Harare - Counters in the consumer sector including Axia (AXIA: ZH) and OK Zimbabwe (OKZ: ZH), posted record-high growth in earnings in FY17/18 year-ends.
According to IHS Securities, a financial services boutique firm that offers brokerage (IH Securities) and advisory services (IH Advisory) to local and international clients, the Statutory Instrument 64 (SI64) which was gazetted to impede the importation of basic consumer goods such as vegetables, cooking oil and staple foods from neighbouring South Africa in favour of local manufacturing and business also contributed to the growth in the earnings the sector recorded.
IHS Securities said Delta (DLTA: ZH) lager beer volumes recorded the highest growth over the period as they rose 27 percent as a result of consumers moving up the product chain, implying improved disposable incomes.
The mix shifted towards premium beer as the contribution rose to 28 percent from 26 percent in FY17 while mainstream and economy beers dropped to 58 percent (from 59%) and 14 percent (from 15%) respectively.
According to the firm aggregate volumes, as a result were up to 6.97mn hl, from 6.10mn hl in FY17 which is a 14.3 percent increase.
It said that OK Zimbabwe’s strong performance, attributed to a substantial migration of transactions from the highly cash-dependent informal sector to the formal sector, bears testament to the significant shift towards ‘plastic money’ as point-of-sale (POS) transactions constituted 82 percent of payments during FY18.
Resultantly, revenue for the FY18 improved by 23.4 percent y/y to close the reporting period at $582.88mn, having increased from $472.40mn in the prior year FY17.
Additionally, IHS Securities said retailers indicated that their product mixes were being skewed towards lower profit margin products, indicating the highly liquid bottom-of-the-pyramid earners, which are highly dependent on the primary sectors.
Meanwhile, IHS Securities said activity in the retail operating environment is expected to remain relatively firm, with robust performance in primary sectors continuously aiding the group’s performance as disposable incomes and average spend expand.
“We also expect the government’s 15 percent salary rise for civil servants to give a rise to performance.
“Food retail is the most significant component of the consumer sector, with about 34 percent of total annual consumption expenditure, compared to South Africa, 19 percent or the UK, 10 percent being spent on food and groceries, with staples (particularly maize meal, bread and sugar) being the most popular food items.
“We expect food and groceries to be mainly sourced in the formal market, with growth in low-income segments, which is dominated by OK Zimbabwe (HOLD, TP: $0.26), commanding an estimated over 30 percent market share, as we anticipate the liquidity crisis to persist,” it said.
IHS added, “We estimate that OK Zimbabwe trades at a PER (+1) and EV/EBITDA (+1) of 16.2x and 7.6x, respectively vs regional peers at a PER (+1) and EV/EBITDA (+1) of 21.2x and 10.8x, respectively.
“We expect firm demand in Simbisa (SIM: ZH) ahead of its secondary listing on AIM. We estimate Simbisa trades at a PER (+1) and EV/EBITDA (+1) of 23.0x and 11.2x (peers at 16.7x and 11.8x, respectively), thus estimating a TP of $0.50 and giving a HOLD recommendation.
“We hasten to add that a flight to assets as investors de-risk RTGS dollars has driven market valuations resulting in high face value multiples, on face value our Consumer universe trades on PER (+1) of 23.2x, however after applying on the Old Mutual Implied Rate discount, the universe trades on PER (+1) of 10.6x.”
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