1 February 2013

Zimbabwe: Heavyweights to Drive ZSE in 2013

The Zimbabwe Stock Exchange (ZSE) has traded positively since the beginning of the year, with selected companies achieving record high share prices.

The industrials index has gained 14,83% year to date while the minings index, whose value was eroded last year, has risen 23,45% as at Wednessday's closing prices.

The solid performance of the ZSE has largely been on the back of positive sentiment in heavyweight counters which have strong growth prospects, consistent dividend payments and because they are generally undervalued when compared to regional peers.

Foreign investors have discounted the political risk element which existed before the finalisation of the mining indigenisation plans and before last week's virtual conclusion of the draft constitution.

Investors now know that whichever party wins, there is now more certainty about how the country would be governed going forward, analysts said.

The majority of analysts recommend heavyweight counters in the main but have divergent views when it comes to the counters, which will grow in the mid-tier to penny stock sections. Delta has maintained a dominant position in all the markets where it has a footprint.

In the 2013 national budget, excise duty on clear beer was raised from 40% to 45%, necessitating an increase in the prices of lager beers. Delta also enjoys protection from imported clear beers, whose excise duty was raised with effect from December 1 2012.

MMC Capital Investment research said Econet has been trading at a discount compared to its South African peers.

It is the largest network provider in the country with 8 million subscribers. The company is targeting a penetration rate of more than 100% by 2014. Econet's business model is to continue to grow its broadband and Ecocash services.

Ecocash will add immensely to the group's already solid earnings. MMC Capital is targeting a median price of US$6,75.

However, MMC said key risks to their earnings projections included the possible threat from technology innovations such as Whatsapp and Viber which could scale back the growth in voice and sms. Potraz, Zimbabwe's telecoms regulator, is pushing for regulation to make sharing of telecoms infrastructure compulsory, which would result in pressures on revenue growth as network coverage by competitors increases.

FBC Securities forecasts Dairibord hitting a price of 30 US cents price.

Dairibord closed Tuesday's trades at 21 US cents with no change in the year to date gain. The securities firm says Dairibord will benefit from increased capacity from investments in Yoghurt, Nutriplus and Cascade. FBC also expects Dairibord to grow its product portfolio.

ABC Stockbrokers said a high percentage of cash sales makes BAT an attractive business.

"Like Delta, managing debtors in this market is important, which makes important an analysis of how a company is faring in key value channels which include pubs, bars, hotels and convenience stores. We believe BAT is still king in managing its channel. Also important in Zimbabwe now is the ability to have one's product sold by the vendor on the street. The vendor sales are virtually for cash and there is a lot of volume that is moved via this previously underestimated channel," said ABC in its outlook for the year. BAT traded at 470 US cents with a year to date gain of 30%.

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