Zimbabwe: Stock Valuations Plunge

Stock valuations have hit rock bottom on the Zimbabwe Stock Exchange after selling pressure triggered by liquidity problems, low confidence and weak investor sentiment stemming from the precarious state of the economy took a toll on the market.

The value of shares this week reached ZW$23,42 billion, an all-time low in real terms as investors shied away from equities.

Last week, the stock market plunged 3,16% to ZW$23,42 billion. The value of ZW$23,42 billion equates to only US$2,34 billion total market valuation. This means some listed companies are trading way below their book values in US dollar terms.

Delta, Econet, and Innscor group of companies alone had book values exceeding US$2 billion. This is the lowest the stocks have ever been in the last decade.

But analysts see stocks plunging further, going forward as the economic situation further deteriorates.

The market had largely maintained an average valuation of US$6 billion in real terms even after the local currency devaluation. Big cap stocks had started giving gains, if valuation metrics and research are anything to go by.

In its weekly report, IH Securities, a stockbroking firm, has forecast massive downsides for most of the big cap counters such as Delta Corporation, Axia, and Padenga. Should these perceived mispricings be corrected, this could trigger yet another bloodbath given the weightings of the counters on the broader market.

For instance, IH sees a 54,5% Delta downside and a 34,8% Axia decline. Delta, the beverages and beer manufacturing concern, was until recently the most valuable counter on the ZSE.

The research by IH was based on a number of valuation approaches such as relative and asset based.

A relative valuation model is a business valuation method that compares a company's value to that of its competitors or industry peers to assess the firm's financial worth, while asset-based focusses on the value of a company's assets or the fair market value of its total assets after deducting liabilities.

The mainstream All-Share Index ended last week 2,61% lower at 179,81 points while the Top 10 Index was down 3,53% to close at 166,67 points.

Analysts say investors are liquidating their investments to raise liquidity after a ZW$400 million mop-up left markets dry in June.

The Industrial Index shed 2,51% last week to 600,56 points, whilst the Mining Index gained 0,09% ending the week at 244,79 points. Econet and Cassava fell 13,32% and 12,55%. The losses offset a marginal 1,73% gain in Delta stocks.

The week's top gains were realised in Old Mutual, Ariston and Zimpapers, up 23,09%, 20,04% and 14,29%, respectively.

The week's biggest losses were registered in Willdale, Econet and Cassava down 31,20%,13,32% and 12,55% respectively.

Volumes traded totaled 20,67 million shares and averaged 4,13 million shares per day. Weekly turnover totaled ZW$26,97 million. Average daily value traded was ZW$5,39 million for the week.

Activity was highest in Old Mutual, Delta and RioZim, contributing 22,15%, 19,14% and 12,61%, respectively. This was after another 5,5% decline in the prior week.

The mainstream All-Share index ended the month of July 5,12% weaker. Industrials fell 8,65% in the same period while the Top 10 index gave up the highest, down 14,05% in the period. In the last week of July, the total market capitalisation fell 3,43% to close at ZW$24,18 billion or around US$2,4 billion at black market rates.

The All-Share Index ended the week 2,46% lower at 185,81 points, while the Top 10 Index was down 4,26% to 172,77 points.

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