Forecast windfall for listed agro-processors

13 May, 2018 - 00:05 0 Views
Forecast windfall for listed agro-processors President Mnangagwa

The Sunday Mail

Tawanda Musarurwa
Notwithstanding indications that Zimbabwe’s economy is diversifying, with sectors such as services, information and communication technology growing rapidly, statistics from the last national census confirmed that agriculture is still the backbone of the economy.

President Mnangagwa has already declared that mining and agriculture will anchor future national economic development, hence the support that the sectors continue to receive from Government.

The performance of the agriculture sector can have a significant impact on the performance of numerous agro-processing stocks on the Zimbabwe Stock Exchange (ZSE).

Agro-processing firms convert agricultural commodities into different forms that add value to the products, be they primary or secondary.

With at least 14 counters directly linked to the agriculture sector and considering that foreign buyers are the net buyers (who are uninterested in swallowing risk), a depressed agricultural season can bring real stress to the market.

However, the performance of the agriculture sector over the past few seasons have brought cheers to investors on the local bourse.

According to figures from the Ministry of Finance and Economic Planning, the agriculture sector is expected to grow by 10,7 percent this year.

Stock analysts IH Securities say the local agriculture sector still holds the key to economic growth in Zimbabwe.

“We believe that a recovery in the agriculture sector is positive for throughput into the manufacturing sector, particularly in food processing industries and various supporting industries for export crops like tobacco.”

In light of this, the analysts project that some listed key agro-processors will register an upturn in profitability this year on the back of improved rainfall seasons and Government’s performance enhancing initiatives.

The analysts have projected that cigarette manufacturer British American Tobacco (BAT) Zimbabwe will record a 7,3 percent rise in total income in the present Fiscal Year to $39,5 million; from $36,8 million in the previous year.

Fiscal Year 2019 is also expected to be a good year for the group, with revenues projected to further rise to $43,5 million.

They also foresee the group’s earnings before interest, tax, depreciation and amortisation (EBITDA) increasing from $17,5 million in FY2017 to $18,9 million by the end of the current financial year.

Food processor Natfoods is forecasted to register a 0,9 percent increase in revenue in FY2018 to $292,2 million from $289,5 million last year. Revenues are expected to further increase to $$313,5 million in FY2019.

Natfoods’ EBITDA for FY2018 is projected to increase $28,2 million from $19,4 million previously.

IH have projected SeedCo’s total income for the current financial year to rise by a marginal 0,6 percent to $135,4 million from $134,6 million, and to further increase to $139,3 million in FY2019.

EBITDA for the seed manufacturer is expected to rise to $33 million in the current financial year from $32,5 million last year.

The agro-processing industry has a few established players that are currently improving their production efficiencies.

The analysts, however, admit that the agriculture sector is prone to irrepressible factors, hence argue that Government intervention remains a critical factor in the success of the sector in every season.

“The agriculture sector is of course highly dependent on the weather out-turn, which creates some vulnerability. We believe it will be critical for Government to increase investment in irrigation to at least partially mitigate against this dependence.

“We observe that the Government has prioritised irrigation system development across the country and it is in our view that this will have a positive impact on output going forward, particularly in the regions that have been getting little to no rain in the last few years. Government support in terms of funding of inputs remain key in the short-term and we expect the Command Agriculture Programme to continue yielding good results.

“However, we do caution that our farmers must over time become self-sufficient from own-trade and reduce their reliance on Government support.

“The bankability of 99-year leases will be critical to this process as security of tenure will allow farmers to begin to unlock funding on favourable terms from the banking sector,” said IH Securities.

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