SHORT VIEW by Batanai Matsika
Our world has evolved, and we now live in the “information age”.
The implication is that companies that are leveraging Information Technology (IT) are set to achieve lower costs and higher returns in the new era.
Globally, IT has disrupted most industries.
A few examples include Uber in transport, AirBnB in hospitality and PayPal in financial services that have become the new gamechangers.
Zimbabwe is not an exception in this global technology revolution.
According to GSMA Intelligence, smartphone adoption will continue to see rapid growth in the Sub Saharan Africa (SSA) region despite affordability challenges.
Thanks to new initiatives such as Mara Phones International that has developed the Mara X and Mara Z smartphones that are targeting the African market.
Consumers in the region no longer view cellphones as just communication devices, but as a primary channel for going online and a vital tool to access life-enhancing services.
Mobile network assets and services, such as APIs, cellular IoT, mobile money and billing platforms, are enabling sustainable business models for key services across verticals in the SSA region.
We see long-term potential in technology companies like Cassava Smartech Zimbabwe Limited. The banking game in Zimbabwe has completely changed, and Cassava’s EcoCash has disrupted the sector given that it now has more account holders than any of the traditional banks.
Further, brick and mortar branches are disappearing and no longer make much sense given that consumers have adopted online platforms.
This has been a global trend and it is a no-brainer that banks that have been left out in this technology wave have lost out big time.
That said, fintechs like Cassava are promising more than just the convenience to transact or get a small loan.
They are holding the “financial inclusion” card and they are clearly winning in this game. Cassava recently reported unaudited results the half year ended 31 August 2019, showing a top-line of $946.1m which was largely driven by Mobile Money and Digital Banking which contributed 73% and 18%, respectively.
The results are inflation adjusted and in line with International Accounting Standard 29 on Financial Reporting in Hyperinflationary Economies, as recommended by the Public Accountants and Auditors Board (PAAB).
The technology group achieved a gross profit of $661.5m. However, unrealised FX losses of $500.6m (largely attributable to foreigndenominated debentures) resulted in EBITDA of $24.1m.
All in all, the business registered after tax earnings of $3.2m (Net Margin of 0.3%).
Our take is that the unrealised FX losses obscure the underlying value inherent in the business model.
Cassava is in its growth phase and it has proven its potential through its consistent innovations in the market.
The company has permeated into the transport (Vaya), insurance (Ecosure and Moovah), financial services (Ecocash), Service (Ownai), education (EduTech), health (Maisha) and agriculture (EcoFarmer) sector where it is disrupting these sectors with innovative products that leverage off technology.
Cassava also remains a market leader in mobile money through EcoCash which controls a significant market share in terms of active mobile money subscriptions. Based on our assessments, we estimate a full year EPS of 20.85c which implies a F2020F PER of 7.1x.
This looks undemanding when compared to global technology firms like Amazon and Facebook that trade on an average PER of 42.3x.
We rate the stock Long Term Buy!
Batanai Matsika is the Head of Research at Morgan & Co and he can be contacted on +263 78 358 4745 or email: batanai@ morganzim.com
