After every bear market a bull market will follow, and vice versa. Stocks have historically bounced back from every dip and the current downturn on the equities market should not be an exception.
The Zimbabwe Stock Exchange All Share Index, which has fallen 43 percent from its peak at the end of April 2022, is looking attractive again, according to stockbroking firm Imara Edwards Securities.
The ZSE All Share Index peaked on the April 27, 2022 when it reached 29 440,85, but has since fallen to 16 749,84.
Its market capitalisation closed above $3,6 trillion, but has since come off to just above $2 trillion.
The equities market was hit by a barrage of policy interventions early May after authorities blamed the ZSE saying it was being used by speculators to hurt the local currency.
Finance and Economic Development Minister, Mthuli Ncube, described the market rally as a bubble that needed to be pricked.
One of the measures implemented that left a dent on the stock market was the increase on Capital Gains Withholding Tax from 2 percent to 4 percent for shares being held for less than 270 days.
Then there was also the ban on inter account transfers between client sub accounts with a broker as well as third party funding of client sub-accounts.
The impact was a market sell off which saw the All Share Index drop 43 percent from its peak of 29 440,85 recorded on April 27, 2022.
On Wednesday this week, the ZSE market capitaliastion stood at $2,08 trillion or US$2,6 billion using a parallel market rate of $800 per US$1.
At its peak, the ZSE was valued at $3,6 trillion or US$9,6 billion using a parallel market rate of $385:US$1. This represents a 73 percent drop in market value, in real terms. This makes the market look like it has been oversold.
Such ratings are attractive for long-term investors according to Imara.
“Given the high inflation, sharp depreciation of the local currency especially on the alternative market, negative real interest rates, and shortage of viable alternative investments, ZSE ratings are attractive for long-term investors,” the Stockbroking firm said.
As a strategy going forward, Imara believes investors should adopt a bottom-up strategy and seek exposure to monopolistic, lowly geared, well-managed businesses with strong cash generation abilities, strong brands, and solid balance sheets.
On its list, Imara included companies such as Afdis, Delta, EcoCash, Econet, Hippo, Innscor, Meikles, Natfoods, OK Zimbabwe, and Simbisa.
Detailed look at the list
In its latest trading update for the quarter to June 30, 2022 Afdis said volumes grew 18 percent compared to the same period prior year, benefiting from improved supply into the market and increased outdoor activities as the Covid-19 restrictions were relaxed.
Wine volume grew by 30 percent over prior year mainly driven by 4th Street Wine due to improved availability and affordability following the commissioning of the brand’s local production.
Further, spirits and ready to Drink (RTD) volumes grew 23 percent and 12 percent respectively as a result of strong demand and increased market penetration.
In its results for the year ended March 31, 2022, released in June, Delta Corporation reported volume growth across the board.
According to chief executive officer Matts Valela, lager beer volume for the year grew by 38 percent to 1,863 million hectolitres (HLs) compared to prior year attributed to consistent product supply with respect to both brand and pack.
Sorghum beer volumes in Zimbabwe grew 43 percent to 3,732 million HLS driven by improved access to market, relaxation of Covid-19 restrictions, increased spending in rural markets driven by artisanal mining, and improved agricultural output.
Going forward Valela said the focus is on accelerated volume recovery by recruiting new customers and consumers, entry into more sales channels and winning the customers back from home brews which were spurred by the alcohol bans.
Also on the Imara list is Ecocash, which after factoring for inflation reported positive earnings in the year to February 28, 2022 fostered by revenue growth, cost containment and decrease in foreign exchange losses.
Its top line improved by 26 percent whilst EBITDA was up 50 percent. Gross profit was up 33 percent with the margin up 4 percentage points up from the previous reporting period to 74 percent.
Another on the list is Econet which recorded a profit before tax of $21,87 billion after a 767 percent jump highly attributable to a decline in exchange losses.
Simbisa, which dominates the local market and also has regional operations, is pushing ahead with expansion plans. In March this year, it said it was on course to meet a target of 92 new store openings by the end of the June 2022 financial year.
The Group planned to open 69 new stores by June 30, 2022 (19 in Zimbabwe, 29 in Kenya, 9 in Ghana, 1 in Zambia, 1 in Mauritius and 10 in the Democratic Republic of Congo (franchise stores)) at a cost of about US$14 million. By the end of calendar year 2022, the Group targeted to be operating 623 counters.
Another on the list, OK Zimbabwe said it spent $3,1 billion in 2022 on capital expenditure as it seeks to bring better customer experience. Capital expenditure for the year was $3,1 billion up from $2,1 billion in the prior year.
OK Zimbabwe chief executive Maxen Karombo said, positive growth was sustained in value added services with forex earnings supported through the expansion of the domestic remittance service across stores.
Although one cannot know exactly when the market will turn again history does provide some guidance. After every bear market a bull market will follow, and vice versa.