The next coming weeks
will see several of Zimbabwe`s listed companies publish their financials, as
Zimbabwe`s earnings announcements season progresses. Already a couple of
companies have released their financial results, and there are salient themes
that stick out, giving leading indicators of what to expect for some of the leading
corporates in Zimbabwe. Numbers are not opinions, and the statistics point to
an unforgiving economic environment, which will see even those companies with
solid business models and good strategy, struggle under the throes of weakening
economic fundamentals. As such, expect tightening margins, slumping profits and
slowing revenues this year. Positive earnings stories will be pretty hard to
come by. These trends are also going to affect even Delta and Econet,
Zimbabwe`s traditional heavyweights, and if these two giants are sneezing on
account of the economy, then the rest of the listed companies will most
certainly catch a cold.
Delta Beverages
This company is
almost always a good place to start as it has proved to be the bellwether
counter on the local stock exchange. In spite of beer`s relative inelastic
demand qualities, lager volumes have been on a downward trend since last year,
and this has paved the way for declining company revenues. The soft drinks
narrative closely mirrors lager beer`s performance, with volumes also receding
sharply. Zimbabwe has just come from
what have been record high temperatures particularly in the last quarter of
2015, after last year was recorded as the warmest year in record since record
keeping began in 1888 globally. This could potentially have provided some
respite to the beverage maker at the close of 2015, especially in the sparkling
and alternative beverages category as volumes will likely have picked up a
little.
However, should this
be the case, the uptick in volumes would be negligible, also factoring in the
rather muted festive season characterised by a depreciating rand which saw
subdued diaspora flows, as well as the delayed payments of civil service
salaries and bonuses. In keeping with recent trends, we expect most of the
growth to come from the Sorghum beer section, but even in this category; we see
this growth being tepid. Going forward, the company faces the risk of incurring
a high sin tax, should the government further raise excise taxes as it is has
been wont to do in the past. Another challenge Delta will have to contend with
in the future is the dumping of cheaper foreign products locally as the dollar
strengthens against regional currencies. Delta has over the years maintained a
rather generous dividend payout ratio at (48%) 1.40 cents in the latter half of
last year. This trend is forecast to continue, although the payouts will likely
taper off somewhat.
Econet
The company`s growth
story has begun to stutter, largely due to the nature of the industry it
operates in. Technology is ever evolving, and voice, which traditionally has
been the company`s main revenue driver has been under pressure. Average Revenue
per User (ARPU) has been dwindling, and the much touted “overlay services”
which are seen to be the future growth drivers, will mean increased and
diversified revenue flows. But with diversification, Econet risks turning into
a behemoth of a company which may be difficult to effectively manage. One thing is for certain however, Econet will
have to diversify its revenue streams if it is to keep delivering value. Steward
Bank which has been the Group`s ‘sick child’ has of late been showing nascent
signs of growth as evidenced by its return to profitability with income rising
to $12, 5 million in the prior reporting period. This will come in handy in the broader
context of the Group`s overall results.
We see revenues
continue to decline on account of sector trends such as double-simming which is
prevalent in Zimbabwe as well as the
entrenchment of Over-the Top (OTT) services, which will mean greater competition
for the company`s traditional revenue earning products. This makes the case for
the company to strengthen its revenue diversification initiatives nonetheless.
Ecocash will be the mainstay of the business in the immediate term, as the
“fintech” market in Zimbabwe still has scope for growth, when looking at the
financial inclusion levels. In the last
reporting season, Ecocash contributed around 10% to total revenues, at $35
million. One would foresee the unit`s contribution to total revenues climb up,
at least in the short term as its revenues continue with their uptick.
These two heavyweight
counters invariably give guidance on what to expect in the earnings
announcements of companies this year.
Declining revenues, profits, lower margins and an increased focus on
cost efficiencies companies are likely going to be the dominant themes this
reporting season. A proliferation of cheaper foreign products on the local
market directly competing with local products will also present management
executives with a headache. All in all, the outlook for the first half of 2016
is subdued, as the economy continues to teeter on the brink of total collapse.
Companies will look to preserve themselves with a view of coming out of
Zimbabwe`s current economic morass unscathed. There is no timeline however as
to when this will be. Tough times do lie ahead indeed for corporate Zimbabwe!
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