Some positive light thrown on corporate ’survivors’ in Zimbabwe

I get the feeling more and more as of late that there are hordes of investors standing eagerly by as the Zim crisis appears to be reaching some sort of climax.  A recent rise in the ZSE is partly “underpinned by weak money market interest rates, higher exchange rate movements coupled with negative inflation projections”.  How sustainable is this with the tightening of liquidity due to treasury bill deficits and approaching maturities couple with the printing of more and more Zim dollars? Talk about a bubble being blown (and burst) again from the same old balloon that continues to wreak havoc on the Zim economy. But how much do past infrastructure developments and the sound economic and business principles that made Zim the ‘breadbasket’ of Southern Africa keep wary eyed investors anxious in the wake of a potential overturn of a dictator who seems to be getting more and more desperate in finding support locally, regionally and internationally? Expected returns could be what puts Zim back on the fast track to finding its way back to the ‘breadbasket’ label it once adorned. Also see discussion on Ryan Shen-Hoover’s site.

Zim corporate survivors in strong position – Imara

Published: 03-APR-07

Harare – Zimbabwe’s listed companies are proven survivors that are well placed for the long haul. That’s the positive message drawn from Zimbabwe’s corporate reporting season by the investment professionals at Harare-based Imara Asset Management Zimbabwe, part of the Imara financial services group.

Grant Flanagan, Senior Investment Officer of Imara Asset Management Zimbabwe, believes corporate trends are “extremely positive” and that firms that have coped so far with hyperinflation are well placed to survive “for the duration”.

Two key trends were identified in Imara’s study of earnings reports: growth in volumes and a growing number of dividend distributions.

Export volumes remain healthy while some ‘domestic’ growth is driven by local traders pursuing cross-border opportunities.

Flanagan notes: “Firms actively pursuing an export strategy are doing so as a means of generating sufficient foreign currency to secure inputs for products that are to be manufactured and then sold into both the export and local markets.

“As the inflation spiral continues, it will become more difficult if not impossible to borrow at sub-inflationary rates to support cash flow and working capital needs. Having a local market is crucial as it allows sufficient cash flow to be generated to cover those overheads that are not foreign currency denominated.

“Companies that have done well so far have exported in sufficient volume to secure most if not all of their inputs.”

Imara company-watchers think the new burst of dividend payments could be a sign that corporate consolidation over the last seven years has run its course and enlarged entities are now in a position to return cash to investors.

Flanagan comments: “As consolidation has slowed, acquisition opportunities have decreased and organic growth has stagnated. The remaining players have found themselves with large volumes of cash not required for the day-to-day running of the business.”

In this situation, companies can either engage in share buy-back programmes or distribute dividends. Many companies were opting for dividend payments.

“This positive move signals a situation whereby management has not been able to find suitable investment opportunities that generate a sufficient return on capital and they are generating sufficient cash to cover their growth requirements”, says Flanagan.

“Either way, it is good news as they are intimating to the shareholder that the cash ultimately belongs to them and they need to make an informed decision as to what to do with their dividend.”

Imara believes volume growth and dividends are indicators of success by companies determined to control their own destiny.

Flanagan concludes: “The trends illustrate that management has remained focused on what it does best, whether it be banking or bolt manufacturing. It has not been prepared to acquire businesses just for the sake of growing earnings and would prefer to return excess cash to the shareholders.

“The results prove that given sufficient scope to manoeuvre, flexible and innovative management is able to adapt to the current environment and benefit from it.”