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BizDay Zimbabwe

Delta posts punchy results

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For the Financial Year 2013, the brewing giant posted another punchy set of results showing a solid 39% growth in net income to USD 102.5m, beating estimates by analysts of USD 96.0m.

The robust performance was supported by an improved sales mix, price adjustment in sorghum, margin expansion, reduced finance costs as well as a stronger performance by associates.

A final dividend of US 2.23c per share was declared, bringing the total for the year to US 3.40c. This implies a dividend cover of 2.5x and an annualised dividend yield of 2.5%. The LDR is Friday 07 June 2013.

Overall beverage volumes were flat year-no-year at 6.9m hl on account of 4% growth in lager to 2.1m hl, a 9% increase in SBs to 1.6m hl, and a 42% jump in Maheu (alternative beverages) to 132,000hl, offset by a 8% decline in sorghum to 3.1m hl.

Management highlighted that there was a slowdown in the last quarter across all beverages which was attributed to the general economic slowdown as well as adverse effects of the excise duty increase in December 2012 and the resultant retail disruption. Malting tonnages grew by 6% to 37,000t. Plastic tonnages rose 31% to 9,461t on improved performance by the beverages.

Sales value grew ahead of volume growth at 14% to USD 631.3m, anchored by an 8% growth in lager sales to USD 325m, a 14% jump in SBs sales to USD 231m and a 15% increase in sorghum beer sales to USD 118m, while alternative beverages saw a 50% surge to USD 11m.

Analysts said on Thursday this underlined the operational gearing Delta has in the beverages division, with extra volume translating directly into added profitability. Interest of USD 0.6m was paid, some 122% below that of FY 2012, due to increased treasury operations.

Cash generation remained strong, with approximately 60% of sales on a cash basis. Net operating cash flow was USD 134m, representing a cash interest cover of 234x. The balance sheet strengthened through this very strong operating performance. Capital expenditure of USD 83.6m resulted in a significantly expanded balance sheet with negligible net gearing of 1%.

Delta has maintained its dominant position, commanding approximately 96% of the beer market and about 92% of the sparkling beverages.

Capex is expected to ebb as the company focuses on productivity as well as investing in its brands. Capex/EBITDA is anticipated to recede to between 30% and 50% in the medium to long term.

Analysts said Delta has a compelling story with its pristine balance sheet, strong cashflows and solid brands. There are high barriers to entry in this industry and Delta enjoys a dominant position with a solid distribution network.

“We expect the group to sustain the margin expansion supported by improved efficiencies, enhanced product mix and improved supply chain management. Per capita consumption of circa 16 litres p.a. (for beer excluding sorghum beer) and 13 litres p.a. for sparkling beverages are low in Zimbabwe by developing world standards suggesting tremendous growth potential off a low base.

“Although the price has rallied +35% YTD, we believe there is still upside for long-term investors. Ratings are relatively undemanding at a PER of 16x and EV/production of USD 286 versus PER of 20x and EV/production of USD 325 for our comparative sample. Delta remains the ZSE’s bellwether stock.”

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