ZSE: Election impact minimal

HARARE - Foreign investor appetite for heavily capitalised counters on the Zimbabwe Stock Exchange (ZSE) seems to be working in Delta Corporation (Delta)’s favour.

Despite all the uncertainty over a pending election and harsh investor policies such as the indigenisation Act that requires foreigners to cede a controlling 51 percent stake to locals, the blue-chip counter is among a chosen few that seems to provide the much-needed comfort for the foreign investor.

The listed beverage-maker last year achieved a massive feat of surpassing the $1 billion capitalisation on the local bourse and is set to make history again this year by reaching the $2 billion mark.

Ranga Makwata, an investments analyst, said top-notch counters on the ZSE have become a haven for foreign investors due to their low risk profile.

“The interest is on heavily capitalised companies like Delta, Econet Zimbabwe, Innscor Africa, OK Zimbabwe among others because they have strong business fundamentals such as being profitable, cash generative capacity and ready demand for their products and services. Delta is obviously the most preferred because of its superior qualities,” Makwata said.

Delta’s share price is up 49 percent year-to-date and a massive 129,23 percent year-on-year.

“The rally in Delta’s share price, as well as those for other blue chips, is being driven by foreign investor interests that are looking beyond the current economic conditions including the impending elections,” he said.

On whether Delta’s share price of 149 cents will remain attractive in the short to medium term, Makwata said the continued growth of the local economy could also contribute to the growth of company’s values due to increased economic activity and improved corporate profitability.

“The election is already priced-in, so it is less likely to have huge impact on share prices,” he said.

Per capita consumption of alcohol in Zimbabwe, Makwata said, is still lower than in other regional countries and that represent huge potential for Delta which is largely expected to materialise as the operating environment keep on improving.

SABMiller, which owns a 38 percent stake in Delta and now accounts for it as an associate, expects commercial beer consumption per capita to reach as much as 30 litres over the next 15 to 20 years in most of its African markets outside South Africa.

The global brewer is planning to sink $2,5 billion into the continent over the next five years to build and revamp breweries, which now earns 75 percent of its profit from emerging markets.

SABMiller expects trading conditions to be broadly unchanged, with growth continuing in developing markets.

Delta which manufactures leading brands such as Coca Cola, Lion Lager, Castle Lager, Castle Light, Chibuku among others and sold a total of 6,9 million hectolitres in the full year to March 2013, is expected to continue to dominate the country’s beverage sector, according MMC Capital.

“Delta dominates the Zimbabwean beverages market and has a sound business model and is thus set to be one of the most traded stocks on the local bourse with an average daily trading turnover of around $470 000,” said the advisory firm.

MMC Capital noted that the liquid nature of the stock which has 1 222 881 835 shares in issue at March 31, 2013, made it possible to execute large block trades without much impact on prices compared to other counters on the ZSE.

“The interest in the counter is being driven by the firm’s strong business fundamentals and a sound business model that has translated into strong earnings and high capacity to pay dividends since dollarisation of the Zimbabwe’s economy. The counter is also very liquid. Generally large cap shares are readily available and exhibit price discovery much better than small cap counters.”

In the full year to March, Delta churned out $41,3 million in total dividend payments after declaring a $3,40 cents for the period.

Earnings per share (EPS) closed the period 36 percent up at 8,49 cents per share compared to prior year.

The company’s revenues increased 14 percent in the 12 months to close at $631 million, while cash generated from operating activities surged by $44 million to $165 million, attributed to soaring product demand and acceptable product pricing.

Foreign investor participation which now attributes close to 49 percent of trades on the local bourse, according to MMC Capital will remain in favour of large capitalised counters such as Delta, Innscor, Econet and OK.

“These stocks are relatively liquid for the size of trades that foreigners engage in and have solid operating business models as well.”

The research firm however, dispelled the possibility of more billion dollar listed companies on the ZSE in the interim.

“In the short term, not many stocks are likely to surpass the $1 billion market cap mark. In the long term there is huge potential that the local bourse will be comprised of business with market caps that are above $1 billion.

“The economy is operating well below its potential hence there is room for improvement in economy creating the required pre-conditions for business growth,” said the advisory firm.

MMC Capital however, said uncertainty will continue to dominate investor’s decision when placing their funds.

“On the local front we expect market volatility to increase as the political risk outlook deterioration will dominate investor decision making. The strategy centres on picking stocks with solid operating fundamentals characterised by strong earnings generation; low gearing; high quality management and high dividend paying capacity in line with most frontier market investment strategies.”

The firm said a long term view was required in any investor considering the existing socio-economic environment.

“Investors have the ability to price risks and we believe those that have always invested in Zimbabwe have already taken elections into consideration. Elections will only have a short term effect as far we are concerned but most foreign investors have a longer horizon when they invest in markets like Zimbabwe. In this light counters like Delta will remain attractive.”

Delta, which also holds 49 percent of Schweppes Zimbabwe and 29 percent of  Afdis script, said it remained bullish despite slow consumer spending and tight liquidity conditions in the market.

“Trading conditions are expected to remain broadly unchanged. We plan to drive growth by further strengthening our brand portfolio and manufacturing process capabilities while focusing on cost effectiveness to deliver sustained value to our shareholders,” said company secretary Alex Makamure in a statement accompanying the group’s financials. - Roadwin Chirara

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