Listed companies’ earnings are expected to moderate in the medium-to-long term as the local currency finds its footing, according to analysts. An analysis of listed stocks’ published interims during the course of the year shows that earnings have risen on exchange rate gains, following currency reforms that have been undertaken by the monetary and fiscal authorities.
But analysts at IH Securities believe that the “inflated” earnings will moderate.
“Accounting for the abolishment of the parity between the Zimbabwe dollar and the US dollar, majority of the listed companies remained profitable due to fair value adjustments on investments and exchange gains.
“Going forward we anticipate that the companies’ earnings will begin to moderate as foreign exchange gains alleviate on account of a relatively stable exchange rate,” said IH Securities in its Q3 Zimbabwe Equity Strategy paper.
“However, for companies, such as Seed Co, Simbisa and Padenga with a foreign currency earnings component generated from exporting or from regional operations, we anticipate an up-tick in their incomes, attributed to the translation of their foreign currency earnings into Zimbabwean dollars at the prevailing interbank market rate.”
But the anticipated lower earnings could also be a result of the underperforming economy. The International Monetary Fund (IMF) anticipates that the economy will contract 7,1 percent as the significant consolidation of the impact of the drought and the cyclone drag down on economic activity.
Government has estimated that the economy will contract by 6,5 percent this year. Meanwhile, Delta Corporation, a typical bell-weather stock, topped the most liquid stocks on the Zimbabwe Stock Exchange (ZSE) during the third quarter.
The beverages producer continues to stake the biggest share of the ZSE market cap. Delta’s market capitalisation as at the close of the third quarter amounted to $1,36 billion, up 2016 percent from a prior comparable period market capitalisation of US$446,93 million (albeit the exchange rate gains).
Telecoms giant Econet comes second with a Q3 market cap of $1,211 billion, although this was just an 18 percent rise from the prior comparable period market cap of US$1,02 billion.
Old Mutual had a market cap of $925 million for the quarter just ended, up 62 percent from US$572 million in the third quarter of 2018.
The analysts at IH, however, opine that retail stocks are current best defensive stocks at the moment in view of the prevailing economic climate.
“Even as the economy continues to tighten, food retail will remain defensive and will to a large extent be able to pass on the inflation induced price hikes to the consumer for most of the staple products, which are highly inelastic,” said the analysts.
“Retailers, such as Simbisa, with regional operations will be able to generate foreign currency earnings, which will put the company in good stead. However, we anticipate that volumes for discretionary products will come under pressure.”–herald.c.zw