Zimbabwe | ZSE

The trading environment during the financial year was characterized by a hyperinflating currency, rolling power outages and a fluid policy environment which resulted in challenges to industrial activity and slowed economic growth. The ongoing Ukraine/Russia war resulted in significant increases of key agricultural input costs such as fuel and fertilisers. Whilst the rainfall season was not as pronounced as the previous year, significant rains were notably received at the beginning and end of the season. Cane contribution from the company’s plantations grew 13% y/y aided by improvements in yields from 92.23tn/ hectare to 97.98tn/ hectare. There was improved control of yellow sugarcane aphid infestations through aerial spraying within the period. Cane deliveries from private farmers improved from trailing 5% y/y ...

Growth for the sector has leapt from 5.9% in 2021 to an estimated 10% in 2022. The productive capacity utilised on pre-existing infrastructure in the mining sector in 2022 remained relatively flat y/y at 81%, as per the Chamber of Mines. Local gold production increased 19% to 35.2tn in 2022, from the 29.6tn recorded in 2021 signaling a third straight year of growth. Mineral exports continued on an upward trajectory bolstered by both production increases from maturing investments and firm hard commodity prices. 2022 exports for the sector registered at US$5.67bn, up 9.65% y/y. According to the Chamber of Mines, mining costs are expected to come in 15% higher in 2023 with constraints coming from power supply deficits and foreign currency shortages. Forecasts for 2023 have pinned sector growth to a range of between 8% to 10.4%.

Zimbabwe Consumer Sector undervalued versus regional peers: The Zimbabwe Consumer Sector appears to be fairly valued compared to historical averages but cheap versus regional peers. The sector is currently trading at a weighted average P/E (+1) of 5.64x versus a weighted average historical P/E of 5.99x and regional peers at an average P/E (+1) of 16.44x. The sector is currently trading at a weighted average EV/EBITDA (+1) of 3.58x versus a weighted average historical EV/EBITDA of 4.14x and regional peers at an average EV/EBITDA (+1) of 7.97x suggesting selective buying opportunities. Despite a challenging economic environment characterized by weakening local currency and high inflation, we believe consumer demand will remain firm supported by the informal sector which makes the bulk of the economy and shows resilience to macroeconomic changes.

During the period under review, the Group introduced the EcoCash United States Dollar (USD) wallet in its quest to consolidate its participation in the USD economy. The reduction of Intermediated Money Transfer Tax (IMTT) on USD domestic money transfer transactions from 4% to 2% effective 1 January 2023 (now at 1%), helped in the adoption and use of USD on digital money transfer services. The Group also launched the EcoCash Junior wallet, a mobile wallet for children between the ages of 9 and 18, aimed at improving financial literacy and financial inclusion. According to management, this product is experiencing steady growth and will be key in the growth of the company’s subscriber base in the future. Steward Bank continued to grow its USD interest earning assets particularly in the corporate sector. This was coupled with an increase in FCA accounts which grew by 34%. During the year under review, EcoCash launched the Dura Pension Scheme, aimed at the informal sector to ensure broad-based inclusion of all workers in retirement planning. A new product that allows customers to get funeral cover as they purchase Econet data products, Data Life Cover, was also launched.

The operating environment remained challenging for the Group characterized by lagging tariffs, power shortages and a depreciating local currency. For the period under review, load shedding averaged 18 hours a day. Consequently, the business resorted to alternative sources of energy to power the network which significantly increased the business’ cost of providing services to customers. Tariffs continued to lag, threatening the long-term viability of the local telecoms sector and making it difficult for the sector to invest appropriately to meet customer demand. Despite voice and data volumes increasing by 19% and 58%, respectively, these improvements were offset by sub-inflation tariffs resulting in a decline in revenue in real terms in FY23. The Regulator granted the sector three tariff adjustments of 61% each and a fourth adjustment of 50% during the year. However, the tariff adjustments were not adequate to offset the increase in inflation which closed at circa 275% in February 2023.

The month of May saw further destabilization of the local currency despite liquidity management tools that had been deployed in the prior month such as the gold backed digital coins. The official rate on the auction fell by 85% to the dollar whilst interbank rate weakened by 87% during the month of April as monetary authorities rapidly devalued the local currency to close a widening gap with the parallel rate. At peak, the parallel market premium within the month was 135%, then closing the month at 91% on commencement of a refined Dutch auction system.