$600m wiped off ZSE equities in first quarter

$600m wiped off ZSE equities in first quarter
Published: 03 April 2014
THE Zimbabwe Stock Exchange lost a combined value of $642,8 million in the first quarter of 2014 as stock prices plummeted. The market capitalisation at the end of March 2014 was $4,56 billion, 12,4 percent lower than the December 2013 closing market capitalisation of $5,2 billion. The industrial index closed the quarter 12,76 percent down to 176,32 points whilst the mining index dropped 35,55 percent to 29,51 points (the lowest level it has reached since 2009).

The equities market took a knock soon after the July 2013 harmonised elections and since then has struggled to find traction. The slower economic growth projected for 2014 and the disappointing 2013 earnings have contributed to weakening stock prices across the board. The equities market has also been affected by delistings and suspensions which peaked in 2013 as companies faced mounting viability challenges.

Overall turnover for the quarter was down eight percent to $118,7 million from the previous quarter turnover of $128,8 million as foreign investors buying declined by four percent to $79,4 million from $82,7 million. Despite the decline in foreign investors buying on the ZSE, net buying (foreign buys less foreign sales) actually increased to $32 million in the first quarter 2014 from $14,8 million in the last quarter of 2013. Foreign buying as a ratio of total turnover also increased to 67 percent in Q1 2014 from 64 percent in Q4 2013.

The continued support by foreign investors on the ZSE is coming from the continued use of the multicurrency regime and the potential upside on selected stocks. Foreigners have targeted bellwether stocks like Delta, Econet and Innscor with relatively strong earnings, cash flows and balance sheets.

Small and medium capitalised stocks dominated the movers during Q1 2014. Art doubled in price to 0,4 cents to lead the gainers for the period. The company was reported in the media as having secured a new investor from South Korea who would inject about $15 million into the group over the next five years. The capital injection would enable the company to improve efficiencies across its units and thereby reduce operating expenses. Pioneer Corporation Africa followed closely with a 67 percent five cents as the company finally secured approval to acquire Unifreight Limited.

The logistics company is also reportedly aiming to acquire Blue Star logistics from Star Africa which will give it a dominance market share in the transport business. The combination with Unifreight is expected to provide synergy benefits and increase turnover by at least $21 million in the current financial year. Zimpapers was the other major gainer after its price moved 25 percent cent. The group grew its revenue by nine percent in 2013 to $44,9 million whilst the bottom-line improved from $0,06 million to $0,54 million. In 2013 the group installed a new printing press which resulted in it launching a new look product. Other major movers during the quarter included Ariston (up 24 percent), First Mutual Life (up 13 percent), Colcom (nine percent), National Foods (eight percent) and CBZ (seven percent).

On the other hand Pelhams lost 90 percent of its value during the quarter whilst Cottco shed 83 percent. Pelhams reported a 60 percent decline in revenue for the six months to September 2013 as consumer spending on durable goods was severely affected by low incomes and the liquidity crunch in the country. The furniture retailer has also faced working capital problems and with the plan to increase cash sales going forward, the prospects of a recovery in turnover are low. Cottco suffered the drop after former parent, Aico, unbundled into three distinct units, Cottco, Olivine and SeedCo.

Hunyani was 50 percent lower at one cent. Hunyani published a trading update last year which indicated that some managers had been involved in overstating inventory values in order to reflect enhanced financial performance. Such impropriety cost big companies such as Enron and WorldCom in the USA as investors normally overreact to bad news and Hunyani may be suffering from the same fate.

Notably three out of four listed mining companies were in the bottom ten performers for the quarter with Rio Zimbabwe falling 39 percent, Bindura down 35 percent and Hwange down 33 percent.

Weak commodity prices have resulted in lower profitability margins for mining companies and this has been compounded by the higher operating costs in the country. Going forward the second quarter has little prospects of recovery but the losses are likely to be much lower as prices reach support levels.
- AFRASIA KINGDOM
Tags: ZSE,

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