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26 Jun 2014 14:33
Allan Gray is increasing its investment in Delta Fund, which owns Chibuku, a popular brand of Zimbabwean sorghum beer. (Tom Parker)
Zimbabwe’s deteriorating economy and a stock market that’s fallen more than any other in Africa this year are doing nothing to scare off one of South Africa’s biggest money managers.
Allan Gray, which oversees R450-billion ($43-billion), is boosting stakes in Delta Corporation, the SABMiller associate that brews Chibuku sorghum beer, and Econet Wireless Zimbabwe, the nation’s biggest mobile-phone company. The 73-member Zimbabwe Industrial Index dropped 6.2% this year, one of only two gauges among 14 African stock exchanges monitored by Bloomberg that have failed to produce gains.
Mauritius has declined 1.1%.
“They should and can be very high-quality businesses,” Andrew Lapping, who oversees the Cape Town-based money manager’s two Africa-focused funds, said by phone on June 24.
Cash-strapped Zimbabweans aren’t spending, deflation has taken hold and factories are being shut less than a year after President Robert Mugabe, 90, was voted back into office to extend his 33 years of rule. The economy is in a recession and will probably shrink 1% this year, according to John Robertson, an independent economist.
Zimbabwe’s benchmark stocks index gained 7.5% since the start of April after slumping almost 13% in the first quarter, the most since the gauge began denominating shares in US dollars in February 2009 following an economic collapse.
Zimbabwean equities account for about 26% of Allan Gray’s Africa ex-South Africa Equity Fund, the most after Nigeria. The fund returned 11% in dollar terms this year, compared with a 15% gain in the MSCI Frontier Markets Index, according to data compiled by Bloomberg.
Output in Zimbabwe shrank 40% between 2000 and 2008 and inflation soared to 500 billion percent in 2008, according to International Monetary Fund estimates, after the seizure of white-owned commercial farms disrupted exports of crops including tobacco and roses.
Accelerating prices and a plummeting domestic dollar prompted a three-month closure of the stock market in November 2008. Shares were priced in greenback when it reopened. Zimbabwe continues to face sporadic power cuts and a dearth of foreign exchange as the nation abandoned its own currency in favor of US dollars and the South African rand.
Delta, which fell 8% this year and reported a 26% drop in first-quarter lager sales, is the largest brewer in the country. While revenue slipped, earnings per share doubled to 8 US cents in fiscal 2013 from two years earlier, according to data compiled by Bloomberg. The company is forecast to declare a final dividend of 4 cents in the 12 months through March, or 25% more than a year earlier.
“They control the beer market in Zimbabwe,” Lapping said. Delta also has “the vast majority of the soft-drink share,” he said. The stock was unchanged at $1.29 by the close in the capital, Harare, on Wednesday for a market value of $1.6-billion. The stock gained 10% the previous six days.
Econet invested $933-million into its mobile-phone networks in the five years through February, according to company statements. That compares with an enterprise value of $1.3-billion, Lapping said. The shares gained 22% this year, giving Harare-based Econet a market value of $1.2-billion.
“The other competitors don’t have the money to compete in terms of investment,” he said. – Bloomberg
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