'Accumulate Zimplow,' says Imara Stockbrokers

Published: 20 July 2017

Zimplow Holdings Limited released an improved set of numbers showing revenue growth of 77% to $14.7 million for an operating profit of $0.2 million compared to a loss of $1.3 million in the first half of its 2016 financial year.

Margins improved on the back of higher volumes the across the divisions led by the Mealie Brand division up 371%. Export volume also responded positively with volume growing by 1,445% for revenue of $2.2 million compared to $0.1 million in the corresponding period.

The company managed to reduce operating expenditures by 57% due to staff rationalisation that was done last year. Furthermore, there were efficiencies in procurement and the right product mix improved margins. Finance cost reduced to $0.1 million from $0.3 million after the debt was significantly reduced during the period.

The balance sheet grew by 8.0% to $37.1 million with current assets up 17% to $21.1 million due to high inventories at $8.8 million compared to $8.6 million in FY16. Accounts receivables remained elevated at $6.2 million from $6.1 million in interims of 2016 indicating that the company is struggling to collect cash from customers. The cash flow statement reflects a better operating environment for the company with cash inflow from operations increased from an out flow of $0.5 million to an inflow of $1.6 million.

The company has managed to reduce debt from $11.9 million in FY 15 to $2.1 million and the target is to eliminate debt from the capital structure by end of July 17.

Mr Tonderai Maneswa, an equity analyst at Imara Edwards Securities, said their view is that the board and management are doing the right thing in paying off debt especially given the fluid economic environment characterised by currency uncertainty. He thinks that company is looking well positioned to take advantage of any uplift in the local economy.

"Management should work on improving the quality of earnings through more cash sales than credit," said Mr Maneswa. Imara upgraded its recommendation of Zimplow from Reduce to Accumulate, 'given that the company is now profitable and has managed to retire debt from the capital structure.'
- Business Daily