Corporate earnings to remain subdued

CORPORATE earnings are expected to remain subdued this financial year as consumer spending remains low, analysts say.

The economy continues to be hamstrung by muted local production, an illiquid market and weak consumer spending. Local brokerage IH Securities believes there will be “sustained pressure on consumer demand and continued liquidity constraints in 2015”.

“As a result we anticipate corporate earnings to remain weak going forward particularly in H1 (first half). We expect the run rates to remain under significant pressure this year, notwithstanding the base effect from poor FY14 (2014) earnings that may translate to relatively lower declines,” said IH Securities.Government projects economic growth of 3,2 percent this year.

Performance of consumer-facing companies such as Delta Corporation and OK Zimbabwe reflects the continued squeeze on disposable incomes. Last year, market movers Delta, Econet, Seedco and OK Zimbabwe reported a retreat in both revenues and profits.

Listed hospitality companies Meikles and RTG were similarly affected, including MedTech (pharmaceuticals), starafricacorporation (food), Pioneer (transport), Pelhams (furniture) and Zeco (engineering).

However, diversified conglomerate Innscor Africa, which has spread its risk by investing in other African countries, became the first Zimbabwean company to generate more than US$1 billion in revenue.

The group’s African operations are forecast to contribute 50 percent in the period between 2015 and 2018.

Falling global prices of commodities such as oil, though affecting some of the local economy’s sub-sectors, are expected to provide a platform for growth. Market watchers say the local indigenisation and empowerment policy needs to be clarified in order to add oomph to local financial markets.

“With the (Zanu-PF) elective congress of December now behind us and the President having finalised the structure of the Presidium and Politburo, some element of stability may begin to pervade the party, allowing succession politics to take a backseat to the economy,” added IH Securities.

Stockbrokers MMC Capital also recently noted that a declining revenue base was likely to have negative effects going forward.

In January, the Zimbabwe Stock Exchange’s industrial index climbed 1,3 percent. Turnover, however, fell 44,2 percent as foreign participation remains muted. The mining index also slumped 18,9 percent in the period on loses in Bindura Nickel Corporation. Truworths, ZPI and ZB Financial Holdings rose 60 percent, 57 percent and 38,9 percent in that order. Radar, Masimba and MedTech fell 42 percent, 34 percent and 33 percent respectively. African Sun closed the month 16,6 percent weaker.

Market watchers contend that current economic environment will continue mounting pressure on the local bourse. “Persisting liquidity constraints coupled with low industry capacity utilisation, low aggregate demand, shrinking tax base and company closures will remain as the major impediments.

“Potential investors will likely maintain their wait-and-see stance on Zimbabwe in the short to medium term, waiting for clarity on key investor-friendly related policies such as the indigenisation policy,” added MMC Capital.

However, the brokerage firm believes that bargain hunters are likely to benefit from the discounted prices on the ZSE. Company closures and declining industrial production is limiting the ability of local pension funds, which are one of the biggest institutional investors on the ZSE, to invest in stocks. In the first six months of 2014, nearly 2 500 people were thrown out of formal employment as more Zimbabwean companies continued to crumble under the weight of tight liquidity and weak consumer spend.

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