Zimbabwe: 'Diversified Old Mutual Cushioned From Inflation'

Securities firm, Morgan and Company (Morgan & Co) says that Old Mutual Zimbabwe Limited (OMZIL) is cushioned from the vagaries of inflation and currency volatility as 75% of its $7,3 billion assets are invested in property and securities.

Companies tend to hedge against inflation by taking a higher position in assets, which may decrease in value less rapidly than the value of the currency.

In a recent research, Morgan and Company said it forecast a 72% increase in OMZIL share price.

"As a long-term play, we think OMZIL management has made a right decision in terms of asset allocation. We view OMZIL as a strategic holding for investors looking to gain from a quality blue chip investment through its $5,5 billion securities and property which offers an ongoing hedge against inflation while preserving value and earnings consistent dividend streams," Morgan and Company said.

"We initiate coverage of OMZIL with a (year ending) YE2019 price target of $13,78 per share at current exchange rates, upside of 72% and by recommendation."

As at November 1, 2019, OMZIL shares were trading at ZWL 3,698 cents on the Zimbabwe Stock Exchange.

Morgan & Co expects further growth in the core businesses of Old Mutual Zimbabwe Limited given the changes in the currency regime in the country.

The research firm forecasts revenue compound annual rate growth of 69% in the 2018-2022 financial periods due to the earnings from the banking interests and income from CABS and the free investment income.

"We note that FY2019 total revenues will reflect further growth in core businesses as well as FV gains on investments given the changes in the currency regime in Zimbabwe. That said, we expect growth rates to remain strong in FY2020F and beyond," Morgan & Co said.

The research firm estimates a FY2018-2022 revenue compound annual growth rate (CAGR) of 69,7% driven by growth in net earned premiums, banking interests and income (CABS) and free investment income.

This comes at a time the company has been performing well with new products introduced that give more value to the company.

"We highlight that OMZIL had made significant process in rolling out USD denominated insurance prior to Statutory Instrument 142. Management has highlighted the need to lobby for extensions with regards to foreign denominated products and investments," the research firm said.

"In the banking segment, CABS remains one of the market leaders, having launched a prepaid MasterCard, while building on existing digital platforms such as WhatsApp banking and electronic wallets. In the investment and wealth management cluster, the alternative investment unit is providing exposure to lucrative sectors such as tourism and wealth."

OMZIL has three main strategic business units which are insurance, banking and the investment and wealth management. In the insurance segment the company has come up with product line extension that is expected to add to the bottom line.

The latest offering has been the weather index insurance which was in response to the recent Cyclone Idai and El Nino weather phenomena. A new cash funeral product has also been launched.

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