Zimbabwe: ZSE Defies Faltering Economy

analysis

Will elections take place this year? If they do happen, who will be the president and who will be in government?

What sort of policies will the new government pursue? Will the use of multiple currencies continue after the elections? Will the liquidity crisis ease and foreign direct investments increase?

These are some of the questions that most market players were throwing around at the beginning of the year. Answers to all these questions were seemingly negative resulting in most market punters predicting a bearish outlook for the Zimbabwe Stock Exchange (ZSE).

The more pessimistic players anticipated a rough transition between the two governments and as such projected volatility on the bourse hence adopting a wait and see approach.

On the contrary, returns on the ZSE in 2013 were the second best in a dollarised environment after the 51,99% recorded in 2009. The stock market amassed a 32,62% return.

Fortune favors the brave and it appears those who took positions at the beginning of the year when it seemed extremely risky to do so are smiling all the way to the bank. Performance was buoyed by the heavily capitalised counters namely BAT which put on 233,3%, Old Mutual jumped 67,7%, Delta advanced 40% while OK closed the year 34% firmer. Overall market breadth for the year comprised 42 gainers, 20 losers and 14 static counters.

Market performance was in four parts with offshore investors being bullish in the first seven months. Punters were taking positions ahead of the possible upturn of the economy after the elections that were scheduledfor July 31. This phase was unfortunately followed by a bloodbath that started on August 5.

Prior to this, the market had put on 51,7%. Fears over the possible return of the Zimbabwe dollar coupled with the likelihood of government going into overdrive on implementation of empowerment laws gripped the market. This downward trend lasted for a month and when the market started showing some green shoots on September 4 2013 it had lost 13,74%. Investors were now capitalising on large cap counters such as Delta and Econet which now appeared cheap when matched with regional peers.

This recovery lasted for six weeks and ever since then the market has been trending sideways. Performance was dragged down by a combination of below par financial results from companies together with uncertainty over the future of the economy. Volumes for BAT, for instance, were 16% lower than 2012 levels at 636 million sticks in the six months to June 30 2013. Another heavy-weight, Innscor, recorded a marginal growth of 5% on its topline while the bottom-line was flat at US$48,6 million.

The year under review witnessed several corporate transactions sailing through regardless of the uncertainty in the operating environment. Activity was mainly centered on the banking sector as it tried to comply with the new capital requirements. NMB raised US$14,8 million through a private placement to FMO, Norfund and AfricInvest. Cumulatively, the trio took up a 26,97% stake in the bank. This was in addition to the 18,29% already held by African Century another offshore investor.

FBCH also secured approval to combine the building society and the commercial banking arm. Additionally they also raised US$4,91 million through placing shares with Shore Cap 11, a fund based in the United States.

Econet on the other hand took over TN Bank that was previously under the Lifestyle Holdings banner before rebranding it to Steward Bank. Econet paid US$20 million for a 45% stake in the bank before delisting it by offering minorities 15,91 US cents per share, half the 32,08 US cents Econet paid on acquiring its 45% stake.

Shareholders were also given a choice of getting one Econet share for every 28,79 TN Bank shares they held. While other banks were making manoeuvres to strengthen their balance sheets, Trust Holdings was suspended from trading on May 31 2013 before voluntarily delisting from the exchange as its main subsidiary Trust Bank failed to secure capital. The RBZ subsequently pulled the plug on the bank on the December 6 2013.

Aico shareholders on the other hand finally approved a recapitalisation plan for the group after stuttering since dollarisation. It is beyond doubt that the recapitalisation was too late and as such it is now difficult to salvage the whole group. The Aico dream is now coming to an end.

Focus will now be on the seed and cotton businesses that will list separately while Olivine is earmarked for disposal. During the year, CFI managed to sell 49% of its shareholding in Victoria Foods to Grindrod trading for US$325 million amid strong resistance from one of the major shareholders.

While there was notable activity on the bourse, a quick look at these firms shows that most are thirsty for new money to retool productive facilities and also to use as working capital.

The major deterrent has been the implementation of empowerment laws which were both unfriendly and inconsistent.

Management at the ZSE finally made the tough decisions to remove the chaff from the bourse. There are now 68 listed firms down from 79 at the beginning of the year. Companies that were delisted include Lifestyle Holdings, Steelnet, Gulliver, Apex, Trust and Cairns.

The trio of Redstar, TZI and Barbican complete the list and for them it was long overdue as they have had no known operations for a long time now. Lifestyle opted to list on a foreign bourse while the others were either forced or volunteered to delist owing to operational challenges. There is still need to wield the axe on more firms such as PGIZ, though now suspended, which currently has a negative equity position.

Zeco continues to record losses that surpass its revenues while Chemco is only a shell as its operations now fall under TSL. There is also need to set a minimum market capitalisation that companies should meet on the ZSE so that the bourse attracts meaningful investors.

The journey through 2014 will likely be a difficult one. As highlighted earlier, earnings of the bellwether stocks that were money makers in 2013 are already showing signs of weakness.

Performance of companies is being negatively affected by the slowdown in the economy.

Furthermore, the fiscal policy statement presented a fortnight ago did not proffer meaningful solutions to the risks bedeviling the economy which include wage bill pressures, the ever-growing trade deficit and continued collapse of companies.

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