Zimbabwe | ZSE

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.

Despite achieving good quality skins, 75% of Padenga’s skins achieved 1st Grade; FY20 82%; a shift in consumer dynamics meant that 56% of crocodile skins in inventory at the close of the period are no longer desirable for the premium market. The group had previously noted a shift in favour of smaller handbags and therefore smaller skins due to a defensive Asian market. Skins 40cm/+ size were rejected regardless of quality and were/will be sold at reduced prices negatively impacting Padenga. Sales volumes for the current period remained firm at 8,298 skins (1H20 5,463). No export meat sales were made due to COVID- 19 restrictions. Revenue for the crocodile business was ...