Zimbabwe | ZSE

The year under review for the bank was characterized by a fragile macro-economic environment. Intermittent restrictions and business lockdowns implemented by the Government and health authorities to curtail the spread of the COVID-19 health and social pandemic contributed to slowed down economic growth momentum. Yields on interest earning assets remained depressed in real terms as inflation picked up within the last quarter of the year. Total deposits grew by 90% y/y driven by a 279% growth in local currency deposits to an aggregate figure of ZWL$16.94bn. First Capital Bank reported a 244% growth y/y in interest income from ZWL$635.85mn to ZWL$2.19bn. Cost of funding remained benign in the period leading to a net interest income growing 282% to $2.15bn. First Capital Bank’s Loan to Deposit ratio greatly improved within the period growing to 42% from 27% in FY20 reflecting an increased risk appetite commensurate with a somewhat more stable monetary space. Loan composition however remained skewed towards short term loans due to the current transitory nature of deposits.

Notwithstanding a challenging operating environment characterized by local economic challenges and the Covid-19 related headwinds, the Group’s financial performance was defensive, benefitting from improved performance by all its business subsidiaries. In historical terms, net interest income surged 264.88% from ZWL$1.15bn in FY20 to ZWL$4.22bn in the period under review, underpinned by increased lending and improved interest margin. The Group’s digitalized infrastructure effectuated an increase in volume of transactions by customers resulting in net fees and commission income registering a 224.40% uptick to ZWL$2.27bn in FY21 from ZWL$838.66mn recorded same comparable period prior year. Net earned insurance premium was up 170% to ZWL$1.26bn from ZWL$469.15mn recorded in FY20, on the back of increased demand and revaluation of insured risks. The Group registered positive revenue growth across all its income streams, with the exception on foreign currency dealing and trading income which declined from ZWL$3.15bn to ZWL$3.10bn.

In light of the expected economic landscape, characterized by increasing inflation, we expect the ZSE to maintain its role as both a currency and inflationary hedge despite demanding valuations. We encourage investors to be highly selective on stock picking, potentially waiting for temporary weakness/profit taking to accumulate into quality names.

The ZSE once again outperformed regional stock markets in real terms, with returns of 123% (using the real effective rate); followed by the Zambian stock exchange, up 97% y/y. African stock markets closed the year on a positive note reflecting optimism about a global rebound from the pandemic and increased demand for commodities. Market capitalisation closed 123% up in real terms, from US$2.7bn in December 2020 to close 2021 at US$6.1bn. 

The year began with a series of transactions, some spill overs from prior year. CBZ obtained approvals at an EGM on 31 January to complete its proposed acquisition of FML. The transaction will result in the creation of a significant insurance and property cluster. Lafarge Zimbabwe Limited published a cautionary statement amidst newsflow of a potential disposal by anchor shareholder Holcim that has been exiting similar assets across Africa. We anticipate sustained corporate activity throughout they year, particularly consolidations as companies look to shore up balance sheets and earnings capacity.

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%.