- Axia Corporation Limited is seeking to delist from the ZSE
- Revenue growing at a Compound Annual Growth Rate (CARG) of 4.79%.
- Borrowing Costs are forecasted to affect the company's ability to repay its short-term debt for 2022.
Harare - Innscor spinoff, Axia Corporation Limited, is seeking to delist from the ZSE and migrate to the Victoria Falls Stock Exchange (VFEX). The pattern will remind many of how Simbisa paved the way for Axia to unbundle from Innscor in May 2016 after the latter had unbundled a few months earlier.
Simbisa Brands Limited recently became the 6th counter to formally list on the foreign currency-denominated Victoria Falls Stock Exchange (VFEX) on Friday 02 December. Axia joins the list of companies on the queue to make the switch from ZSE to VFEX. The Zimbabwe Stock Exchange (ZSE) viability and sustainability are in peril as more corporations choose to delist from the exchange in favour of the Victoria Falls Stock Exchange, which deals in US dollars (VFEX).
Since businesses need foreign finance for expansion, more companies leaving the ZSE will make sense from a capital-raising perspective. The majority of ZSE-listed companies are considering delisting because they no longer see any value in the local currency market and would rather go to the VFEX, which trades in US dollars. Two of the companies' biggest concerns are a lack of liquidity on the ZSE and valuation issues. Transferring to the VFEX will help them realize their true worth.
The money made from the sale of goods and services has been increasing steadily between FY2016 and FY2021, with revenue growing at a Compound Annual Growth Rate (CARG) of 4.79%. However, it should be noted that Axia has three business units, including TV Sales & Home (TVSH), a leading furniture and electronic appliance retailer; Transerv, which sells automotive spare parts; and Distribution Group Africa (DGA), a reputed and reliable distribution and logistics firm.
Distribution Group Africa (DGA) was established in 1999 by Innscor and has evolved to become one of the largest and most successful distribution enterprises in Zimbabwe, Zambia, and Malawi. In the 2021 financial year, the Distributed Group Africa (DGA) volumes grew by just 3% and went on to account for a remarkable turnover in revenue of 22% against the prior year in the Zimbabwean sector, proving how the business continues to thrive since it has fewer competitors in the market in Unifreight and other private players. DGA is well positioned for sustained profitability in the long term, having won multiple All Africa Awards for being one of the leading distributors in Africa.
When first opened its doors in 1968, the company was known as TV Sales & Hire. Early on, the business model comprised leasing equipment to consumers who had no intention of buying them and selling electronic appliances on credit through its "hire to buy" scheme. Today, TV Sales & Home is a furniture and electronic store in Zimbabwe with 49 retail locations, and its business performance is stable, but it confronts severe competition from Nash Furniture and the Glen View Home industry. In the most recent end-of-financial results, the business's 35% volume rise resulted in a 33% gain in revenue.
Restapedic beds volumes increased by 52% but turnover was 5%, proving how the informal sector is outdoing TV Sales & Home. It has to be noted that the firm remains tenacious in its struggle against an informal market that has fewer operating expenses which makes it hard for TV Sales & Home to adjust prices without losing customers.
In 2002, Transerv was founded as a cross-border transportation business that also imported auto parts for light-vehicle workshops. Transerv exploited a niche market opportunity in the wholesale market for spare parts and supplied larger operators with a quick-moving inventory. But the Kaguvi Street Spare Market has inundated that market with less expensive replacement components, which is a major issue for Transerv.
The company's volumes increased by 67%, which resulted in a 30% increase in revenue. In addition, Transerv Fitment Center was developed as a companion brand to offer clients a facility to fit their tyres, batteries, and suspension. However, cheaper alternatives have been availed by the informal sector and offer fewer charges for the same service.
Axia’s Profit After Tax margins have drastically dropped, in FY2016 the PAT margin was 7% in comparison to the 3% for 2021 hence the company’s efficiency in converting sales to profit has over the years dropped as the firm has lost the power to adjust prices at will due to the competition from relatively lower informal sector prices. It's widely believed that higher sales volumes lead to higher revenues or turnover but it is evident that for AXIA, it isn't the same as indicated by the analysis.
This annual growth rate is expected to decline in the coming years largely on the backdrop of an increased influx in informal motor spares traders who have relatively low operating expenses since some of them smuggle these spares without paying any customs duty and other relevant taxes.
Rentals are also a large contributor to total operating expenses given that Zimbabwe has one of most expensive property sectors in terms of rentals per square area compared to informal traders who either, in the extreme, don't pay rent or pay very low rentals given that they share little spaces. Thus, operating expenses coupled with a lack of pricing power in terms of the Transerv business have had a material effect as indicated by the low net profit margins which have averaged 4% over the past 5 years.
Axis’s average cash conversion averaged 2.1% between FY2016 and FY2022 showing real growth and value for shareholders from Free Cash Flows. This explains the announcement made by Axia on Wednesday 8 December to buy back 3% of its outstanding shares for ZWL$1,06 billion between now and its next annual general meeting (AGM) to maintain shareholder value, amid economic turbulence.
Axia operates in a volatile business environment where, in 2021, borrowing costs in Zimbabwe were 41% annually, while borrowing costs for regional operations averaged 18% annually in the respective local currency loans. The average cost of borrowing is predicted to surge above 100% in 2022, which will increase current debts and the company's ability to repay its short-term debt with cash or near-cash resources. For 2021, the current ratio was 1.7, displaying that Axia was more than capable of paying its obligations.
Investors and shareholders can trust in the resilience offered by Axia Corporation, even though it is competing with an unfair industry since it still produces quality products that are needed by the majority and is further hindered by strict monetary policies from the government. It has to be noted that with all things being equal and the economy steady more value can be realized from Axia Corporation.
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