Zimbabwe: Transerv Consolidation to Drive Axia Results in 2021

20 October 2020

Specialty retail and distribution group Axia Corporation's full consolidation of Transerv is expected to bear fruits in the financial year 2021, market analysts have said.

Axia increased its stake in Transerv to 50,5 percent during the financial year 2020 and financial analysts at IH Securities contend that with majority control now achieved, management will pursue strategies to source more competitively which will translate to more competitive pricing and market penetration.

During the period to June 30, 2020 Transerv's business remained profitable despite a challenging year due to Covid-19 induced lockdown which saw its stores close for almost the whole month of April.

The business registered an operating profit growth of 274 percent against prior year and expected to further boost the group's earnings in the current financial year.

"The consolidation of Transerv and emerging recovery of the economy as lockdown restrictions lift coupled with inflation driven price increments, will in our view allow top line growth to remain resilient," said IH Securities.

Total group revenue is projected to increase 407 percent to $18,56 billion in FY21 while earnings before interest, tax, depreciation and amortisation (EBITDA) is seen jumping 351 percent to $3,34 billion.

"However, we foresee margins beginning to moderate and trend towards historical averages, we therefore forecast an EBITDA margin of 18 percent in FY21. Resultantly, we forecast net income attributable to shareholders to rise 178 percent year on year to $1,44 billion.

Management at Axis is also upbeat on creating a platform for growth and have indicated that their key focus will be exploiting opportunities to increase TV Sales & Home and Transerv's footprint.

In line with this, another two stores are planned for the year.

Said IH: "In addition, the group will continue to look for opportunities in the local manufacturing sector, thereby taking control of their value chain and managing operating costs."

This year, the Government introduced SI 85 of 2020 which regularise the use of free funds in the trading of local goods and services. This allows companies to earn foreign currency in the local market thus easing the strain in servicing foreign creditors and suppliers, which is another plus for the group.

The current stability witnessed on the foreign exchange market after the introduction of the auction system has received the thumbs up from businesses and this has also seen TV Sales and Home gradually re- introduce the credit sales facility allowing it to defend its market share. TV Sales and Home is the leading furniture and electrical appliances retailer.

Although management is upbeat of the group's performance going forward, the depreciation of local currencies in which the business operates however, remains a cause for concern "as it is negatively impacting the net assets of the consolidated business."

But going forward, the group's focus area will be managing gearing levels, operating costs, foreign currency exposure and preserving its balance sheet in real terms.

IH Securities maintained its buy recommendation on the group with a target price of $14,47.

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