Tawanda Musarurwa
The local bourse witnessed an unprecedented rally during the first three quarters of 2017 as a number of investors moved to hedge against inflationary pressures and monetary uncertainties.
This saw the market boosted its performance aggregates as the bourse rallied to a record value of trades of $694, 9 million.
But what does 2018 hold for the Zimbabwe Stock Exchange?
With the ZSE’s new All-Share Index having begun the first few weeks in topsy-turvy mode, it can be expected that the first quarter performance will largely fail to replicate the performance of the first quarter of last year.
Well, it is common fare for ZSE market-watchers to claim that the bourse will stand on the shoulders of ‘blue-chip counters’.
They say that in the short-to-medium term the ZSE should maintain a steady trend, hence activity is expected to be concentrated in the wealth preserving blue chip counters because heavyweights such as Delta Beverages are typically are deemed safe havens by investors.
But as history has often shown, it’s not the blue chips alone that always shine. With this in mind we pick just a few stocks that we think may be the gems of 2018:
- Seed-Co’s performance going into 2018 will likely be buoyed by the country’s strong focus on agriculture, especially maize and wheat. The country’s largest seed producer has also been on an extensive drive to broaden its reach in Sub Saharan Africa. This drive makes the firm an attractive investment prospect. But with big plans come big risks. But also on the positive side, Seed-Co has hinted at strategies aimed at having it listing its regional divisions on regional stock markets, which could also be a boon for potential investors.
- Hippo Valley Estates posted a robust FY2017 performance, which – all things being equal – should continue into the new financial year. For its FY2017 results, Hippo reported an impressive set of results, ahead of most observers’ expectations as Government efforts to reduce imports (SI-64) paid off for the group as well. EBITDA margins improved from 11, 3 percent in the prior comparable period to 19, 1 percent in FY17 while operating margins improved from -5, 6 percent to 9 percent. Finance costs were significantly lower at $4, 35 million against $6, 36 million as the company’s debt reduced from $42, 37 million to $18, 08 million. And profit for the year came in at $7, 67 million, up from a loss of $8, 80 million in the prior year. So the fundamentals seem right. Significant investment that has gone in the Tokwe Mukosi dam should also help guarantee the firm’s future cane output.
- Conglomerate Innscor is seemingly benefitting from the restructuring of a number of its business units as some of the restructured units have been posting solid results. The group also has unparalleled cash generation abilities, especially in retail and fast foods. And it’s presently trading at an earnings multiple of 15.7x which is rather low for a business that has such significant cash generating capacity.
We are not saying these are the stocks that will definitely perform in 2018, but they are some of the few whose fundamentals seem to be correct, or at least aligned. Robust businesses tend to stand firm even within the midst of economic uncertainties.
At the broader market level, market watcher have predicted a price/earnings ratio (PER) of 20.69x for the ZSE’s new All Share Index, relative to its current PER of 29.98x implying a 31 percent downside potential. What this basically means is that the market can provide opportunities both to buy and sell.