Zimbabwe | ZSE

The operating environment remained challenging for the Group exacerbated by foreign currency shortages and power deficits on the national grid. Load shedding continued to strain the Group’s service delivery and increased its operational costs as the Company resorted to the use of diesel generators and solar for alternative power supply. The cost and availability of fuel added an additional challenge where backup power is reliant on generators. Regardless, the Group’s revenue increased by 304.93% to ZWL$27.39bn, anchored by the increased contribution of data services. Data revenue surged 398.80% from ZWL$1.90bn recorded in 1H21 to ZWL$9.45bn in 1H22, while local airtime revenue improved by 398.80% from ZWL$2.60mn to ZWL$10.15bn y/y. The cost containment measures implemented by management yielded positive results as evidenced by an increase in EBITDA margin to 55% in the period under review from 47% in the same comparable period last year. EBITDA for the Group significantly increased from ZWL$3.29bn to ZWL$15.21bn in 1H22, registering an uptick of 362%.

OK Zimbabwe posted a steady topline performance to 1H22 amidst relaxation of Covid-19 induced lockdown restrictions. Revenue grew 163% to $22.93bn underpinned by resurgent volumes, at a 43% y/y recovery. However, costs continued to escalate relative to earnings. Intermediated money transfer tax (IMTT), staff costs, electricity charges, rentals, bank charges, cleaning expenses and security charges are the cost lines that contributed most significantly to overheads growth. Whilst the business implemented a raft of cost containment measures, the overhead increases were driven by exogenous factors such as NEC wage adjustment and expansion of IMTT thresholds which impacted the Group’s profitability. Other operating expenses grew 61% percent to $1.67bn from prior year.

The ZSE lost steam in the month of November with all indices ending in the red as government moved to suck out excess liquidity. We have been observing continued downward pressure on prices as the market corrects from a dislocation from fundamentals due to inflation hedging. All things held equal, we expect the current trend to hold and the current dip presents a buying opportunity in select undervalued stocks.

The Global Economy is projected to grow by 6% in 2021 and 4.9% in 2022 with much of the growth taking place in developed countries. The United States real GDP is expected to increase by 6.8% on the back of the anticipated fiscal stimulus in the second half of 2021 and the reopening of the economy Real GDP growth rate for China is forecasted to come in at 8.5% in 2021 buoyed by strong industrial activity and robust exports.

Increased production in the local mining and agriculture sectors, as well as easing of the COVID- 19 lockdowns buoyed consumer earnings. Delta’s 1H22 volumes growth mirrored the prevailing  trend in the local consumer sector, which has seen consumers trading upwards given recovering  liquidity (albeit from a low base). This was evidenced by growth in the Lager Beer division’s premium  segment. Volumes for all business units trended above the 5 year average. Lager volumes were up  57% y/y. Despite limited access to some key trade channels, local Sorghum Beer volumes were up  68% y/y.

The Dutch foreign currency exchange auction system continued to support currency stability with annual inflation falling from 348% at the beginning of the period under review, to 106% by June 2021. The Group presented a decent set of financials given sub inflation interest rates. Total income for the bank increased 89% y/y from ZWL$6.02bn in 1H21 to ZWL$11.41bn in the period under review driven by an uptick in interest income which went up 584% y/y from ZWL$549.62mn to ZWL$3.76bn on the back of interest rates repricing and a 68% increase in the loan book. Non-funded income grew 66% y/y from ZWL$5.59bn to ZWL$9.27bn driven by growth in the Agro- Business income, fair value adjustments on financial instruments as well as fee and commission income.