Zimbabwe Banks Overvalued: Zimbabwe Banks are trading above their historical average multiples as well as above comparable regional banks in more stable economic environments. Profitability metrics for the sector have been elevated over the past two years, owing to inflation driven earnings and non-cash revaluations. However, we have observed more stable economic indicators over the past twelve months, particularly inflation and exchange rate, we forecast this stability to spill over into 2022. On this backdrop, we expect margins to correct downwards while revaluations are expected to smoothen – interim results being released in the June 2021 period are already reflecting this trend. As a result, we believe the current valuations are not sustainable as earnings moderate; we recommend reducing exposures to the banking sector at these levels.
