Tobacco sales to push consumer stocks

13 Jul, 2014 - 06:07 0 Views
Tobacco sales to push consumer stocks Much of the investments have been funnelled into Delta

The Sunday Mail

Much of the investments have been funnelled into Delta

Much of the investments have been funnelled into Delta

MARKET WATCHERS believe that strong tobacco sales registered after a record crop are widely expected to lift consumer stocks higher as the liquidity crunch eases. Although share prices gained in June, turnover declined 30,1 percent to US$25,1 million owing to weak foreign purchases and a local cash squeeze.

Stockbrokers IH Securities forecast that the estimated US$650 million generated from the sale of 295 million kilogrammes of tobacco will help drive demand in consumer-oriented stocks such as Delta, SeedCo and Econet.

Proceeds from the sale of the golden leaf in the current marketing season are already 11,5 percent higher than last year.
“We anticipate some improvement in local liquidity in the second half of 2014, which may provide some support to consumer stocks in the latter part of the year,” IH Securities said in its monthly report for June.
After adding 1,2 percent in May, the ZSE’s mainstream industrial index further rose 6,7 percent in June, spurred by gains in heavyweight counters.

Delta, Econet and Innscor climbed 10 percent, 1,5 percent and 13 percent respectively.
Hippo Valley spiked 36,4 percent, while mid-tiers Truworths, the clothing retailer, soared 58,3 percent and Masimba – former Murray & Roberts – jumped 55,5 percent.

The mining index, made up of only three counters — RioZim, Hwange, Falcon Gold and Bindura Nickel Corporation — rose 73 percent in June.

In the period, Bindura more than doubled its value to US4,7c on stronger earnings forecasts. Coal miner Hwange climbed 56,3 percent.
On the overall, mining counters had gained more than 20 percent in May. Also, in June total market capitalisation rose 6 percent to US $5,4 billion, inclusive of Econet’s class A shares. Daily turnover averaged US$1,2 million, down nearly US$600 000 from May figures. The highest daily turnover recorded since the beginning of the year was the US$13,2 million reported on April 24 after the settlement of SeedCo’s equity deal with French seed-maker Vilmorin & Cie.

Strong performance in June
May and June marked the ZSE’s strongest period of recovery during the first six months of this year. The gains helped pare the13 percent decline recorded during the early months of the year.

The main index recovered to close at 186.56 points at the end of June, but remained 7,7 percent below January’s opening levels.
“In the absence of substantial policy shifts, we expect the economic environment to remain generally constrained,” IH Securities said, adding “we therefore lean toward stocks with dominant market shares and strong operating efficiencies to increase profitability despite pressure on run-rates.”

But so far this year, stocks have gained the most in June. In the 21 trading sessions during the month, 15 stocks gained, while the biggest weekly increase of 4 percent was reported in the period ending June 20.

Delta gets the lion share
Of the US$234 million invested in stocks in the first half of 2014, more than US$66,7 million was injected into Delta. Investments into Econet reached US$50,1 million, while SeedCo attracted US$44,3 million. Innscor and CBZ contributed nearly US$10 million each to turnover.
Of all the counters, Cottco fell the heaviest during the first six months of the year, dropping 86 percent after reporting an operating loss of US$22,3 million in the year to March 2014 from operating profit of US$5,8 million in the same period a year earlier. Falgold plunged 70 percent after losses widened to US$1,7 million in the six months to March.

Pelhams and ZB Financial Holdings declined 80 percent and 63 percent in that order.
The decline in equities seen during most of the first half has been blamed on poor economic performance and crippling liquidity shortages. The economy continues to grapple with deflationary fears. Recent company results show that both volumes and profitability have been declining of late. However, stockbrokers Lynton-Edwards Securities forecast a 10 percent return on equities this year despite growing deflationary pressures, slower economic growth and liquidity constraints.

The World Bank recently downgraded Zimbabwe’s economic growth forecasts for 2014 to 2 percent from 3 percent.
“Even if national economic growth disappoints, stocks need not necessarily do the same. Investors will continue to find stocks that are priced low in relation to what they are worth,” said Lynton-Edwards in its latest weekly report, the Investor’s Alert.

“We expect investors to be on the lookout for stocks that can sustain temporary dips and generate returns on broader time horizons.
“With GDP growth rates still to reach desirable levels, it is imperative that investors select stocks in a conservative manner with protective elements in place to shield against the potential for short-term bearish declines.”

By close of trading Thursday, the mainstream industrial index was down 1,2 percent or 2.17 points at 186.63 points following losses in Delta and several mid and low tiers. The beverage giant dropped US5 cents to US125 cents on reports it was facing a strike from 13 000 workers within the beverages industry.

Minings rose 1.64 points or 3 percent to close at 56.97 points after Bindura was up US0,20 cents to settle at US4,50 cents.

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