Zimbabwe: Padenga Stock to Trade At 'Discount'

A leading advisory firm has given the move by Padenga Holdings to list on the Victoria Falls Stock Exchange (VFEX) the thumbs-up, before hinting that the firm's stock could initially trade at a discount due to a liquidity crisis.

Padenga delisted from the Zimbabwe Stock Exchange on Friday last week and switched to the VFEX, which trades exclusively in foreign currency.

The switch marked an important step in the firm's ambition to end the country's listing drought.

However, Inter Horizon Securities (IH) projected that the Padenga share price would self-correct as new listings arrive at the waterfall.

Following a slow start to listings since opening in October last year, the VFEX has recently attracted multinationals, including oil firm Invictus and gold producer Caledonia, which have indicated they are keen to list.

"Downside risk is liquidity on the VFEX itself, which may potentially create an initial discount on valuation," IH said.

"We, however, believe this will resolve itself in the medium term as other companies list on the VFEX.

"The proposed transaction to migrate listing to the VFEX is primarily driven by the need to benefit from incentives articulated by the ministry of Finance whereby companies listed on the VFEX will be entitled to higher retention rates of their incremental exports," IH said.

"In addition, the listing on the VFEX enables Padenga to raise capital in foreign currency from a deeper investor base to pursue viable acquisitions in related export sectors."

Padenga is one of the world's largest suppliers of crocodile skins for luxury bags and shoes, counting leading global brands among its clients.

IH said Padenga revenues would remain strong, underpinned by a bullish outlook for its mining business.

The advisory has previously indicated that Dallaglio, which houses Padenga's mining business, will be the most immediate beneficiary of the VFEX listing.

It said the move would open pathways for Dallaglio to pounce on new gold assets and position itself to benefit from attractive forex retention thresholds recently announced by government.

The thresholds present growth opportunities for gold miners and VFEX-listed firms.

Padenga swooped on Dallaglio about two years ago, as it diversified from its traditional croc skins processing business into gold mining in a surprise move.

Through Dallaglio, Padenga then gained a foothold into Eureka Gold Mine, which returns to production this month following a US$40 million injection to restart operations.

The transaction also gave Padenga access to Chegutu-based Pickstone Mine, a 60kg per month gold asset.

"We see potential for growth pathway particularly in Dallaglio via acquisitions within the gold space motivated by the new incentives articulated by the ministry of Finance and Economic Development and in the short term an uplift in earnings caused by a higher effective 'real' gold price achieved based on greater foreign currency retention.

"The listing onto the VFEX enables shareholders to unlock a 'real' United States dollar valuation of the business, with capital gains and dividends realisable in hard currency," noted IH.

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