The Sunday Mail
MARKET watchers say the number of firms listed on the Zimbabwe Stock Exchange should be trimmed because the quality and size of most counters is disappointingly low, with smaller companies being listed on an alternative bourse.
The call coincides with the release last Wednesday of the first draft of listing requirements for the alternative Zimbabwe Emerging Enterprise Market (ZEEM) for small to medium-sized enterprises trading on this bourse.
A June 2014 deadline to establish an alternative market was missed because of regulatory and funding constraints.
The ZSE said by virtue of their sizes, “ZEEM entities will be subject to less stringent requirements”.
A ZEEM would be in sync with regional and international trends where alternative markets are set up to nurture smaller companies while broadening options available to investors.
South Africa has an alternative exchange, AltX, for small and mid-sized listings. There are also the Yield X (interest rate and currency instruments), the Johannesburg Stock Exchange-acquired South African Futures Exchange (Safex), and the Bond Exchange of South Africa (Besa).
Several ZSE counters are failing to attract meaningful interest and others are static.
Analysts say while it would be grossly imprudent to prescribe a specific number of companies for ZSE listing, it was critical to reduce the number in tandem with their performance.
“In general, it is always good to have as many companies listed as we can.
“Of course, all these companies should meet certain minimum criteria.
“Zimbabwe needs to reduce the number of listed companies, not because the number is too high but because the quality and size of many of the listed companies is appallingly low.
“You even have insolvent companies (StarAfrica) and very small companies (ZECO – half year revenue only US$260 000).
“Listed companies are open for investment by the general public and should be of a certain minimum quality (so) many companies do not deserve to be listed.
“They should either be suspended pending normalisation of their situation or be delisted.
“Examples abound. ZECO, PG, StarAfrica, RioZim, ART – they do not belong on the exchange anymore,” said asset manager Mr Collins Rudzuna.
“Remember the exchange is just a place to trade ownership of the companies.
“We need to fix the economy first and the exchange will flow. That being said, there are a few private companies that seem very well run which could benefit from a listing (such as) Dendairy.”
Brokerage firm EFE Securities says while investors have an appetite to commit funds in sound havens, the number of such counters is currently low.
There is no regulation dictating the number of listed counters, and companies are only limited by “certain capital thresholds and requirements stipulated by the ZSE”.
“There is appetite in the market but there is no quality to invest in. This is why much of the value on the ZSE is highly concentrated in a few companies.
“However, the decision to go public vests in the company itself and if they feel they can finance growth from internal resources then surely there is no need to go public.
“It is therefore not in the power of ZSE to delist or list certain companies if they meet criteria.
“The only technicalities involved may be minimum capital and certain disclosure that must be abided with.
“In case of developed countries, companies of very small size have alternative boards where they can seek listing therefore it is never in the best interest of the ZSE or the country Zimbabwe to ration listed companies,” said EFE Securities analyst Mr Respect Gwenzi.
Mr Gwenzi noted that the objective of every stock exchange was to grow its base in order to deepen its financial markets.
The primary goal of listing is to raise capital for companies while investors seek a handsome return on investment.
“Therefore, the question should be what drives valuations of companies?
“The single most important factor is profit. So as companies report improved profitability, valuations are likely to follow suit vis-à-vis ceteris paribus.
“Acquisitions of assets or valuations of the same play a minor role especially when they are not adding to the productive capacity of the company.
“Therefore market valuations are driven by future prospects of the company’ s performance while NAV (net asset value) simply represents the net of assets after accounting for liabilities and this valuation is best suited for a company that is no longer a going concern,” he said.
The bearish outturn on the ZSE has been attributed to profit-taking in selected counters after a strong rally to early September.
Depressed results have also reduced sentiment on the bourse, in turn dragging the ZSE, analysts say.
There has been a listings drought on the ZSE partly attributable to the decline in economic activity.
In a research note two weeks ago, EFE Securities projected that the market was likely to remain stable in the fourth quarter as the third quarter rally steams off after weak results posted by listed companies in the six months ended June 2014.
“We are likely to see softening of the market before a rebound in the dusk of the quarter.
“Most heavies have to re-rate downwards before leading recovery towards year end.
“The macro perspective gives no stimuli and only technicalities such as market cycles justify the rebound towards year-end.
“Counters to spur growth will be Innscor, Seedco, Natfoods and Delta. We foresee Delta finishing the year weaker to its year opening levels but at least 5 percent up on the current price.
“Natfoods has a clear upside owing to its recent financial performance.
“Seedco and Innscor have sharply dipped and could emerge stronger as the quarter winds,” says the note.
