Universities in Zimbabwe have often been criticised as glorified high schools that feed students with theoretical information and lack the practical aspect of things.
Fortunate enough programmes like the CFA Research Challenge, which is hosted locally by the Investment Professionals Association of Zimbabwe (IPAZ) seek to bridge that gap.
The Research Challenge seeks to groom future analysts and capital market participants at large through rigorous training in equity research, report writing and presentation skills. IPAZ has been running the programme since 2018 with an average of eight universities participating each year. The winning team locally proceeds to Sub-Saharan Africa (SSA) regional competitions before the Europe, Middle East and Africa (EMA) and eventually global finals.
The University of Zimbabwe (UZ), Harare Institute of Technology (HIT) and two teams from the National University of Science of Technology (NUST) made it to the final round where they pitched in front of judges at the Celebration Centre on Tuesday night this week. This year the company being evaluated was Simbisa Brands. The areas of focus on report writing and presentation were; business description, industry overview, environmental social and governance (ESG), financial analysis, valuation, and investment risks.
The teams painted a clear picture of what the company does, the brands it operates under and its roots and origins. They were also cognisant of the fact that Simbisa has operations in the region, with other teams even going further to give a breakdown of contribution to top line and profitability.
Under this section, the main emphasis was highlighting the kind of environment the counter operates in. The teams considered the macroeconomic environment and narrowed it down to the fast food and dining industry where Simbisa plays. Models like Porter’s 5 forces and SWOT analysis aided the teams to give an in-depth evaluation of Simbisa.
Judges were particularly interested in knowing what competition Simbisa faces both locally and regionally, which other teams described as either fragmented or insignificant with others highlighting Slice brands and KFC.
The thoroughness of the Research Challenge participants was displayed under ESG which was even commended by the judges. Traditionally there was a tendency by market participants, including analysts to sideline ESG factors when formulating investment recommendations.
Well, it seems this new crop of upcoming analysts understand the importance of ESG integration, with other teams even creating rating scores on what seem to be qualitative issues and turning them into quantitative metrics in accordance with global best practices.
The heart of the analysis was the quantitative aspects of the company. Even those who listened attentively would attest to even the change in tone of the presentation as the analysts delved into the numbers.
Profitability, Solvency and Liquidity ratios were thrown around by the upcoming analyst all in an attempt to justify the Buy recommendation.
Revenue growth assumptions were outlined on the basis of the company’s significant capital expenditure injections and plan to grow aggressively in the next financial year.
The basis of the recommendations was largely attributable to the valuations undertaken by the teams. Bearing in mind the unique Zimbabwean environment, the analyst applied various techniques touching on both relative and intrinsic valuation. Some even justified their price target using technical analysis, which caught the judges’ attention and it became a talking point but you could tell that the team was prepared to answer any question to justify the methodology.
Simbisa recently migrated to the Victoria Falls Stock Exchange, where it is now trading in US-dollar, which suggests that any upside potential highlighted by the analyst was in real terms.
Although Target Prices differed from team to team, the analysts were concluding that if you buy this counter you are likely going to have at least a 60 percent margin of safety. You didn’t need to be a finance expert to understand the message the analysts were putting across that Simbisa is cheaper compared to regional Peers. Some teams would then adjust to account for different operating environments.
There is no upside potential, without investment risk and the teams made sure that was captured as well. The most common risks were exchange rate risk, regulatory risk and political risk. The move to the VFEX on its own was a mitigatory strategy for the exchange rate risk, one team concluded.
Disclaimer: Please Note that everything presented by the University Students is only for Practical Learning experience and does not constitute Investment Advice!