. Lafarge shut down its plant for several months as it sought to upgrade key areas of the production process, resulting in a loss in the first half of the year, but profits are expected by year end. Worth over $221 million, the sector faces stiff competition in building supplies from informal traders and cheap imports. Construction activity has also been constrained by a lack of liquidity and lending in the market, particularly affecting Murray & Roberts, which has lost 18% of its value this year.

The financial sector, largely dominated by CBZ and Barclays, has witnessed modest growth. However, a number of smaller cap companies have shown tremendous progress on the back of an increase in national deposits. Similarly, ABC’s adventure into commercial banking has paid dividends, allowing the bank to grow its presence in Zimbabwe considerably and allowing for a 100% increase in the share price. While Zimbabwe’s deposits to GDP ratio is commendable, the tenure of these loans is too short. Most banks are lending for short periods, and a significant uplift in performance will only be witnessed when depositors have enough faith to leave their money in long term savings accounts.

By |September 13th, 2011|Categories: Markets, Research|

About the Author:

Kudzanai’s background in financial journalism with ZFN, combined with a continuing education in financial management, provide a solid grounding for his work in the research department.