Zimbabwe: Recovery to Improve Econet Earnings

15 September 2021

Analysts forecasts earnings for Econet Wireless Zimbabwe to improve as the telecoms giant starts recovering from foreign exchange losses incurred in the past two years.

During the past two years, Econet's performance was largely weighed down by foreign exchange losses stemming from foreign currency denominated obligations and debentures.

However, these losses subsided in the second half of financial year 2021 on the back of a stable local currency, which saw the group eventually recover to profitability for the full year.

For the FY21, which ended on February 28, 2021, Econet recorded an $837 million profit compared to a $5,7 billion loss in the previous period.

IH Securities sees exchange losses continue to lower as the economic stability persists on the back of the anticipated good agriculture production, improvements on the foreign currency market following the reintroduction of the auction system coupled with rate of inflation which has been going down.

"Moving forward, we are of the view that, in real terms, foreign exchange losses are going to close FY22 significantly lower than the period under review. We believe the prevailing economic stability is going to persist until the end of FY22.

"We foresee the decline in foreign exchange losses offsetting the increase in depreciation. We however believe cashflow is going to be impacted by debenture settlements as well as replacement of obsolete assets," said IH Securities in an earnings update. During the period, Econet resolved to dispose of its beverages bottling and other related assets held by Mutare Bottling Company. The group also exercised its discretion to give debenture holders an opportunity to offer their debentures to the Company for early redemption, on a voluntary basis.

During FY22, data usage is expected to keep on rising as businesses continue to embrace digitisation inspired by health and safety concerns due to the pandemic.

Resultantly, IH Securities forecasts data usage to come in higher than expected in FY22 on the back of remote working influenced by Covid-19 related lockdowns. As a result, Econet embarked on a new strategy that entails delivering a digital lifestyle through connectivity, gaming, and music.

The increased uptake of digital services saw data usage increased by 47 percent for the FY21 and increased contribution to revenue by 29 percent from 24 percent in the prior year.

The group continues to look for innovative solutions in the industry and has embarked on an initiative of transforming from being a communications service provider to providing digital services.

"Our vision is to create a new digital future that leaves no Zimbabwean behind. We will do this by providing a seamless digital experience to all our customers. By extending our network to cover areas that are not served, we will assist in bridging the digital divide.

"Our strategy is anchored on our well-developed digital platforms and highly adaptable skills base in mobile and digital technology," said Econet group chairman Dr James Myers in the group's FY21 performance update.

FY21 revenue increased to $35 billion, an increase of 23 percent from the previous year, largely due to the increase in data usage. IH Securities sees FY22 revenue jump by 51,6 percent to $40,76 billion while earnings before interest, tax depreciation and amortization (EBITDA) margin to decrease from 50,9 percent in FY21 to 40 percent in FY22 as it reverts to historical average of circa 35 percent.

IH Securities also forecast a target price of $33,06 for the telecoms giant on the local bourse and updates to a hold recommendation.

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