The Sunday Mail
While stock markets the world over have succumbed to global pressures this year, market watchers have backed the Zimbabwe Stock Exchange (ZSE) listed top cap counters to stand the heat going forward on the back of their strong businesses, cash generation capacity as well as export capacity.
The first half of 2022 was the worst in terms of global equities markets with major indices across global exchanges going on a free-fall following the beginning of conflicts in Eastern Europe.
Among others, the conflict in Ukraine caused severe global supply chain disruptions which affected performance across sectors.
The ZSE was not spared and this added to an already challenging environment characterised by limited foreign currency availability for businesses as well as rising inflation while a raft of measures and tight liquidity saw the bourse’s market cap falling in real terms from US$6,7 billion in January 2022 to US$2,6 billion using parallel market rates.
Despite the challenges, some stocks are expected to weather the storm on the back of their strong business models.
The market’s favourites — the big cap counters, Delta, Econet, Innscor, Hippo Valley and Meikles are forecast to maintain solid performances albeit under a challenging economic environment. Financial services providers such as NMB, FCB, and ZHL are expected to record good business going forward.
For Delta, the ease in lockdown restrictions has underpinned volumes recovery across all its units in Zimbabwe and South Africa. This has been complemented by growing US dollar sales which have alleviated several production-related constraints, priming the business for sustained recovery vis a vis emerging global risks.
“Delta continues to rise on its extensive inflation pass-through ability. We expect margins to strengthen in the short term because of consistent production and increased sales volumes,” said Morgan and Co in their equity strategy report.
In the telecoms sector, Econet has already pioneered the 5G network which it recently rolled out in the country.
This continues to make the telecoms giant a market leader while the US dollar pricing on some products and services has set the tone for a rebound in capex.
Morgan and Co have also guided retail giant — OK Zimbabwe to experience solid performance although the industry continues to face risks emanating from illegal imports and the sprawling informal sector which offers relatively lucrative payment terms to suppliers.
In addition, rising wholesale stores like N Richards and Metro Peech that are capturing low income earners amid resurgent inflation are posing real competition for the group.
“However, we maintain that there remains good upside potential at the current price levels,” said Morgan and Co.
Peers in the retail sector, Axia’s growth potential is largely pinned on TV Sales and Home in addition to its multi-million dollar factory construction which commenced in August 2021 and should see increased capacity to address growing local demand.
Diversified insurance group – ZHL has presence in Malawi, Zambia, Mozambique and Botswana with Malawi contributing the most to its revenue. ZHL is in the process of reorganizing and restructuring its Fidelity Life Assurance ensuring that it focuses on core business, acquisitions and innovation, which Morgan and Co sees it as an attractive counter.
Meanwhile bears continued to dominate trades on the market in the past week to Thursday dragged by losses in the market’s big cap counters.
The primary indicator, the ZSE All Share Index shed 2 percent to 14 361 points as the market succumbed to low demand. Total market value retreated by 2 percent to $1,7 trillion reflective of the losses recorded across board.
The market’s top cap counters, The ZSE Top 10 Index went down 1,6 percent to 8 762 points from 8 905 points recorded in the previous week while ZSE Top 15 Index lost 1,8 percent to 9 714 points. At 29 144 points, the Medium Cap was 3 percent below prior week’s level while the Small Cap was the only index to close the week in the positive after gaining 2 percent to 514 795 points.