Zimbabwe | ZSE

During the month of October, Simbisa Brands and National Foods announced their intention to migrate from the Zimbabwe Stock Exchange to the dollar-only Victoria Falls Stock Exchange. The two companies will be joining the likes of Padenga and BNC who also migrated from the ZSE. NedBank is also planning to list its ZDRs on the US$ bourse with Getbucks having hinted plans to migrate from the ZSE to the VFEX as well. The platform is seen as a gateway for Zimbabwean companies to raise capital in foreign currency and allows investors to trade in foreign currency.

Mixed Performance Expected for Zimbabwe Agro-Stocks: Zimbabwe agriculture sector is forecasted to register another good year on the back of forecasted above normal rainfall. However, high fertilizer and fuel prices continue to pose a downside risk to the sector. Commodity prices are softening and this will have a negative impact on agricultural exports. On the other hand, declining agriculture commodity prices translate to increased margins for agro-processing companies with inelastic demand. As a result, we expect a mixed performance for agro-stocks on the two local stock exchanges. Looking at agro-stocks combined, the subcategory is trading at a discount compared to regional peers. On the ZSE, Zimbabwe agro- stocks are trading at an average P/E(+1) of 3.75x compared to peers at 16.83x and EV/EBITDA(+1) of 2.64x compared to peers at 8.64x which presents BUY opportunities.

A myriad of challenges emanating from the COVID-19 pandemic continued affecting the Group’s financial performance in the period under review. This was exacerbated by the Russia-Ukraine crisis which resulted in global inflation as well as supply chain disruptions. In Zimbabwe, FY22 counter trading hours were 28% below normal, with seating restrictions and curfews being upheld throughout the period. Contrarily, regional operations returned to full capacity in the Group’s operating markets as Covid-19 operating restrictions eased. As a result, customer count for the Group grew 28.6% in FY22 versus the same period prior year, driven by continued investment in new store rollouts (86 new stores) and successful marketing and promotional initiatives in the review period which resulted in average spend increasing by 10.3% in real terms. The Group reviewed prices upward as much as necessary to hedge against the effects of inflationary pressures whilst remaining alert to the price elasticity of demand.

The banking sector continues to be vulnerable to an extremely fluid monetary space in which the CB has pursued a hawkish monetary policy framework characterized by reduced money supply and elevated interest rates. Although m-o-m inflation has begun to ease in 2H22, annual inflation remains elevated negatively impacting real returns in ZWL$ denominated lending businesses. Nevertheless, NMBZ grew its loan book by 146% y/y to ZWL$29.26bn in 1H22; LDR was marginally up from 62% in 1H21 to 67% in 1H22 with leading exposures in individual retail, followed by agriculture and distribution. Credit risk appears to have been well managed with the NPL ratio easing from 1.39% as at FY21 to 1.22% in current period. The bank is strategically focused on growing USD assets and in June 2022 signed a EUR12.5mn line from EIB which will be channeled towards exporters.

Hippo reported a fair set of results for FY22 albeit below our expectations. Cane deliveries from the company were 14% below the same period in prior year as aphid infestations and water logging of soils reduced cane yields. Cane deliveries from private farmers were up 30% y/y. The incessant rains in December 2020/21 disrupted the harvesting program resulting in 555 hectares being carried over for harvest in the FY22 financial year. The company’s sugar production increased by a marginal 3% y/y from 204k tons in FY21 to 209k tons in FY22. The company’s share of total industry sales volume was 53% from 50% in the prior year. Sales volumes into the domestic market were up 10% as demand firmed and supply improved.

The Group presented a decent set of financials given sub inflation interest rates for much of the period. Total income for the bank increased 710% y/y from ZWL$11.41bn in 1H21 to ZWL$92.44bn for 1H22 mainly driven by revaluations on investment properties which were up 9,503%. Interest income went up 283% y/y from ZWL$3.76bn to ZWL$14.39bn on the back of interest rate repricing and a 90% increase in the loan book. The Agro Business continues to make up 51% of the loan book while commercial loans make up 32%. Of interest is the 25% growth in US$ denominated loans and advances to customers suggesting a shift towards the foreign currency business. The bank’s NPL ratio is estimated at 0.7% against the banking industry average of 1.5% as of June 2022. Non-funded income grew 751% y/y from ZWL$9.27bn to ZWL$78.89bn driven by fair value adjustments on investment property and unrealized foreign currency gains.