Growth, dividends and Zimbabwean companies are words not normally found in the same sentence. But a number of companies listed on the Zimbabwe Stock Exchange have consolidated, grown and are “well-placed for the long haul”, an expression sometimes used to describe a post-Robert Mugabe scenario.
Grant Flanagan, an investment officer at Imara Asset Management, said in an interview that the Zimbabwean scenario defied logic. For instance, although common wisdom dictates that the local volumes of goods produced should be shrinking as less and less people can afford any given item, there are a number of exceptions.
“One of these is African Distillers, which has cultivated a mix of localised brands aimed at the less “brand-conscious” consumer. This type of product often costs less to produce, with lower margins, but profit arises on volumes. This, Flanagan said, has seen local production volumes of spirits increase by 22%.
More volumes mean more profits for the investors. Flanagan said some companies have share buy-back programmes, while some are distributing dividends, a favoured option for many.
Flanagan cited the example of Innscor, a fast-food giant. Largely because of the large volumes of cash at its disposal, Innscor has managed to purchase stakes in Natfoods, the largest miller in the country, as well as a controlling stake in Colcom, one of the largest food processors in Zimbabwe.
The interim dividend declared amounts to 9,3% of headline earnings, excluding fair-value adjustment which grew ahead of inflation by 64,5%.
While conceding that Innscor was sitting “on a lot of cash”, Patrick Saziwa, an analyst at Kingdom Stockbrokers, questioned whether these dividends were “real returns”.
Saziwa argued that, in real terms, most companies were recording “negative growth in volumes”. He asked whether buying companies that are operating at 30% capacity should be such a cause for celebration. Colcom and NatFoods — both agro-based companies — have been affected by the decline in the agricultural sector.
This is a view shared by Washington Mehlomakulu, an analyst at Highveld Financial Services. He said a number of financial reports showed a scenario of “depressed volumes and increased margins” and argued that it might appear that they are doing well, but if you look at their productivity levels, you get a different picture.
Nevertheless, citing the Elephant Hills Hotel, Mehlomakulu argued that the country had a lot of undervalued companies. The hotel, in the resort town of Victoria Falls, is owned by the Dawn Properties group. Mehlomakulu said several years ago the hotel was on the market for about US$20-million, although the holding company at the time was capitalised at about US$5-million.
“There is a lot of value in a number of undervalued companies that needs to be unlocked,” he said, explaining that this is why many foreign companies are eyeing Zimbabwean companies.
These local companies have also been active in the region. Flanagan said that, because foreign investment has dried up, firms have had to reduce their reliance on foreign investment and use other means to secure their foreign currency requirements.
This has resulted in firms setting up shop around the region and exporting more. Dairibord Zimbabwe Limited (DZL), a dairy products concern, now owns 60% of Dairibord Malawi. DZL Holdings has also registered a 52% increase in export volumes. Murray & Roberts has adopted a similar strategy with a subsidiary in Malawi that manufactures PVC piping.
On the performance of ZSE-listed companies that has seen it listed as one of the top performing bourses in the world, Mehlomakulu said the movements on the ZSE did not reflect the economy at all.
“How do you explain the contradiction that we have the best performing stock exchange and the worst economy?”
Mehlomakulu said one would rather describe the ZSE as a “speculators’ market”. He pointed out how some counters move 263% in an hour. As a result of these distortions, “if you try to buy certain shares no one wants to sell”, because “certain shares are closely guarded”.