An outlook into the Equities Market of Zimbabwe: June 2012 by FBC Securities equities Research.

1. 2012
2012 Equities Outlook :
Zimbabwe

2. Contents
Zimbabwes Nascent Recovery ...........................................................................................4
Agriculture ...............................................................................................5
Mining.......................................................................................................6
Manufacturing...........................................................................................7
Tourism.....................................................................................................8
Financial Services .....................................................................................9
The ZSE Reviews ......................................................................................................10
Brief Reviews of Selected Companies....................................................................... 12
Econet......................................................................................................14
FBCH ......................................................................................................15
Seed Co....................................................................................................16
Delta........................................................................................................17
Zimplow...................................................................................................18
TSL Limited ............................................................................................19
OK Zimbabwe Limited.............................................................................20
Innscor.....................................................................................................21
Dairibord.................................................................................................22
Hippo................................................................................................... ...23
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4. Zimbabwe’s nascent recovery stifling …
Having gone 8 months into 2012, Zimbabwe’s economic prospects have remained
in delicate state inhibited by limited fiscal space amidst other contending issues
of inconsistent policy formulation , limited capital sources and huge debt overhang.
As a result, ailments taking root from the country’s precondition have been
dilapidated infrastructure; obsolete technologies and machinery; power and water
shortages, all which constitute the preface of Zimbabwe’s industrial challenges.
Deterioration of the country’s critical infrastructure has resulted in severe adverse
economic and social effects that are currently stifling the country’s economic
recovery prospects. The current huge infrastructure deficit is proving to be the
leading binding constraint in achieving quick economic recovery and this is most
apparent in the electricity sector. In the first half of 2012, overall electricity
generation averaged 960MW following intermittent supplies form small power With growth decelerating between
stations and a break down at Hwange Power station. Overall, the country, 2010 and 2012 due to policy
generates 900 MW to 1,200 MW compared with demand of 1,900 to 2,200 MW- inconsistencies and political
making the country the third-largest power consumer in sub-Saharan Africa after uncertainty we are
South Africa and Nigeria, according to the World Bank. Zimbabwe imports 35% of its brought closer to the reality that
electricity from Mozambique and Democratic Republic of Congo, yet load shedding while it is relatively easy to ignite
remains a day to day issue to contend with. recovery, sustaining it requires
consistent policies
that address the binding constraints
Also weighing on key macro-economic deliverables has been the contribution of
public finances to the overall GDP performance which albeit improved has largely on growth.
remained in deficit. In July and August, collections continued to trail the budget at
US$257.4 mil and about US$269.2 mil against revised targets of US$271.2 mil and
US$280.7 mil. Year to date collections are at a variance of $269.5mil at $2,120 bil.
Shouldering a barrage of woes which have seen growth rates decelerating between
2010 and 2012 due to policy inconsistencies and political uncertainty, we are
brought closer to the reality that while it is relatively easy to ignite recovery,
sustaining it requires consistent policies that address the binding constraints on
growth. 2012, GDP growth rates are anticipated to decelerate by almost 4% points
from projected levels of 9.4% to 5.6% with independent evaluators indicating growth
rates lower at 4.5% for 2012.
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5. Having already made headway into the second half of the year, it is imperative for
government to redirect expenditure towards key macro- economic enablers such as
infrastructural development aimed at rising of overall productivity, reducing
financial sector vulnerabilities, increasing competitiveness, and improving the
business environment.
A review of key Macro – Economic Sectors
Agriculture
Having been drastically reviewed from growth rates of 11.6% to -5.8% in the year
2012 , agriculture sits at the core of the country’s GDP slippages. Consequently crop
yields were lower on prior years with maize at 968 000 t, the estimated maize output
in 2012 is about 33% below last year’s level and marks a reversal of the increasing
trend since 2009. About 722 557ha of maize are estimated to have been written off as
result of moisture deficits, while delayed and erratic rainfall at the start of the
2011/12 rainy season (October-March) had already resulted in the contraction of
maize plantings by about 20 percent compared with the previous season’s 2.1 million
ha. In similar trending, millet and sorghum production are estimated at below 2011
levels, following reduced plantings and lower yields whilst other major crops –
groundnuts, soy beans, sunflower and sugar beans – also registered a decrease in
production in the 2011/12 cropping season.
Overall, cereal production in 2012 is put at 1.13 million tonnes, inclusive of winter
wheat forecasts set for harvest in October with the national cereal production is
estimated to satisfy approximately 55 percent of total domestic requirements for the
current 2012/13 marketing year (April/May). Although imports of cereals are set to
increase, sizeable carry-over stocks from last year’s good harvests will enable the
country to partially meet the national deficit through its reserves whilst a more
conducive economic environment has led to improvements in private sector
operations, and commercial imports are therefore anticipated to fill a large
proportion of the deficit under the current conditions.
Meanwhile, Tobacco end August recorded total seasonal sales of 144mil/ kgs at an
average price of $3.66/kg compared to 131.9 mil/ kgs sold at US$2.74/kg same
period time last year. This realized total revenue amounting to $526.6 mil compared
to $360.9 mil achieved in 2011.
Despite average cotton prices having dropped by more than 50% to levels of
between $0.30 -$0.40, cotton intake end August 2012 surpassed the expected total
intake by 9% at deliveries of 304 112 tons.
Challenges within the sector are notably erratic and insufficient power supply for
irrigation, as well as constrained availability of financial credit; inadequate
infrastructure; Unaffordable inputs due to high production costs eg fertilizers and
Low capitalization levels.
Investment Prospects- The agricultural sector remains the mainstay of the
economy and as such it is vital that a holistic approach be taken in drawing policies
that can revamp this sector. Prospects for 1990 yield levels to be achieved in
Zimbabwe are attainable at the right implementation levels of new capacities
through investment and also through new strategic choices that lead to
modernisation and commercialisation of agriculture across all sub sectors.
In preparation of the coming summer season and beyond, the Farming Community,
with the support of Government, the banking sector, promoters of contract farming
and cooperating development partners will have to work extra hard and be more
focused in mobilizing all available resources, to ensure restoration of the sector’s
pivotal role.
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6. Mining
Contributing over 50% of total export earnings, 45 000 formal jobs, with informal
small scale mining also contributing substantial numbers - mining’s contribution to
Zimbabwe has almost trebled from 4% between 1999 and 2008 to current levels of
close to 11% of GDP.
Key minerals, which underpin the sector s growth and their respective projected
outputs in 2012 are: Gold (15 tons), Platinum (12 tons), Nickel (8 800 tons), Coal (2
million tons), Chrome (750 000 tons), Palladium (9 600 tons), and Black Granite
(170 800 tons). Nickel (8 800 tons), Coal (2 million tons), Chrome (750 000 tons),
“The company exports the bullion
mainly to the Rand Refinery.”
Palladium (9 600 tons), and Black Granite (170 800 tons).
As at July 2012, cumulative gold output was recorded at 7 799.5 kgs, which is “At present, platinum that is
consistent with set benchmarks for attainment of f 15 000 kgs by year end. Firming produced is sent to South Africa in its
international gold prices, as well as the liberalized marketing environment coupled raw form for processing creating
by huge investments into the sector have commanded good growth in Gold mining. macroeconomic leakages for the local
Since 2010, the country has been exceeding annual thresholds of 10 tons requisite
for refinery; however, currently no refinery is being done at Fidelity Printers and economy. ”
Refiners due to viability problems. The company exports the bullion mainly to the
Rand Refinery. The resumption of gold refining in Zimbabwe would help
downstream industries such as jewelers to purchase gold locally and reduce the cost
In as much as mineral exploration
of production. Jewelers are also currently importing silver at some added costs. To
and extraction present investment
kick start the refining process, an injection of about US$50 million is estimated to be
opportunities in Zimababwe –
required.
Mineral Refinery is one key area
lagging in investment were the
As at June 2012, Platinum producers delivered 5,650.9 kgs against an annual
country is incurring a lot of leakages.
projection of 12,000 kgs. At present, platinum that is produced is sent to South
Africa in its raw form for processing creating macroeconomic leakages for the local
economy. There is, however, need to boost electricity generation or importation if
the smelting of platinum is going to be done locally as current electricity provisions
fall short of requisite demand.
For nickel, 4,243.06 tons were delivered by June 2012 against an annual target of
8,800 tones. Nickel production is expected to increase if the Bindura Nickel Mine
reopens before the end of the year after having reached agreement with its creditors
and staff that would result in the conversion of their debt into equity to enable it to
raise capital and resume operations. The mine was also accorded a National Project
Status by the Government, which allows it to import equipment duty free and
resume mining operations – a move which we believe is encouraging for investment
in the country were industry has been facing challenges in retooling, upgrading and
replacing their dilapidated equipment.
Gold, platinum and nickel production is expected to grow by 15.8%, 10.8% and
10.1%, correspondingly in 2012.
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7. MANUFACTURING
Estimated to grow by 6% in 2012, manufacturing accounts for 9.2% of Zimbabwe’s
exports at an estimate GDP contribution of about 10% from yester year contributions
of around 18-20% achieved in the early 90’s. Decline in the sectors contribution to
GDP over the years could be attributable to key main factors of de-industrialisation;
Shortage of working capital and absence of lines of credit as well as immense levels
of competition from imports alongside inadequate and erratic supply of key
economic enablers namely electricity, fuel, coal, and water as well as poor
infrastructure.
Despite evident constrain to Zimbabwe’s manufacturing, industrial production has
“ key main factors affecting the
manufacturing in Zimbabwe are: of
remained evident in high performing sectors, with some companies increasing their
de-industrialisation; Shortage of
work shifts to cater for rising demand of their products. Strong growth is evident in
working capital and absence of lines
subsectors of drinks, tobacco & beverages, food stuffs, wood & furniture, non-
of credit as well as immense levels of
metallic mineral products, metal & metal products, which have inevitably offset
competition from imports alongside
slippages in paper & printing, clothing and foot wear, textile and ginning subsectors
inadequate and erratic supply of key
which have overall remained under capitalized .
economic enablers namely electricity,
fuel, coal, and water as well as poor
Finding benefit in the rebound sectors of the economy, capacity utilization levels
have been upbeat at projected levels of 60% in 2012 from prior levels of below 10%
in 2008 and this is illustrated in the volume of manufacturing indices growth below:
infrastructure.”
Whilst growing capacity utilization has been riding on the quantum of production
factors as opposed to efficiency -hence slower growth in productivity, only about
17% of the manufacturing companies have managed to secure investments on new
plant and machinery, leaving 83% with no major or new investments save for only
maintenances. Weary of this point instigation is aroused that whilst capacity
utilization is observed to be improving on a general scale, a percentage or so of
growth could also be in retrospect to closure by unviable manufacturers.
Whilst some manufactures are yet to demonstrate capacity through performance
based incremental and measureable parameters, lucrative sectors for investment
considering Zimbabwe’s high import levels would be retailing subsectors of food
stuffs, drinks tobacco and beverages as well as wood and furniture.
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8. TOURISM
Within the 6 months of 2012, tourist arrivals were estimated to have improved by
7.5% from 657 302 in 2011 to 688 288 with the majority of visitors representing 89%
being from the Africa followed by the European markets. Bed occupancy rates were
rather flat at 31% vs. 30% in 2011. Owing to a steady growth in arrivals, 2012
tourism receipts are anticipated to be 11.2% ahead of 2011’s $662 million speared on
by the Americas and European travellers.
The socio-political dispensation of
Zimbabwe, alongside consistent
policy formulation and
implementation remains critical to
Zimbabwe’s overall country
perception and more imminently
Tourism Industry. With the local
economy exhibiting stability at
present, the tourism industry has
started to coagulate.
With Zimbabwe having attained dual chairmanship with Zambia to UNWTO, in
2012, the sector is projected to grow by 10.4% up from 4% with capacity building
and infrastructural enhancement developments already underway for the 20th
Session of the UNWTO in2013. Zimbabwe has over 12 000 hotel rooms available and
capacity is expected to increase over the next 3-5 years.
In line with the global economic recovery, we consider the outlook for the tourism
sector in the long run to be positive, with expectation for improved leisure demand
in tandem with improved disposable incomes. According to the WTTC, over the next
10 years, Travel and Tourism is expected to grow in importance as one of the world’s
highest priority sectors and employers. The forecast for 2020 is that the direct
industry’s GDP will amount to US$ 3.7bn, a 4% annualized growth rate for 2011-
2020 while travel and tourism GDP is expected to grow by 4.4% to US$ 104.7bn.
There is no doubt that tourism going forth will play a significant role in African
countries with Zimbabwe being of no exception for as long as there is sustained
investment into infrastructural development, tourism promotion and enduring
political and economic stability.
Financial Services Sector
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9. Estimated to grow by 23% in 2012, the financial Services sector in Zimbabwe
though resilient remains of no exception to the countries macro economic plight
of capitalisation, liquidity and credit risks. Whilst two banks, Royal and Genesis
have voluntarily surrendered their licenses with a further two Renaissance and
Interfin under curatorship, - high exposition is made of the sectors weaknesses in
regards to high credit risks, deteriorating asset quality and high non-performing Deposits in the banking sector
loans(NPL’s).
continue to be of a short term nature,
Meanwhile, nominal bank deposits continued to improve albeit at a decelerating rate thereby presenting worrisome
of 3% at$3.64bil end July 2012 spurred on by receipts of resources from sales, vulnerabilities in the sector. In this
proceeds from the tobacco sales and the repatriation of excess balances from Nostro regard, short term deposits, which
Accounts as stipulated by the RBZ beginning of the year. comprise of demand, savings and
under 30-day deposits continue to
dominate total deposits. The high
concentration of short term
transitory deposits partially reflects
that economic agents are largely
using the banking system for
facilitating salary payments rather
than deliberate and planned savings.
Meanwhile, lending growth albeit slowed down, at an LDR of 87% end August 2012
still remains relatively high weary of the illiquid macro -economic conditioning in
which NPL’s have risen from levels of 7.55% in 2011 to 9.55% June 2012 against
Basel II’s acceptable standard of 5%.
With a mere 10.81% constituting long term deposits within the total banking
sectors deposits, financing remains a key constraint to growth in the economy
wherein 83% of the manufacturing industry still remains under capitalized. In
check with the banking sector confidence levels within then country, the term
structure and composition of total bank deposits is likely to remain unsupportive to
long term investment even in 2013 were we anticipate structural changes to take
place within the architecture of the sector. With over 60% of banked deposits
sitting within the top balance sheets of a mere 4 /25 banks we envisage possible
operational bottlenecks within the financial services sector wherein one banks
weakness can be magnified into an industry wide grid lock. Capitalization and
credit risk management remain of impetus to the deliverance of the financial
services sector to economic growth especially in the absence of the lender of last
resort function.
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10. Having Captured the operating environment , what has been the
Equities Market Response :
The ZSE Review
Indices – The Zimbabwean stock market maintained a bearish trend. No significant
improvements were attained in the indices in the year to August mainly due to
continued subdued market fundamentals. Having closed December 2011 at 145.86
points, the industrial index was on the free fall, slicing 9% to cap off the month of
August lower at 132.82 points chiefly attributed to persistent sell-offs in most heavily
capitalized counters, coinciding with the lack of foreign support. Foreign inflows
came off 7% to $10.7 million against $11.6 million at the close of December 2011 as
foreign portfolio outflows dropped 49% at $9.3 million. Meanwhile the resources
index lost 12% to close at 100.70 points as investors adopted a cautious trading
approach pending the indigenization law that continuously brought in uncertainty in
the mining sector. Consequently, market cap dropped 7% close at $3.4 billion.
Turnover- The June earnings period has had little impact on the local bourse with
total turnover losing 49% at around $23 million against $45 million as at 31
December 2011. Negative foreign investor sentiments, blamed on policy
inconsistencies and controversial empowerment laws have seen a reversal of the
appetite of foreign investors on the bourse thus further worsening the total activity
mainly at the close of the midyear. Market turnover opened the year at around $45m
and declined to $31.8m April before slightly improving to $41.6m in May and then
weakening in August at $23m. Most importantly, the continued liquidity squeeze
compounded by the lack of foreign investors support left the pace on the bourse
exclusively determined by high valued stocks. Resultantly, funds flow continued to
be skewed towards the Top ten counters by market Cap which are illustrated
alongside.
Foreign Portfolios: Foreign investors were net sellers as investors were
liquidating their portfolios. Foreign participation measured in terms of total inflows
accounted for 48% of total turnover over the period under review. Month on month,
foreign investors were seen to be most active in the month of January representing
74% of total turnover, the month in which the stock market performance was a bit
promising ahead of the reporting season. Foreign Purchases stood at $10.7 million,
wherein sales recorded amounted to $9.3 million. The Top ten market cap
contributed 69% ($2.2 billion) of total market cap.
ZSE Sector Performances:
Banking sector was the worst performing sector; shedding off 36%
at 63.18 points on uncertainty that banking sector may fail to meet Sector YTD Counter YTD
the new capital threshold with respect to the market wide liquidity Retail -6% FALGOLD 233%
squeeze. The Tourism sector followed, down 34% at 22.76 points. Property -20% ASTRA 160%
Meanwhile the Dual listed sector exhibited the best performance, Tourism -33% STAR AFRICA 115%
gaining 17% to close at 134.18 points. In total, 7 sectors recorded Manufacturing 0.4% BAT 113%
losses against only 3 closing in the positive. Insurance -13% AFRE 100%
Agro-Ind -25% MEDTECH -80%
Topping the risers list was Falgold, buoyed on primarily by the
Conglomerates 2% GB -77%
firming of gold prices in the international market. Astra was
Banking -36% PG -75%
positioned second putting on 160% YTD as Star Africa gained 115%
Dual Listed 17% WILLDALE -75%
YTD. Meanwhile, liquidity constrained counters in dire need of
recapitalization characterized the shakers for the period led by Mining -9% BINDURA -70%
the Pharmaceutical concern Medtech. GB lost 77% in the year to
date while PG and Willdale came off an identical 75%.
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11. Moving into the 4Q: 2012: With a cautious trading approach by investors, we expect the local bourse to remain flat for the rest
of the year. In our opinion, we anticipate the currently obtaining market down turn to persist largely on the lack of foreign support.
With the onset of the festive season we are in anticipation of increased volume trading within the first two months of the 4th quarter
as some portfolios will be trimmed down in order to absorb anticipated expenditure. Though playing it safe seems noble at this
point in time, we challenge investors alike to be a little daring and outstretching and take advantage of the “buyers market”
conditions in which most company assets are heavily discounted. With the coming in of the festive season, which is usually a time
of high expenditure for both individuals and corporate alike, prices are likely to be more depressed and ripe for picking as
everyone scrambles for the little liquidity in circulation.
Which Sectors do we envisage value?
Agro- Industrial: Despite the growth being revised to the negative, the sector remains one of the major variables in estimating
economic growth. Being the backbone for the economy, the mandate by the government to compliment its thrust on the land issue
we expect the sector to continue being supported by market friendly policies targeted at providing sustenance and growth in the
sector in the form of cheaper funding and input schemes. We envisage some listed counters being major drivers and
beneficiaries to the industry’s growth, translating into an overall improvement in the sectors earnings.
Our Picks: - Seed Co ; TSL; Hippo; Zimplow; Dairiboard
Retail/ Consumer orientated: Emerging on the key list of sectors the retail sector is considered as one of the most liquid
sectors in the economy. With margins still trailing many of the sectors of the economy, we expect improved earnings encouraged by
increased expenditure over the festive season and thus anticipated to support prices of stocks in the sector. The existence of
humankind is inevitably translated in the potential growth impetus of revenue incomes of the sector in consonant with the growth
of the economy despite at slow pace.
Our Picks: OK Zim ; Innscor;
Beverages : An increase in diposable incomes in the informal sector particularly small scale miners, retailers and farmers is
expected todrive growth in the sector. Consumpition multiplier to GDP per capita is estimated at around 2.2X at the close of FY
2012. GDP volumes uptake in the sector are highly correlated to the level of GDP Growth. Despite the downward review in GDP
forecasts, we antcicipate sustainale growth in this setor.
Our Pick : Delta
Telecommuncation Industry: The upsurge in mobile banking and money transfer services is expected to create positive
additional revenue flows as is growth and diversification into broadband based serives is expected to cushion declining average
per ARPU’s as penetration expands.
Our Pick : Econet
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12. Brief Reviews Of Selected Counters
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13. The telecoms industry has emerged the hot spot for most countries economic
development, not only for developed world but also in the developed world. Since
Market Statistics
dollarization, Econet posted a significant double-digit increase in sales each year
reflecting (CAGR of revenue 2010 through 2012:+19%). In our view we expect (CAGR of
revenue 2012 through 2017:+24.2 %). The telecoms giant released a very strong set of Sector Telecoms
results for the FY12 with revenues expanding significantly 23.8% to $611.1m against Report Date 10-Sep-12
$493.5m realised in the comparable period last year, backed largely by significant
growth in the subscriber base. ARPU increased 5.6% at $10.33 as a result of higher usage Shares in Issue 96,551,042
due to improved capacity and management envisaged to defend ARPU at not less than
Market Cap $401,351583.60
$10. Consequently earnings have continuously improved as well (CAGR of EBITDA 2010
through 2012:+17.5%. Ultimately, EBITDA increased 20% to $291 million due to a Beta 0.779425
significant growth in operating costs and with expection for operating efficiency and cost Target Price $6.2
optimisation. EBITDA margins were maintained at a constant 47% judging from fixed
nature of the bulk of the company’s operating expenditure and partly semi variables. We Upside Potential 45%
expect (EBITDA CAGR:2012 through:2017) of 24.8%. PBT increased 21.7% to $239.1m YTD Average daily traded
as taxation surged 32.3% to $73.4m to leave PAT at $165.7m, an increase of 17.5% from volumes 81,017.66
the prior year. Income attributable to shareholders edged up 15% to $161.3m. EPS
notched up 21% at $1 from 0.83c. Debt closed at $249mil as debt to equity ratio YTD Peak Price $4.3
improved. YTD low Price $3.6
The group commands the bulk of the market share of over 70%, followed by Telecel 17% Current Price $4.25
and Net-One at 13%. Since dollarisation EWZ has invested $614m in CAPEX and this Share Price Performance
network investment has enabled the group to grow its subscriber base with a CAGR 0f
Over the last month -2.50%
52% from 2009 through 2012.
3 months -0.50%
12 months -2.50%
Rating Strong Buy
Attractive valuations
Basing on our PE valuation, the share price is grossly undervalued. This clearly indicates Share Price vs Index returns
that the earning perspectives are not yet reflected in the share price. Accordingly, we
predict an increase in EPS to $1.25 for 2013 and $1.55 for 2014, largely on the
assumption that the share buyback underway, the company’s large net cash position will
be able sustain the share price’s northern journey. Based on our fair value estimate we
have determined an EV/EBITDA of 2.2, PE ratio of 4 and a forward PE ratio of 3.2.
Applying a weighted combined multiples valuation (PER and EV/EBITDA), we arrived
at a target price of $6.2, an upside potential of 35%. Projecting that the company will
grow annual cash-flows at a constant 30% in 2017 and beyond, using a 5 year growth
period, the company terminal equals $1.654 billion. This means in 5 years, Econet’s
infinite future cash-flows will be worth $1.278 billion using a suggested discounted rate
of 25%. A constant growth was suggested as we foresee no huge dynamics in the voice
space that is turning to maturity, coinciding with the imagination of the company’s
management.
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14. Earnings maintains in upbeat tempo………..
Market Statistics
FBC Group attained a strong set of financials in the first half (H1) of the year 2012.
Having grown total income by 39% in the H1 of 2011. FBC Holdings further grew total Sector Financial
incomes by 30% close the H1 of 2012 at $31.6m. Total income was largely driven by net
interest income at $18.6m having increased significantly 54% against $24.4m attained in Report Date 10-Sep-12
the prior comparable period, fees and commission to the tune of $11.3, net trading
income from the manufacturing business Turnall at approximately $0.76m, net earned
Shares inIssue 591,850,127
insurance premium of $2.5m and other operating income to the tune of $0.39m. The Market Cap $39062108.38
group’s PBT went up 44% at $9.2m against $6.4m last year speared largely by the
Beta 0.0936
banking operations, ushering in 44% at $3.8m wherein operating expenses were fairly
flat at $21.1m attributed to the inception of e-commerce. At the centre of the Group’s Target Price $7.2
performance was core business, the banking operations, FBC Bank, contributing 56% to Upside Potential 10%
total income at $17.8m, distantly followed by FBC Building Society, ushering in 16%. The
manufacturing unit Turnall was positioned 3rd accounting for 15% contribution as FBC YTDAverage daily traded
Reinsurance and the insurance arm Eagle came in with 5% and 4% respectively while the volumes 222,363.41
Micro Plan unit accounted for 3%. With the tight market liquidity conditions in the
YTDPeak Price 8c
equities market the Securities division was the least performer, chipping in $0.1m.
YTDlowPrice 5c
Total income tax expense was $2.2m, up 48% leaving attributable profit for the group at
$6.9m. Resultantly EPS was 61% firmer at 1.06c. Total balance sheet grew 24% at Current Price 6.6c
$346.3m. Over the period total deposits went up 38% to $222.5m positioning the group Share Price Performance
on 5th position in terms of total deposits in the market relative to peers. Total credit Over the last month 2.90%
closed at $39.2m and management indicated that these facilities were being honoured
3m onths 11.48%
when due to further open up opportunities for new lines of credit. The Loss Given
Default for the group was reckoned to be relatively very small considering that bulk of 12m onths 4.60%
loans and advances are concentrated in Grade A/B- good quality and ability to meet Rating Buy
commitments in no doubt (92%) while Grade C/D/E accounted for the remaining 8%.
FBC the customer’s bank
The balance sheet is highly liquid and the company has a very conservative loan/deposit
ratio to which the management reckoned that the record speaks for itself. Management
indicated that throughout the liquidity crisis that the country experienced from
November last year to early this year, basically there is no one who can confirm had
experienced problems to move their funds from FBC Bank to other banks. Whenever the
account is funded management acknowledged that they ensure that within a half and a
second a customer is able to move funds through the RTGS whenever needed. FBC Bank
has a policy that whenever the loan/deposit ratio reaches 75% the company always puts Share returns vs. Index returns
in place strategic measures to ensure that the required levels of around 70% are achieved
despite levels like 80% being common to the market. Loan/deposit ratio increased 9%
points to 77% from 68% in the same comparable period. The reason to remain liquid
and/or to maintain cash and cash equivalences is very high in order to meet the
transacting requirements of the customers.
Our Recommendation
The continued disciplined structures of the balance sheet ultimately justifies a persistent
positive footing in the financials of the group. We forecast an idenetical 25% growth in
interest eraned income at approximately $33.3m and $41.6m in 2013 and 2014
respectively. PAT is anticipated grow between 15 and 20% to averages of $14.7m in 2013.
The same is maintained in 2014 that is in line with $15m expectations by the
management. FBC Holdings share price is bound to re-rate upwrads to give a true
replica of the significant financials and also the much anticipated strong performances
in the ensuing years. At 6.6c, the group is undervalued and we expect at least 10%
increase in the H2 at around 7.26c.
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15. Sales Growth Boost Revenues in FY12……..
The leading seed giant recorded a 20% increase in revenue at $117.7m relative to the Market Statistics
prior comparable period, having improved sales volumes by 22% at 67,240 metric
tonnes compared to last year. Group capital expenditure for the year came off a slight 3% Sector Agriculture
at $9.8m relative to $10.1m. CAPEX in FY13 is planned at $7.5m. The Group margins
came off from 51% in the previous financial year to 45% levels in FY12 largely due to Report Date 10-Sep-12
oversupply situation in the country. Resultantly, the group had to reduce prices to push
volumes, to remain competitive as well as to grow market share with respect to Shares in Issue 192,826,185
oversupplies taking a cue from good seasons in the prior years. Finance charges Market Cap $163902257.25
increased 48% to $4.3m against $2.9m last year due to carryover borrowings used to
fund increased production. To the group, CAPEX has remained a major thrust as this Beta 1.34
warrants a competitive edge in identifying and developing new varieties. Target Price $0.96
Upside Potential 12.5%
Zimbabwe production accounted for 38% in total revenue for the group as the group
managed to retain its lost market share during the time of economic hardships. Zambia YTDAverage daily traded
was positioned second contributing 23%. Quton ushered in 13% to group’s total revenue volumes 73,565.03
while Malawi followed closely at 10%. Malawi and Kenya accounted for 5 and 4%
contributions respectively.
YTDPeal Price $1.25
YTDlowPrice $0.8
The group`s profit before tax for the period was relatively flat at $23.5m. Total income
tax expense came off 27% at $4.4 from $6 leaving the attributable income higher 10% at
Current Price $0.85
$19.1m. Earnings per share were 9.4% higher at 9.9c against 9.05c. Seed Co declared a Share Price Performance
dividend of 1.64c per share, which was 30% lower the previous financial year. Over the last month 2.40%
Investments in research activities edged up 28% from the prior period for the group to
3m onths 0.00%
adopt new breeding technologies and also to penetrate new markets, such as West
Africa. Sales and marketing expenditure went up 34% as the group embarked on
12m onths -33.6%
increasing investment in promotional campaigns in all major markets in a bid to Rating Buy
stimulate increased demand. Total assets increase 28% to 157m against $123m in the
prior comparable period.
Our Recommendations
Seed-co returns vs. Index returns
There is a close correlation to growth in agriculture and the use of seed products; hence
we expect firm demand for agriculture development likely to stimulate the demand for
Seed Co’s product range. The existence of human kind entails that the market for food is
inevitable. Point in case being that, demand for Seed Co’s product range is inelastic,
confirming perpetual future incomes. The ability for the company to sustain dividend
payment since the inception of multicurrency can be used as proxy to acknowledge good
performance of stock. Using the P/E ratio Seed-Co at $0.85 is undervalued. We project
margins to be maintained flat in the domain of 39 and 42% considering the excess
supplies of seed by seed producers against the expected dry spell periods in the region.
However, with the retained market share, any significant demand for seeds will to a
greater extend benefit Seed-Co with respect to a large clientele base. With the selling
season turning the corner, we expect an upside potential of 12.5% implying a price of
96c.
15 | P a g e

16. Posted strong FY results………
The Beverages giant posted strong results for the year FY12 with overall beverages sales
volume growth improving 19% at 6.908 mil hectolitres against 15% in FY11, driven by Market Statistics
growth across all the beverages, backed by strong market share positions across all
beverages. The strong growth was championed by investments in machinery, brands and
Sector Beverages
capacity. The premiumisation of lagers which the group reckoned was largely successful
saw volumes increasing by 15.6% in F12 compared with 11.3% in F11. The group's lager Report Date 10-Sep-12
volumes at 1 981mln hls were 22% ahead of the record volumes of March 1998 when
volumes reached 1 629 mln hls. The change in mix for sparkling beverages with the Shares inIssue 1,184,908,715
convenience pack growing by 28.6% in F12 from 20.9% in F11 while the RGB declined to M Cap
arket $888,681,536.25
71.4% in F12 from 79.1% in F11 showed that the premium category was becoming a
bigger part of the portfolio. In 2011 Delta had achieved 1 608 mln hls. Beta 0.99975
Target Price $0.9
On the sorghum beer the Scud increased by 93.1% from 89.5% while the shake-shake
came in at just under4% mainly because of pricing mechanisms. Draught dropped Upside Potential 27.0%
significantly to 3% from 6.1% last year. Maheu brand grew by 4% to 0.93 mln hls whilst YTDAverage daily traded
the volumes in the plastic business grew by 29% sustained by improved uptake from volumes 821,195.71
local producers. The sparkling beverage rose by 29% to 1.5 mln hl. On sparkling
beverages the group indicated that they will introduce more PET packs, 300ml and 1litre YTDPeal Price $0.82
and more products are planned for in F13. Capex to EBITDA ratio is targeted to range YTDlowPrice $0.65
between 30-50% in the medium to long term. A new 600khl packaging line was installed
and commissioned at Graniteside Soft Drinks Plant in November last year and this is Current Price $0.71
expected to give leeway for the group to surpass targets. Management indicated that the Share Price Performance
beer line was operating at full capacity whilst Sparkling beverages and Sorghum were
Over the last month 5.20%
operating at 75% and 66% respectively. Overall, Delta was operating at 77% on average
of its 9mln hectoliters installed capacity. 3months 2.90%
12months -11.3%
The group`s profit before tax for the period was up 41.7 % to $99.3 m. Total income tax Rating Buy
expense was $24.1 m to leave the attributable profit to the group at $75.2. The EPS was
up 38.2% to 6.22cents. Aggregate assets grew by 35% due to capital expenditure of $74.
The trade and other receivables figure went up 42% at $37.3 m due to prepayments
made to barley farmers. Borrowings increased to $60. Having satisfied with the
financials, the group declared a dividend of 2.08 cents, an increase of 38.7% against 1.5 Delta returns vs. Index returns
cents last year.
Our Recommendation
The monopoly status of the group gives a leeway to continued improved margins in the
ensuing years. With continued investments in plant and machinery, there is large scope
for Delta to exploit the profits that came with the stable SU$ salaries. In our opinion we
expect a 25% increase in total revenue to around $693.5m. EBITDA margins are
expected at 22% translating to 21% increase in total income at $90.8m. Against the
strong financials and the monopolistic nature of the beverages industry, Delta is bound
to re-rate upwards to $0.90, representing an upside potential of 27% having realized
that using our PE valuation the stock is undervalued.
16 | P a g e

17. Zimplow – Vying for expansive growth and dominance Mealie brand Supplier of animal
drawn implements and
With a 57,2% acquisition on Tractive Power in H1- 2012 following a 49% acquisition in hoes
CT Bolts distributor of mild steel
Afritec , Zimplow has been unwavering on its growth strategy through continued bolts and nuts, nails and
investment into both backward and feed forward synergies into the Group. At 2012 a wide range of other
interims Revenue for the Group was 12% points lower at $4.3mil on depressed fasteners.
Tassburg supplier of Wood
performance from the local market which weighed heavily on local margins achieved screws, Veranda Bolts
as most sales units were sold on the export market. Consequently Group profitability and High tensile bolts.
slumped in to the negative terrain by -$214 000 aback reduced capacity utilisation Afritec import and sale of
animal drawn
coupled with financing costs arising out of the Tractive Power’s acquisition which implements and tools
required bridging financing before the conclusion of the rights issue in the market. EPS Tractive Power retailer of
was 126% consequently at -0.05c from 1c prior year. internationally
recognised brands
Northmec, Farmec,
Operationally - A poor agricultural season, liquidity shortages and droughts in most Barzem and Puzey and
markets affected the group performance adversely seeing. Mealie Brand the flagship Payne
brand for Zimplow register a 49% decline in local implement sales unit to 9 359 units
despite a 16% growth in implement volumes. Cotton wars offered no reprieve to the local
market as the improved harvest failed to incite anticipated demand. Exports however
grew by 87% to 10 730 units driven by strong product demand in which the group
leveraged off timeous product delivery – displacing cheaper Chinese products. Spares
sales were also down by 29% to 70 825 units overall translating into a 7% production Market Statistics
decline at mealie brand at just about 1 411 072kg. CT Bolts- Despite a drop in overall Sector Manufacturing
sales units, the unit recorded a 6% increase in $ Revenue as a result of the change in
sales mix. The recovery of the mining sector saw CT Bolts selling a higher number of HT Report Date 10-Sep-12
Bolts than prior year by 0.3% whose dollar contribution was significant to offset against Shares in Issue 336 277 628
a 7% drop in sales volumes. Overall production at CT bolts was up 27% at 65 785 kgs. Market Cap $19,840,380
Low capacity utilisation levels continued to put pressure on margins at the unit. Sales
Beta 1.585
volumes in kgs overall dropped by 15% at Tassburg. Consequently, revenue declined by
13% from prior year. There was a significant decline in popular lines namely veranda Target Price $0.08
bolts and HT bolts. Veranda bolts are facing competition from cheap imports whilst Upside Potential 25%
factory under-recoveries continue to put pressure on profit. Afritac’s implements and YTD Average daily traded
spares volumes rose by 15% and 38% respectively buoyed by the Lesotho market which volumes 318 962
has 2 seasons aback good enquiries from the Western Cape. Were it not for erratic rains, YTD Peak Price $0.09
sales growth would have been higher for the unit. With Afritac exhibiting head on
YTD low Price $0.06
growth, Zimplow wishes to up its stake to levels of 100% as the unit remains
synergistic to the Groups structuring. Current Price $0.06
Share Price Performance
Over the last month -23.00%
Our Recommendation
3 months -11.00%
12 months -37.00%
Despite a poor performance at Interims by Zimplow we remain bullish on the Group
Rating Buy
as we envisage long term growth in the company’s strategic acquisitions. Zimplow’s
major attraction lies in its focused business model mainly focused on implements for
small scale farmers, growing revenue and earnings, cash generation and attractive
dividend . Key risk factors meanwhile are mainly unreliable weather conditions since
most of the subsistence farmers depend on rains. Through the acquisition of Tractive Share returns
Power , Zimplow is positioning well for a rebound in the mining sector which though
gradual remains imminent to overall economic growth. With the Group currently in
its consolidation phases wherein Tractive power’s performance is still to be weighted
into Zimplow – imminent forecasts for 2012 FY remain farfetched. However we hold
that with current operations having returned to profitability in the month of July at a
PBT of $65 417 and driving towards clearing out the year to date loss of $56 230 in the
second half, a flat performance would be a fair show by the Group. Margins are going to
continue coming under pressure from competition as well as rising production costs –
especially utility, labor and steel prices. Our view is that EBITDA margins will come off
to 20% in FY2012 from prior levels of 24% whist net profit will come off to around
12% of sales from 17,6%. Valuing on a blend of relative P/E and EV/EBITDA model, a
fair price of 8c is achieved, implying 25% upside potential.
17 | P a g e

18. Having taken a strategic decision to streamline into 5 of its key operations namely TSF Tobacco Auctioning
Logistics operations; Paper and packaging ; Tobacco operations; Agro-inputs and Bak Logistics Transportation
Properties and administration, - TSL achieved a modest increase in turnover of 9% at Distribution, storage
$24.4mil which in turn translated into an attributable earnings increase of 52% at and port handling
$2.3 mil aback improved efficiency and effectiveness. However, excluding, Hunyani - Cut Rag – 30% Cigarette
manufacturer
the paper packing unit, from the Groups performance, turnover growth is recorded at
Hunyani Printing and
19%.Operating profit grew by 57% to $3.2 mln whilst EBITDA came in 28% stronger at Packaging
$4.1 mln. The 57% increase in PBT could be attributable to a 20% capacity expansion at Propack Tobacco wrapping
Bak Logistics, a 27% reduction in Chemco’s H1 loss, a fourfold increase in the group’s Hardware
share of Hunyani profits at $241,000 and the benefits of the cost containment initiative. implements
This all culminated in the 75% increase in the EPS to 0.7 cents after the effective tax rate Classic Leaf Contract farming
tobacco
declined by 4 percentage points to 32% from 36%. Gearing was contained at below 1%
Avis Car rental , tours
cognizant of the group’s healthy cash position.
Agricura Agro chemicals
TSL Property Property
Ranking revenue contributions by subsidiary Hunyani led after having achieved a 6 %
growth in revenue as Bak Logistics, Propack, Chemco, TSL and Avis trailed in the given
order. However Looking at PBT contributions , Bak logistics having achieved a 57%
Market Statistics
growth in sales on the back of a more active distribution market and a 20%
increase in storage capacity – contributed the lions share followed by Propack, TSL, Report Date 10-Sep-12
Cutrag, Hunyani and Avis. Despite improved sales at Hunyani margins remained
thin culminating in Hunyani’s lower contribution to PBT whilst Avis - which is a car Shares in Issue 344 888 516
rental unit , remains a misfit into TSL limited overall structure.
Market Cap $37,454,893
Looking at operations: In a bid to limit the effects of increased competition in the Beta 0.706
auctioning business Tobacco Sales Floor has engaged in a grower’s scheme in a move
meant to strengthen TSF’s position and enable it to capture value along the whole value Target Price $0.15
chain. The business will establish its position in the tobacco business by integrating Upside Potential 20%
backwards and forwards as well whenever necessary. TSF’s revenues have been heavily
impacted by the increased competition and this coupled with the small crop output in YTD Average daily traded
the 2011/12 season have led to a decreased market share, at 34% in H1:12 vs. 56% in volumes 537,198.00
H1:11, though revenues have been maintained ahead of budget. TSF is also actively
pursuing opportunities to make better use of surplus floor space in its 50 000 m2
YTD Peak Price $0.11
auction floor which is idle due to lower crop output over the years. The Hessian YTD low Price $0.06
packaging business, Propack, exhibited strong performance in H1:12 and the business
have continued to focus on cost containment. Meanwhile, there has been a strong Current Price $0.11
initiative by the group to invest more resources into Propak in order to diversify its Share Price Performance
seasonal revenue streams and rebuild on market share. Meanwhile restructuring at
Chemco has been progressing well with the unit on track to profitability whilst the Over the last month 4.00%
voluntary de-listing of Chemco is also on track and is targeted to be completed in the 3 months 88.00%
current financial year. Efforts to dispose of loss making TS Timber are also progressing 12 months 36.00%
well with the transactions earmarked for completion before end of the year. Agro input Rating Strong Buy
unit, Agricura’s, restructuring is on track with orders under the new merchandising
model having been scheduled to be delivered early August. On the logistics unit, BAK,
there are plans to make better use of the 170 000 m2 warehousing space and the group
Share returns
has already started using some of the space for distribution purposes. Printing and
packaging unit, Hunyani had a lackluster H1:2012 performance attaining a
PBT margin of 3% and the group is engaged in on-going discussions with its
partners, Nampak on the future strategy for the unit whose fortunes has been
greatly affected by foreign product competition.
Our Recommendation
With the Group having extensively focused on streamlining operations and leveraging
off its critical mass the business is more focused and well-positioned for sustainable
growth in the medium to long term, For quite some time quality assets has been the
attraction for investment in TSL and now under new management were these assets
are starting to sweat , we are optimistic of the Groups prospective outlook . Based on
our multiples valuation of P/E, EV/EBITDA -TSL yields a targeted price of 13.2c
implying 20% upside potential from the current levels and hence we pass a buy
recommendation on the counter.
18 | P a g e

19. OK Zimbabwe achieved a 60% revenue growth at $412.56 mln and$10.31 mln
profitability at FY2012 anchored in two years of solid investment into the retail Group
which ushered in the new OK Mart brand. With a retail span of 53 outlets sitting on 78
500m2 of retail space the retail giant employs 3 458 staff. During the year OK Zimbabwe
added 2 OK Mart stores and this had a meaningful impact on the group’s market
coverage as Q1:2013 they accounted for 15% of the Groups revenue. EBITDA rose from Market Statistics
$8.1 mln to $19.2 mln driven by an improvement in gross margins and costs
optimization. Gross margins improved marginally from 16.8% to 16.9% due to high Sector Retail
consumption of low margin basic items, economies of scale and new plant and
equipment which reduced maintenance costs. Overheads at a growth of 43.5% remained Report Date 10-Sep-12
below revenue growth seeing the overhead to revenue ratio improve from 14.8% to
13.3%. Major costs drivers to the Group being marketing costs, high utilities costs, cost Shares in Issue 1,034,201,640
of security and increased usage of generators. Stock turnover at 9.6 times remained
within the Groups target of 10 whilst ROCE improved from 15.5% to 24%. Shrinkage was Market Cap $124,104,196
improved from F10 level of 2.5% to the current levels 0.7% whilst the monetary value
has been trimmed from $3.8 mln to $2.08 mln. With Profits for the year up 140% to Beta 0.4632
$10.3 mln, net cash generated from operations stood at $11.17 mln. On the balance sheet
OK Zimbabwe accessed $5 mln convertible debenture at 12% according to the agreement Target Price $13.20
sealed in 2010 targeted for further refurbishment.
Upside Potential 18%
Turning to the operations: OK Zimbabwe imports 60-65% of its grocery items mainly YTD Average daily traded
from South Africa whilst general merchandise and house wares come from as far as Asia
in China. As a result the group has continued to source directly products whilst also volumes 577,965.00
leveraging on agencies the foreign supply base mix all targeted at reducing the
middlemen and overall costs of production. However, the Group had been affected by YTD Peak Price $0.12
quota restrictions specifically on chickens but however highlighted that the group
continued to apply for licenses. Credit terms averaged 30 days with constraints YTD low Price $0.10
emanating in sugar purchases which remain prepaid.
Circumstantial to the Groups reliance on imports, logistics and distribution have become Current Price $0.12
key areas of investiture as it is key to the supply chain. Cognizant of still high shrinkage Share Price Performance
levels at 0.7% the group has adopted Enterprise Risk Management Systems in addition
to its CCTV’s, tighter controls and monthly stock take exercises. Over the last month -2.00%
With the group achieving better sourcing and a change in the merchandise mix to higher 3 months 17.00%
margin products as well as continued maintenance of low shrinkage levels OK 12 months 23.00%
Zimbabwe’s revenues for the quarter ended June 30 were $117mln, up 31.5% on
previous corresponding period of $89 mln. The group has seen a growth in operating
Rating Strong Buy
income of 49% whilst store redevelopments are on track.
Our Recommendation Share returns
Mass grocery retail industry remains competitive by regional standards with per capita
food consumption remaining very low creating opportunities for further growth on
disposable income shifts as independent retailers continue to dominate heavily among
low-income consumers in particular. The adoption of the US dollar and the relative
political stability considerably strengthened the mass grocery retail industry in 2009, a
trend expected to continue over the coming years. Zimbabwe’s mass grocery retail
industry remains an investment target for leading South African retailers in particular.
Once political and economic recovery begins, with store infrastructure already in place,
foreign investors could purchase stores at bargain prices. The would be threat lies in
business planning which remains highly challenging given the improving but still
delicate political climate.
With F13 revenue forecast to grow by 15% to levels of $490mil, gross profit and
operating margins are anticipated to be maintained flat at levels of 18% and 2.8%
respectively implying a bottom line of around $12.5mil. Cognizant of this our valuations
place OK’s EV/EBITDA of 3.2 x to 2013E, placing the stock at a discount when compared
to peer retailers. We calculate OK’s target price at 15c implying an upside of 18% from
current levels. At a historic PE of 10.7x and a dividend cover of two times, makes OK an
attractive investment to value investors.
19 | P a g e

20. Having spent $110 mln in Capex over the years of which $80 mln was spent on
expansion; Innscor Africa Limited is targeting to continue with its expansion drive for
the coming year with an additional $50mil in bakeries fast foods, household goods and
Colcom. Ttargeting a 15% revenue growth for the year ending June 2013 as well as Market Statistics
improving efficiency through leveraging on synergies within the group, liquidity remains
an issue of contention on that diminishing disposable incomes coupled by an increasing
debt-trap in individuals for credit.Meanwhile, FY2012 Revenue grew by 21%, against a Sector Conglomerate
forecast 25%, at $627 mln whilst group EBITDA was 33% stronger at $68.53 mln.
EBITDA margins were up 100basis points at 10.1% driven mainly by improved Report Date 10-Sep-12
efficiencies across the group. Equity accounted earnings were 23% better at $7.56 mln
despite the disposal of a stake in National Foods. PBT was 36% stronger at $61.3mln Shares in Issue 540,118,440
seeing the Group record a 46% growth in EPS to 7.15c. Discounted for National Foods Market Cap $328,071,064
disposal the growth in Headline EPS is recorded at 40%. Innscor declared a final
dividend of 1c which took its total dividend to 1.75c for the year, which is a 46% increase Beta 0.8427
compared to 2011. From 2009, the group has paid close to $50 mln to shareholders as
dividends comprising $20.3 mln in cash and $28.5 mln as dividend in-specie on the Target Price $0.85
Padenga. On the Balance Sheet, gearing was improved at 10% from 18% whilst net Upside Potential 31%
current assets almost doubled to $33.11 mln – growth which is anticipated to support
working capital with the debtors’ books at household goods which increased by $4.6 YTD Average daily traded
mln. volumes 134,550.00
Operationally: The continuous improvement in efficiencies since dollarization has YTD Peak Price $0.64
seen a gradual uptrend growth in Innscor’s operating profits since dollarization, a
position which is anticipated to continue. FY2012 Revenue performance was driven by YTD low Price $0.53
bakeries and fast foods weighing in $246.3 mln to total revenue which was a 32% growth Current Price $0.60
from prior year. At PBT level, Spar despite narrowing down its losses by 30% to $1.70
mln, was the only one in the red, whilst Bakeries and Fast Foods were maintained Share Price Performance
dominance. Bakeries volumes increased by 52% to 114.6 mln loaves with production
having increased from 200 000 loaves a day to 350 000 loaves a day. An additional
Over the last month -8.00%
plant with a capacity of 100 000 loaves a day which will take capacity to 400 000 loaves 3 months -4.00%
per day is anticipated to be installed within Q1. Fast Foods business, customer counts 12 months -14.00%
increased by 11% to32.1 mln. Whilst the average customer-spend in Zimbabwe was 3%
stronger at $2.85. Thirteen, new counters were added to the network taking Innscor
Rating Strong Buy
branded outlets to 131.Customer counts for regional operations rose by 3% to 11.3 mln .
Regional average customer-spend was pegged at $4. Distribution Group Africa (DGA)
registered a 20% growth in volumes with market competition at stiff levels. Meanwhile,
Share returns
the Spar retail average spend, both local and regional, had increased whilst volumes
processed increased by 16% in the SPAR Distribution Centre and Freshpro. On to the
households, volumes were up 30% with marked improvement on the quality of the
debtors’ book. Associates, National Foods recorded a 15% growth in volumes to 404 000
metric tonnes and the Group would continue to dispose of non-core assets in the unit to
make the balance sheet more efficient. At Irvine’s, Chickens sold rose by 14% whilst
table eggs rose by 7% to 15.725 mln and day old chick by 19% to 26.964 ml. Additional
hatching capacity is anticipated to be installed .
Our Recommendation
In almost every operation, Innscor is showing strong growth whilst loss making entities
are being brought to consolidation. With management keen to further expand the
Group, Innscors strength and investments case is further enhanced. With the headline
EPS set at 7c levels for 2013, Innscor’s worth is far discounted at current levels. This is
further ascertained by our combined weighted valuation model which yields an 85c on
Innscor propelling us to advocate it as a buy with upside potential of 31% on pricing.
20 | P a g e

21. H1 June 2011 results inspirational
Market Statistics
Riding on improved volumes, turnover went up 14.47% to US$48.643 million from the
US$42.5 million recorded in the same period last year. Revenue growth by product for Sector Agri-Industrial
Foods, Beverages and Milk was 24%, 16% and 4% respectively. High cost of utilities and
their erratic supply especially water and increasing raw material cost were to a greater Report Date 10-Sep-12
extend responsible for the 13.97% hike in Operating cost which surged to US$44.3
million. Shares in Issue 353,067,858
Increase in productivity and slight margin improvements heightened Operating profit by Market Cap $ 57,585,367.64
20% from US$3.7 million in H1 2011 to US$4.4 million in H1 2012. Profit for the period
improved by 36% over the same period last year to US$3.144 million. EPS increased by Beta 0.579
36% from H1 2011’s 0.65c to 0.88c in H1 2012. Interest bearing debt increased by 3% to
US$5.99 mil at an average cost of 10% per annum compared to the same period last Target Price Usc 22c
year. In efforts to cement its working capital position and invest in capacity building the
Upside Potential 26%
group secured a US$4 mil five year facility from PTA bank at a cost of 11% p.a. Capital
expenditure budgeted for the current financial year is US$7.19 mil compared to US$4.05
YTD Average daily traded
mil for last year. volumes 193,845.98
Continued efforts to work with dairy farmers on strategies to grow raw milk production
YTD Peal Price 21
paid off as milk intake increased by 5% (Zimbabwe 9% and Malawi -7%). Sales volumes
were 9% higher than the same period last year at 12.889 million litres Increased capacity YTD low Price 14
from significant investment in yoghurt, Nutriplus and Cascade equipment made in 2011
drove growth in food and beverages. Malawi operations were affected by foreign Current Price 16.31
currency shortages, exchange rate risks, inflation rates and restrictive retention policies; Share Price Performance
business confidence is however expected to be restored following new socio economic
and political policies announced by the Malawian government. Over the last month 2.00%
3 months 3.00%
In the FY 2012 the company is targeting volumes growth of 20%, revenue growth of 23% 12 months -26.00%
while profit margins are expected to be at 12% from the current 11%, supporting the Rating Buy
anticipated growth in revenues are increased capital commitments targeted at increasing
production capacity for value added products, cementing distribution capacity and
efficiencies, cold chain facilities and milk supply developments.
Share returns
Going forward we forecast restrained margins in light of stagnating economic growth
and limited purchasing power from suppressed disposable incomes. Improved earnings
will be achieved from intensified marketing efforts, prudent working capital
management, tight cost management efforts and strategic procurement arrangements.
Our Recommendation
Margins on the group’s brands are threatened by stiff competition from imports; there is
limited scope for any player in the dairy product market to increase price given the
suppressed disposable incomes and monopolistic competition environment prevailing in
the market, leaving the company’s hopes underpinned on volumes growth and
broadening the distribution network to consolidate its position on the dairy product
market. We project revenue growth of between 16% and 20%, a bit lower than
management’s expectations of 23%, we expect volumes to increase by 21% projecting
forward EPS of between 2c and 2.3 cents to 2.6 cents.
21 | P a g e

22. Hippo
Financial highlights for FY 2011
Market data
Sector Agri-Industrial
Revenues grew by 80% from last year’s US$88 million to close the year at a decent
US$129 million. Growth in Operating Costs associated with this growth in revenues was
27% to push total operating costs to US$97 million leading to a lower cost to income Report Date 10-Sep-12
ratio of 84% opposed to 90% achieved in the prior financial year.
Shares in Issue 193,020,564
The Net Profit margin improved to 16% during the period vs 10% achieved in FY 2010
driven by (i) encroachment in the operating profit margin up 25% from 14% in the prior
year, (ii) an improvement in total asset turnover from 28% in FY2011 to 38% during the Market Cap $ 212,322,620.40
financial period under review. Earnings Per share increased by 137% a relatively
comfortable 10.9 cents from 4.6 cents in the prior year. Cash flow from operations Beta 1.13
improved by 1,202% to US$13.9 million in FY 2011 from US$1.264 in the prior year
driven by strong asset turnover improved management of the working capital cycle.
Target Price Usc 146c
The company’s Sugar production in the 2011/12 season improved by 30% to 170,000
tons from 131,000 tons in the 2010/11 season. Hippo Valley’s contribution to the Upside Potential 32%
industry’s sugar production also improved from 39% in the prior period to 46% in the
period under review while total industry production increased by 12% from 333,000
tons to 372,000 under the same period. The company’s plant utilization was 53% YTD Average daily traded
compared to 58% for the industry. Crushed cane increased by 37% from 1,008,779 tons volumes 45,262.53
in the 2010/11 season to 1,382,387 tons in the 2011/12 season (Hippo valley‘s
contribution dropped 9% to 77% vs 86% FY2010). Average yield per hectare improved to
YTD Peal Price 115
89.6 tons per hectare from 83.5 tons in the prior season.
The total industry’s domestic market sales for the year under review totaled 247,000 YTD low Price 95
tons, a 34% improvement from 184,000 tons last year. Domestic sugar prices were in
line with regional trends in the period with demand firming. Raw sugar exports to the
European Union under preferential market arrangements at favorable prices amounted Current Price 110
to 125,000 tons. The company has an optimal target of 60%/40% for domestic/export Share Price Performance
markets.
Water storage in dams that supply 16% of the industry’s area is being carefully managed Over the last month -4.00%
to ensure the availability of irrigation water until the 2012/13 rainy season following
poor rainfall in these catchment areas. Going forward, water from Tokwe Mukosi dam
3 months 10.00%
(under construction) will supplement Mutirikwi water for irrigation and open up 12 months 10.00%
significant additional cane production capacity. The company utilized a capital Rating Buy
expenditure budget of US$22.5 million over the last 3 years, placing the company in a
position to increase its capacity and output in the coming years.
Our Recommendation Price vs. Volumes
Sugar production in Zimbabwe is expected to be between 450 000 and 500 000 tons in
the 2012/13 season an increase of between 20% to34% courtesy of an increase in
replanted area as well as the anticipated crushing of cane from Chisumbanje. Hippo
valley’s sugar production is expected to be between 200 000 and 230 000 tons in the
2012/13 season. Restoration of the country’s sugar production capacity of around 640
000 tons per annum will continue to be a target in the 2012/13 season. We expect
Industry capacity utilization to increase to 70% in 2013 around 450 000 tons. Revenues
are expected to grow by 20% to 25% to around US$161 mil and operating profit to
slightly increase to around 27%. Net Profit margin is expected to anchor at 17.5% (Net
Profit of around US$28 Mil) and an EPS of 14.59c and a forward PER of 6.9 times. We
rate the counter as a BUY considering the expected boost in operations from the Tokwe
Mukosi project.
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23. Contacts
Managing Director: Benson – Benson.Gasura@fbc.co.zw 0773 940 774
Front Office: Richard - Richard.Mashava@fbc.co.zw 077 2 446 789
Manatsa - Manatsa.Tagwireyi@fbc.co.zw 077 3 289 120
Davide - Davide.Muchengi@fbc.co.zw 077 3 940 770
Research: Yvonne - Yvonne.Saiti@fbc.co.zw 077 3 437 869
Martin – Martin.Mutumhe@fbc.co.zw 077 5 203 746
Albert – Albert.Norumedzo@fbc.co.zw 0775 198 997
Disclaimer: The views expressed in this document reflect the views of FBCH Securities Research based on
the information available at the time of writing and as such, may change without notice. It is provided for
information purposes only and whilst reasonable steps have been taken in carefully preparing this document,
no responsibility can be taken for any action based on information contained herein.
This document may not be reproduced, distributed or published by any recipient.
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