As we approach the earnings season, March is usually a busy month for analysts and other active market participants.
According to section 39 of Statutory Instrument 34 of 2019, which provides the listing requirements and operations procedure for capital markets in Zimbabwe, audited annual financial statements must be published not more than three months after the end of every issuer’s fiscal year.
Of the 48 issuers currently trading on the ZSE, over half of them have a 31 December year-end whilst the majority of VFEX issuers are on a 30 June year-end.
With the exception of Steward Bank which follows its parent company’s financial year, other commercial banks which might not necessarily be listed will also be racing to get their audited financial results out before 1 April, which makes this period a hectic one. Since these financial statements are a lagging indicator of what has already taken place over the past year, we can use public information at a macro or sectorial level to try and predict the generic overview of what companies will report.
Although the 2022/23 Agric season might be a fantastic one with above-average rainfalls, the 2021/22 which will also be reported wasn’t so good characterised by late and erratic rainfall patterns. The conflict in Europe also exerted pressure on the prices of many products including fertilisers.
The winter cropping season reaped above-average results with wheat production reaching all-time highs. The market should not be surprised by an improvement in seed sales in preparation for the 2022/23 season which also coincides with elections, but perhaps might want to pay closer attention to the debtor numbers.
Although the suspension of lending was quickly reversed in the second quarter of 2022, it had an impact on the confidence of clients in the banking sector.
Furthermore, the hike in policy rate from 75 percent to 100 percent then 200 percent forced both banking institutions and their clients to prefer more US$-denominated loans.
Indications from all sectors of the economy are that the dollarisation process was sped up in 2022 and we just await banks to confirm.
To maintain capital adequacy levels, banks sort of hardened their balance sheet as the local currency lost value faster in 2022 and we expect to see that being reported.
Over the recent years, local banks were overweighting their loan book towards the agriculture sector, but we should expect to see more lending to the mining and manufacturing industry as they are enjoying good growth.
An improvement in the loan-to-deposit ratio should also be expected as banks report.
The bullish sentiment continues to prevail in this sector underpinned by the government’s drive to promote infrastructural development. It shouldn’t be surprising if companies like Masimba posts a strong order book, whilst cement manufacturers report sales volume increase. The budget had projected that the industry would grow by 17.4 percent in 2022.
The Manufacturing sector has been on a rise over the past few years with capacity utilisation increasing to an average of 66 percent in 2021 according to Zimstat. The Foreign Currency Auction system was stated as one of the reasons that propelled growth in this sector as raw inputs were made accessible.
In 2022 the sector grew by 15.5 percent on average and that should speak to the number of listed entities in the industry like Nampak and CAFCA amongst others.
Mining is one of the anchor pillars of the economy and among the biggest foreign currency generators, earning US$5.67 billion in 2022.
The sector grew by 12 percent anchored by gold and chrome. Over two-thirds of gold was contributed by small-scale miners, so the bigger listed counters could be part of the remainder.
Companies like RioZim and Caledonia could report an increase in outturn. From an export point of view, PGMs took a 24 percent knock despite prices in the international market increasing.
However, it is possible for BNC’s outlook to recover as the rest of the world is witnessing dwindling stockpiles.
Real Estate Sector
The property market has its challenges with rental yields and occupancy levels. Evidence of lower return on assets and asset turnover is there to show that companies in this sector are failing to squeeze higher margins from their properties, especially in the CBD as small corporates now prefer office parks out of the CBD.
In the past few years, companies like First Mutual Properties have reported rental yields of 4 percent whilst Mash Holdings is working on reducing its CBD concentration. Perhaps higher yields could be squeezed in residential and small retail flea markets in this sector, but in general, an average performance should not be surprising from the property market.
Informal retailers are the biggest threat in this sector, be it in fast-moving consumer goods (FMCG) or clothing. Since these informers have fewer operating costs and do not have to pay IMTT due to their cash transactions, they can price at more competitive prices than well-established competitors.
Statutory Instrument 98 of 2022, which suspended duty on some basic imported commodities also exerted pressure on counters in this sector as the competition intensified.
The expectation is that the margins might be affected and sales volume might knock off or at most remain flat.
This sector continues to show great numbers since the lifting of travel restrictions, with occupancy levels getting back to pre-Covid numbers.
The sector also benefitted from a 100 percent foreign currency retention incentive that was instituted by the government in 2022. According to the Monetary Policy Statement, this sector grew by 134 percent last year in terms of export receipts.
The expectation is that this growth should also be visible in the numbers of companies like RTG and African Sun that operate in that space.
To sum up, 2022 was a mixed bag.
Clearly, our export receipt number is a testament to the good side of the coin.
However, in an attempt to ameliorate the situation in some instances, the authorities might have come up with unpopular policies that had a detriment to the private sector.