The Sunday Mail
Despite rallying to record levels this year, the bulk of Zimbabwe Stock Exchange (ZSE) listed entities are still undervalued in US dollar terms, according to research firm Zfn.
The ZSE had been bullish for the better part of the year, up until trading was suspended by Government on allegations that activities there were fuelling the parallel market foreign currency exchange rate.
By the time trading was halted the ZSE’s market capitalisation had grown by 667 percent to $228,6 billion up from $29,8 billion at the close of trading in 2019.
Its indices were also at record levels with the All Share Index having gained 677 percent to 1 788,75 points.
Turnover was also at record levels after approximately $3,9 billion was invested in the first six months of the year compared to $2 billion turnover for the whole of 2019.
But despite this remarkable rally, Zfn’s valuations show that the ZSE as a whole, and the bulk of individual companies are still undervalued.
According to Zfn, the ZSE’s six months to June capitalisation of US$2,46 billion is still below its target capitalisation of US$2,75 billion.
The research firm pointed out 40 ZSE- listed stocks that it said are still undervalued. The balance of 19 stocks are, however, listed as overvalued.
Zfn valuations suggest that the market’s most heavily capitalised counter, Delta Corporation at a market capitalisation of US$336,26 million is only at 61,14 percent of its full valuation of US$550 million.
Of Delta, Zfn said the company is a potential US$1-billion-dollar business currently being weighed down by weak macro-economic problems in Zimbabwe.
“Seriously undervalued at US$336,26 million, our short term valuation is $550 million assuming the current state of comatose continues.”
Econet, valued at US$234 million that is lower than Zfn target price of US$250 million, is probably undervalued because the market is “wondering what the remaining Econet is really worth.”
According to Zfn, a lot of overlaps with Cassava leaves many investors preferring the new company.
Management owes it to investors to explain how the two businesses relate, how each one must be viewed and where value in each lies.
Cassava itself at US$230,4 million is also undervalued with Zfn putting its valuation at US$300 million.
“We value the combined business at US$600 million, which represent tremendous uplift.
“If there are businesses which can benefit from the current crisis, it is Econet and its sibling Cassava. But many investors may not know how that great potential can be unlocked,” noted the research firm.
Other counters with a headroom for more gains are Innsor, BAT, GB Holdings, Hippo, Lafarge, Old Mutual, and RioZim among others.
The seriously undervalued ones, according to Zfn are Unifreight, NTS, Truworths, Fidelity Life, Edgars and Getbucks among others.
According to Zfn, TSL, which is trading at 36,6 percent of its targeted value, seems to suffer from massive conglomerate discount, with many related and unrelated business meshed together.
“It’s predominantly a tobacco business but we believe the Covid-19 presents massive opportunity to Bak Storage as warehousing space will be critical should the country see growth in online sales.”
19 counters were, however, said to be overvalued. Notable ones are Padenga, Seed Co International, Proplastics and hoteliers RTG and African Sun.
On Padenga, Zfn reckons the counter has benefited from the market’s obsession with forex earning businesses.
“A market cap of US$75 million looks demanding.
“Forex earnings should carry a premium if shareholders have a way to get their hands on them through forex dividend (or huge local currency equivalent) otherwise they will be overpaying for earnings they may not directly benefit from.
“Our valuation is US$70 million which still look generous given potential problems from animal rights.”
Financial institutions CBZ Holdings and FBC Holdings, which are the year’s top risers are apparently now overvalued.
CBZ Holdings is valued at US$217 million which is several times higher than the Zfn target of US$60 million.
FBC Holdings is also seen to be overvalued.