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BizDay Zimbabwe

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BizDay Zimbabwe

ZSE Continues to Sing the Blues After Poll


HARARE –  Zimbabwe stock exchange (ZSE) continued to trade in the negative with benchmark and resources index closing weak on low trading volume as investors continued to sell out of the market after last month’s elections.

Most investors are waiting to see who President Robert Mugabe will appoint to the new Cabinet. Some analysts are seeing the falling prices on certain counters which have potential to offer above inflations returns as the right time to buy shares.

The only two significant deals on the local bourse during the last two weeks involved 55 million CBZ Holdings shares which were held by treasury at 15c by Bethel Securities bought by Malaysian private equity firm, Safari Quantum, in a deal worth US$8,4 million. CBZ group Chief Executive John Mangudya last week confirmed to that the Malaysian company had bought a 10 percent stake in the group.

There was also a block deal in Art Corporation which in May announced that it had cancelled its deal with South Africa company First National Battery (FNB) – a subsidiary of Johannesburg Securities Exchange listed Metair – of 36,74 million shares pushed through by EFE Securities. This was the second such deal in the counter following 75 million shares which changed hands recently.

On Friday last week the resource counters succumbed to a heavy fall as the bears remained lingering on the price sheet, despite the significant rise in turnover.

The Minings Index lost 14,46 %  to 48,05 after huge losses in Hwange and Falgold. Hwange lost 6,60c or 37,50 % to 11c and Falgold, which reiterated its plans to dispose of some of its Zimbabwean assets due to the lack of capital amid the prevailing low gold prices, fell 3c or 33 % to 6c.

The Industrials Index fell below 190 at 187,97 after losing 1,25 %. The total market cap shed 1,6 % to US$4,8 billion. Turnover on the day was at US$15,2 million from 107,5 million shares.
The announcement of year-on-year inflation on Friday did not improve activity on the local bourse either this week.

The country’s inflation rate for July fell 0,62 percentage points to 1,25 %, the lowest in Africa from 1,87 %  in June as a result of the constant drop in the aggregate demand.
According to statistics from the Zimbabwe National Statistics Agency (ZimStat), the year-on- year Food and Non Alcoholic beverages inflation –  prone to transitory shocks – stood at 1,74 % whilst non-food inflation was one percent.

The month-on-month rate was at -0,38 percent shedding 0,25 percentage points from -0,13 %. Food and Non Alcoholic month-on-month inflation was at -1,14 % shedding 0,81 percentage points from -0,33 %  in June. The month-on-month non-food inflation was at -0,004 %, losing 1,11 percentage points from 0,03 %.. Inflation is this year forecast to close the year at 3,9 %.

On Monday the benchmark index closed weak on low trading volumes. At close the Industrials Index was down 1,54 % to 185,07. The minings index was unchanged at 48,05.

Weakness on the stock market persisted on Tuesday as foreign investors continued to sell. At close, the Industrials Index lost 1,25 %  to 182,75 reducing its year to date gain to 20 %. The Minings Index was unchanged at 48,05 –  but with a year to date loss of 26 %.

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Analysts say apart from the post election fever which has negatively affected the stock market, a combination of implementation and pronunciation of policies such as indigenisation and empowerment laws have not played in favour of the bourse.

Listing interest among local companies, which characterised the domestic bourse before the decade-long crisis crept into the market in 2002, has also disappeared.

In its place is growing apathy to the bourse and several firms have delisted from the bourse, which has only witnessed, over the past five years, reverse-listings.

There was TN Financial Holdings Ltd which reverse-listed through Tedco Ltd. Then there was Interfin Holdings Limited’s reverse listing through CFX Financial Services. Crocodile producer, Padenga Holdings was unbundling from Innscor Africa and listed by way of dividend in specie.
The ZSE last had an IPO in 2007 when Zeco Holdings listed.

Apart from a series of unbundlings that saw Dawn Properties, Red Star Limited, Zimbabwe Property Investments and Pearl Properties Limited being listed in the last nine years, new listings have been as rare as snow in this part of the world.

The primary motive for listing would be to enhance a company’s capital structures and raise money to fund expansion initiatives that would increase company value. Uncertainties around pre-money valuations and post IPO market performance remain on the mind of companies while execution risk has also been a notable concern.

Pricing conditions have been dicey due to market volatility and uncertainty and a number of companies have in the past withdrawn their listing plans over worries about whether they will be able to complete their public offering at the desired valuation.

Companies planning IPOs are now faced with tougher questions from investors and regulators alike and the days of high multiple valuations were over. Investors have also become more selective with high expectations about the quality of corporate governance, business models, risk factors and senior management ability.