Delta, Econet among Africa’s finest: though Zimbabwe GDP may be understated

Guinness Beer
Guinness Beer

LOCAL industrial behemoths Delta Corporation and Econet Wireless Zimbabwe (EWZ) have gradually grown to be ranked among the continent’s 30 biggest companies by market value as at September 30 2014, with the Dangote business empire – controlled by Africa’s richest man, Mr Aliko Dangote – setting the pace.

The multi-currency system, which has seen the United States dollar being the main unit of exchange in local transactions, has made benchmarking of local companies relative to their peers in the region and beyond relatively easier.

But, crucially, market watchers believe that new data possibly indicates that the size of the local economy could be understated.

A recent note by United Kingdom-based Hartland-Peel Africa Equity Research, which has a comprehensive database on African listed companies dating back to 1990, ranked Delta Corporation at number 19 on the continent, with a market capitalisation of US$1,6 billion.

The rankings, which are mainly dominated by beverage makers and telecommunication companies, however, do not include South Africa, which until recently was Africa’s biggest economy.

The beverage maker was the first stock in the post-Zimbabwean dollar era to breach the US$1 billion mark in terms of market capitalisation (October 5, 2012), buoyed then by strong demand for both alcoholic and non-alcoholic drinks.

Market capitalisation measures the aggregate value of a company’s shares in issue as dictated by the market.

At the time, larger beer sales climbed to 1,98 million hectolitres, almost 100 percent of Delta’s capacity, while revenues grew 36 percent to US$555 million.

Among industrial, manufacturing, food, beverage and tobacco companies in Africa, Delta is regarded as the fourth-largest in terms of value.

It is eclipsed only by Nigeria Breweries (US$8,1 billion), Nestlé Nigeria (US$5,3 billion), Tanzania Breweries (US$3 billion) and East African Breweries of Kenya (US$2,4 billion).

In essence, Delta Corporation is five times smaller than Nigeria’s top performing brewer.

Economists say Nigeria’s demographics, with a population of more than 176 million as of last year (Africa’s most populous country and seventh in the world), favours its economics.

On the overall, the West African country has 16 companies in the rankings, followed by Kenya with seven.

Tanzania and Zimbabwe have two companies apiece, while Cote d’Ivoire, Botswana and Mauritius have one company each in the rankings.

In terms of returns on equity (ROE), which measures the ability of a company to generate profits from its shareholders, Delta Corporation performed better than Guinness Nigeria (21 percent) at 26 percent.

Returns for shareholders of East Africa Breweries in Tanzania were the best at 72,1 percent, followed by Nestlé Nigeria 57 percent and Unilever Nigeria at 45 percent.

However, this comes as Delta Corporation is at its weakest, owing to illiquid conditions affecting Zimbabwe’s economy.

Last week, Delta – which is 23 percent owned by London-bassed SABMiller plc – reported a slump in profits in the six months through September of 6 percent to US$45 million as sales of both lager and soft drinks continue declining.

Consumers are now migrating to lower-priced ranges of sorghum-based alcohol.

Lager volumes fell 25 percent in the period, while sales of sorghum beer jumped 14 percent.

In telecommunications, Econet is the third-largest company in markets outside South Africa with a value of US$1,3 billion.

It is ranked the 25th largest firm in Africa outside South Africa by value.

Kenya’s Safaricom, which has more than 19 million subscribers – 10 million more than EWZ – is the largest, with a market cap of US$5,8 billion followed by Ivory Coast-based Sonatel at US$4,6 billion in the telecomms sector.

Econet’s returns on equity are the lowest of the three at 21 percent. Sonatel’s shareholders are the happier at 36 percent, followed by Safaricom at 25 percent.

Hartland-Peel Africa Equity Research believes Econet might be undervalued using the price-to-book value (a ratio of market price of a company’s shares over its book value of equity).

“Econet Wireless appears undervalued,” said the company.

Local economists are, however, of the opinion that the mobile telecommunications firm is not undervalued as it is heavily borrowed.

EWZ got more than US$307 million of the US$362 million loan facility that was sourced by Econet Wireless Group, its parent company, in May 2012.

Zimbabwe’s economy could be bigger

The recent statistics, where Zimbabwe’s two companies are among the continent’s top biggest firms, while Zambia, whose economy is considered to be twice as big as Zimbabwe, is not represented, has further stoked debate on whether Zimbabwe’s economy might be undervalued.

Zimbabwe’s demographics are more or less the same as Zambia, whose populations are presently at 14 million.

In 2010 Imara Asset Management Zimbabwe chief executive Mr John Legat questioned the International Monetary Fund report that stated that the local economy was valued at US$5 billion then.

“We are not sure as to where they got their figures from, but we assume it is based on the Central Statistical Office’s (now Zimstat) data and their own estimates . . .

“They do, however, point out that ‘Data have serious shortcomings that significantly hamper surveillance due to (Zimstat) capacity constraints,” Legat was quoted as saying.

He claimed that revenues and EBTDA (Earnings Before Taxation, Depreciation and Amortisation) of Zimbabwe’s largest beverages maker and telecomms company were markedly more than their peers in Lusaka.

According to Website tradingeconomics.com, Zambia GDP was worth US$22,8 billion in 2013, while Zimbabwe’s GDP was pegged at US$12,8 billion in the same period.

ZSE takes the second most tumble in Africa

But the performance and indicators of local firms might be muted considering the performance of local stocks relative to other markets on the continent.

In the period to September 2014, sub-Saharan Africa stock market returns outside South Africa rose 0,1 percent on the month and were up 2 percent year to date.

Tanzania’s market rose the most at 73 percent.

Malawi increased 17,5 percent, while the market in Kenya, which is East Africa’s largest economy, spiked 15,5 percent.

Markets in Ghana, which is currently plagued by a depreciating currency, the cedi, led fallers, declining 24,6 percent, followed by Zimbabwe, which fell 3,4 percent.

The value of the South African stock market at US$922 billion remains bigger than the cumulative value of stock exchanges in all the countries that play host to the continent’s top 30 biggest firms.

The total market cap of Nigeria’s stock market is US$80,8 billion, Kenya ($24,9 billion), Ivory Coast ($9,7 billion), Mauritius ($7,1 billion), Tanzania $6,6 billion), Zimbabwe ($5,7 billion) and Botswana ($5 billion), Zambia ($4,6 billion) and Ghana ($3,1 billion).

So, ZSE is the seventh largest in Africa.

Economist Mr Brains Muchemwa, who is also the managing director of Oxlink Capital, said last week while there might be a case for restating the local economy considering that most of the activities of the informal sector remain unrecorded, Zimbabwe’s economy might really be playing second fiddle to Zambia.

“Well, the situation where Zambia does not have a single company among the continent’s top companies, while Zimbabwe, which is a relatively smaller economy than its neighbour has two, might be more of a reflection of the structural weaknesses within Zambia itself rather than Zimbabwe.

“Zambia has an over reliance on the external sector; it must also be considered that it depends on copper mining, which is value-added elsewhere . . .

“Yes, there might be need to restate the value of our GDP because the ratio of our bank deposits to GDP at 32 percent is almost similar to Zambia where the ratio is at 24 percent. Zimbabwe and Zambia’s bank deposits are almost the same.

“So, curiously one might ask why we are crying about a liquidity crisis,” said Mr Muchemwa.

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