HARARE- The times are tough in Zimbabwe, but those with a keen eye for good stocks are at least able to generate inflation beating returns on their investment. In recent months 2 stocks have performed exceptionally well and these are all from the hospitality sector.
African Sun and RTG share prices have soared the most among a total of 60 counters currently trading on the bourse since releasing their full year results to December 2018 about a month ago.
The duo are hospitality entities trading in Zimbabwe and operating 12 and 5 hotels respectively. They both have presence in key markets such as the resort Victoria Falls and in top cities including Harare and Bulawayo.
Since releasing their full year earnings to December, the duo has added 167% and 251% respectively, gains which uncommon on the ZSE. On a year to date scale African Sun is up 300% while RTG is 255% in the same direction.
Although the broader market is up from the time companies began releasing earnings, at 58%, the growth lags that of hospitality stocks whose average growth was at 209%. Overall only 7 counters have earned a 3 digit growth on the ZSE in 2019 and this total includes the 2 hotel operators.
Outperformance by the 2 stocks is largely attributed to their good financial performance in the 2018 financial year. At revenue level, African sun registered a growth of 32% while RTG added 27% to its 2017 revenue level.
At $10.14 million, African Sun’s after tax profit was 111% up ahead of what it achieved in 2017. Peer RTG in turn registered a 10 times growth in after tax profit. These matrices were a big deal especially considering that each of the 2 entities earned at least 30% of its income in forex.
To show how real the greenback was, they both went on to declare a dividend partially settled in hard currency. At the back of this good performance by the hoteliers was a surge in tourism fortunes. The sector realized a faster growth in arrivals both local and international.
This was mainly a carryover effect from the 2017 trend, where power transitions in Harare, renewed interest on the destination by investors and holiday makers alike. Victoria falls was reported to have run out of hotel room capacity a year after its airport capacity was trebled. Election related business however sealed the realized fortunes in 2018.
Organically the 2 market leaders invested in refurbishments across their hotel portfolios ensuring that they stay ahead of peers despite increased competition.
Although the counters valuation appears demanding at present price levels, if adjusted for forex earnigns at the prevailing market rates, they show additional growth potential.
Investors have generally sought forex generating counters, earnings solid cash in a period where inflation has discounted real RTGS$ earnings.
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Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization