Mid-tiers forecast to dominate H2 bull run

MARKET WATCHERS bet that mid-tier stocks, which are poised for double-digit growth, could yield a better return for investors in the second half of the year as bulls continue to dominate the equities market.

Stockbrokers MMC Capital says share prices, which are chasing the US-dollar-RTGS exchange rate, will continue to rally.

In the best-case scenario, counters such as Nampak, Axia, Simbisa, Padenga, Proplastics, Powerspeed and NMB, FBC Holdings Limited and CBZ Holdings will likely have a positive second half.

Big caps, it is believed, have gone past their fair valuations, especially after the bull run in the past four months.

Though New York, US-based MSCI, through the MSCI Frontier Markets Index, argues that the Zimbabwe Stock Exchange (ZSE) is overvalued by 35 percent, MMC Capital believes that the bourse is primed for double-digit growth.

MSCI classifies 33 countries, including Zimbabwe, as frontier markets, 24 of which are part of its index.

The ZSE’s price-to-earnings ratio (P/E ratio) — which usually show how much investors are willing to pay per dollar of earnings — has grown over 100 percent since 2012 to 24 times, compared to the MSCI Frontier Index of 36 percent PE expansion. “Though the local P/Es have expanded (mainly supported by price expansion without subsequent rise in company earnings), our view is that as companies price in the USD-RTGs premium in their costing structures, earnings will subsequently grow, pointing to the possibility of P/Es unwinding,” said MMC Capital in a recent equities outlook report.

Agriculture and agro-processing linked stocks are expected to trade northwards, driven a forecast 21,6 percent growth in agriculture in the 2016/2017 cropping season.

While the liquidity challenges experienced in the country have an impact on firms’ ability to pay their obligations to banks, experts still see potential in banking stocks such as CBZH, FBCH and NMB, giving them a buy rating.

Following the target set by the RBZ for sector non-performing loans (NPLs) to be as low as 5 percent as at 31 December 2016, the market has seen banks making an increased effort to lend cautiously as well as make significant write downs.

Analysts also maintain the unconvincing returns on money market instruments and insufficient alternative investments, the majority of investors will likely view equities as the preferred asset class, on a long-term perspective, though concentrating on the second-tier segment of the market.

To date, the rally has predominantly benefited the top-tier segment dominated by the likes of Econet, Delta, BAT and Hippo.