Zimbabwe | ZSE

The operating environment remained challenging characterized by a depreciating local currency and increasing inflation despite global inflation slowing down. Regardless, Dallaglio remained one of the top three gold producers in the country. Gold sales in HY23 closed the period at 1,080kgs versus 933kgs recorded in HY22. The volume growth of 16% was largely driven by increased plant throughput at Eureka mine. Consequently, a turnover of US$62.66mn was achieved under the mining business compared to US$51.72mn recorded in HY22, translating to an uptick of 21%. The positive performance was on the back of increased output aided by firmer gold prices. EBITDA for the mining business closed the period under review at US$11.66mn compared to US$19.93mn registered in HY22.

The operating environment during the first half of the year saw resurgence of hyperinflation as the country’s month-on-month blended inflation rate spiked from 0.73% in January to 75.5% by June 2023. Contractionary interventions by monetary authorities saw the benchmark interest rate in the period reverting to 150% after being revised down to 140% in the first quarter. In the period under review, First Capital Bank (FCB) completed its migration to the dollar-denominated bourse, Victoria Falls Stock Exchange, paving way for the bank to adopt the United States Dollar as its functional reporting currency. Due to the devaluations in the local currency, the bank’s capital position decreased 2% in the 6 months to June to US$48mn. This level is still above the regulatory minimum of US$30m, with the bank’s capital adequacy closing the period at 37%. Loan activity for FCB in the first half remained firm with loans and advances to non-banking entities growing 23% to US$79.5mn and 95% of business having been underwritten in foreign currency.

The country’s agricultural sector continues to be pivotal, with c. 60% of the working population directly or indirectly employed in the sub-sector as per World Bank estimates. Economic performance is largely correlated with developments in the agricultural sector via value chain additions downstream. The past three farming seasons have seen a shift in maize production as area under cultivation grew from 0.87mn hectares to an average of 1.8mn hectares annually. The government has notified of intention to export 40,000 tonnes of maize to East Africa, signaling the resumption of grain exports by the country. For wheat, the country harvested a record 375,000 tonnes in the 2022/23 season and expects to increase production in the current season off increased hectarage (+7.5%). A total of 294mn kg of tobacco was harvested against a target of 275mn kg, representing a positive variance of 45% to the last season. Notably, Zimbabwe exported its first 30 tonnes of industrial hemp in 2022. Growth for Agriculture, Hunting and Fishing and Forestry is expected to grow by a revised 9.7% in 2023, from a 14.1% downturn in 2022.

Based on December 2022 financial results, Zimbabwean banks are trading at an average historical Price to Book ratio of 3.65x compared to regional peers trading at Price to Book ratio of 1.13x. This implies Zimbabwean banks have been trading at 223% premium compared to regional peers despite the former realizing negative real returns. Banks within the IH Universe (CBZ, FBC, FCB, and NMB) are currently trading at a weighted P/BK (+1) of 2.56x against regional peers trading at 1.14x. Based on this aggregate valuation, we recommend reducing exposure to Zimbabwean Banks at current levels.

According to Seed Co Limited management, the period under review saw a worsening harsh operating environment where inflationary pressures, scarcity of critical inputs, high prices, unstable exchange rates, liquidity challenges, policy inconsistencies and uneconomic interest rates brought about an unprecedented difficult operating landscape. Uncertainty around commodity prices and unreliability of the payment system for produce delivered to approved buyers had a direct impact on farmer interest in certain cropping lines especially the winter wheat production. The situation was exacerbated by the absence of reliable power and water supply. Resultantly, winter wheat sales were subdued when compared to prior year, dropping by 7%. Contrarily, maize and soyabean seed sales volumes increased by 12% and 49% from prior year respectively supported by the heightened seed demand on the back of improved rainfall and government programmes aimed towards ensuring food security. Consequently ...

The Zimbabwean economy continues to face inflation, currency, and exchange rate headwinds affecting economic activity which in turn affect the property sector. As of June 2023, the inflation rate stood at 175.8%, with a month-on- month inflation rate of 74.5% according to ZIMSTATS. Due to disparities between the official and parallel exchange rate, suppliers of construction materials practice forward pricing leading to significant cost pressures on property owners and developers. The market also remains affected by slow space uptake in the CBDs due to low formal economic activity. The retail and residential sectors continue to benefit from increased demand for quality space.