Collins Rudzuna
8 December 2011
AS we draw nearer to the close of the year, the likelihood of the stock market recording a dismal annual performance looks more imminent. Having started on a positive note, the market lost steam mid-way through the year and the optimistic amongst us were hoping for something that would spur equities to a positive finish or at least to regain some of the value lost along the way. The late reporting season is one factor that was expected to improve sentiment on the market, or at least rekindle interest in specific counters. As it turns out, the results released in November not only failed to inspire the market, but in some cases highlighted how difficult it has been for some companies to manage the transition to the multi-currency system profitably. A few of the companies that had diversified are now rationalising and getting rid of non-core operations.
Delta was the first to release results in early November. As the biggest counter on the market Delta’s results are always closely watched. Despite recording significant growth in volumes and profits, Delta’s results failed to arouse the interest of investors, recording a mere 6% gain the day before the release of results. The day after the results, the share price fell back to just above its original price.
There is running debate in the market on whether the economy is registering real growth or merely recovering from the decline experienced in the “lost decade” of 1999 to 2009. The market’s nonchalant response to double digit revenue growth from market darling Delta suggests this is just a recovery phase and the real test for the economy and listed companies will come when further growth from previous highs is expected.
The release of OK’s results, whilst positively received by analysts, resulted in only a modest increase in the share price. More importantly however, the results provided a basis for comparison with rival TM’s results released as part of parent company Meikles’ numbers. When Meikles finally released their results, certain differences between the two companies were apparent. Both retail companies have 50 shops yet OK’s turnover is 36% higher than TM’s. Having successfully raised funds for recapitalisation after dollarisation, OK has negligible finance costs while TM most likely has the lion’s share of Meikles’ US$4,3 million interest bill. OK also has a higher operating margin than TM and is more profitable.
The results show just how important it is to be able to attract equity financing in an environment where debt is expensive. Fortunately TM is set to receive a US$13 million capital injection from Pick n’ Pay and this will allow the company to recapitalise its business and compete more effectively with OK and other rivals.
African Sun also released full year results but these were dominated by losses emanating from the discontinued South African operations. The regional adventures undertaken during the Zimbabwe dollar era have turned out to be costly in the dollarised economy for some. Although the disposal of these operations is a good thing, it remains to be seen whether the remaining operations within the group will be able to turn a profit.
The country still has a negative image with tourists and this will be hard to shake off. Developments on the political front in the coming year will be a big influence on the country’s image and African Sun, Meikles and RTG will be watching closely as their tourism operations are directly affected.
So, with only a month to go in the year, the market put on yet another uninspired show despite a mixed bag of corporate results. In November, the industrial index managed only a marginal gain of 0,77% whilst the mining index lost a whopping 13,48%. At this rate the mining index will probably end the year below its opening level at the onset of the dollarised era in 2009. Embattled RioZim has been the worst performing counter on the mining index. Efforts to repay debt owed to a consortium of banks are ongoing but are yet to yield a result.
The November corporate results failed to give impetus to the market and with December being a traditionally slow month for the market, it now looks like both indices are set to end the year deep in the red. Most investors have probably already accepted this as fact and are now strategising for next year. What it holds is anyone’s guess but the hope is that it will be better than 2011.
Official forecasts given in the national budget point to another year of growth, although the achievability of some of these targets is doubtful. Without funding, an election looks highly unlikely and the uneasy union that is the GNU will most likely continue to exist. It is the political environment which will influence investor sentiment most and we hope stability will be maintained.
AllAfrica – All the Time