A Delta boost for ZSE

HARARE - Delta Corporation’s feat of attaining a $1 billion market capitalisation could attract more foreign investor participation on the local bourse, which has been under-performing due to liquidity challenges, analysts say.

Last week the beverages manufacturer became the first company listed on the Zimbabwe Stock Exchange (ZSE) to reach $1 billion market capitalisation.

Foreign investor participation on the local bourse has been on the decline mainly as a result of political uncertainty and the implementation of the country’s controversial indigenisation regulations.

“This is an issue that is widely followed by investors as there are some investors that are mainly interested in investing in companies with big capitalisations and the moment you have a company that is worth a billion dollars, it brings our market into the spotlight, bringing investors to the Zimbabwe Stock Exchange,” Investments analyst Ranga Makwata said.

“It’s really a good story for the market like ours.”

He said the counter had always been attractive to investors, especially foreign.

“The fundamentals of Delta have always been strong and it was only a matter of time before it hit $1 billion because it has always been the darling of most foreign fund managers looking to invest in Zimbabwe,” he said.

On whether other counters could reach the exploit in the short to medium-term, Makwata said that would be determined by the business models of the companies.

“The issue of market capitalisation is driven by fundamentals of the business and we do have one or two other companies that have compelling fundamentals to deserve valuations close to $1 billion, just like Delta,” he said.

The re-rating may not happen in the interim but in the near future and subject to improving macro-economic conditions we might see some serious upward price adjustments among the top companies.”

“We have potentially big companies especially in mining where the likes of Zimbabwe Platinum Mines are trading at close to $1 billion and it is unfortunate they are not listed locally.” Makwata added.

He said the continued growth of the local economy could also contribute to the growth of companies’ values due to increased economic activity and improved corporate profitability.

“The level of market capitalisation does not boost economic sentiments but it’s the other way round where the economy does boost the market,” he said.

Widely regarded as one of the best performers on the local stock exchange, Delta recorded a 36 percent revenue growth to $544,8 million on prior year while operating income grew 44 percent to $98,3 million in the full year to December 2011.

Attributable income stood at $73,7 million, 36 percent up from $53 million at the end of 2011.

Best Chideme, an equities analyst with MMC Capital Research, said Delta’s business model gave it an edge over its competitors.

“Delta currently has control of over 90 percent of the beverages market in the country and as such their products gives them a competitive advantage,” he said.

“The company has a strong business model and this usually translates to strong earnings.”

Chideme said it is not surprising that Delta has reached the $1 billion market capitalisation since foreign investors, who are prevalent on the local stock exchange, favour blue chip counters.

“Foreign investor participation on the local bourse has set new heights for blue chips, indicating the impact of increased financial muscle on the stocks.

“The trend that has been happening in the past few months is that demand for blue chip counters’ stock has been increasing and now we have reached a stage where demand is not being met by suppliers. This clearly pushes the price of stocks up,” he said.

Chideme however, said with liquidity constraints and the uncertain political landscape bedeviling the economy, the stocks are likely to stabilise in the short term.

According to market insiders trade on the ZSE have largely been concentrated in Delta, Innscor Africa and Econet Wireless.

With a market capitalisation of $814 million according to Tuesday’s share price of $4,75, Econet is another behemoth with potential to reach the same achievement.

Both Econet and Delta benefit from their cash generating capacity.

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