Delta, Econet poised for exceptional performance, says research firm

LIVINGSTONE MARUFU

Blue-chip counters, Delta Corporation and Econet Wireless, are poised for remarkable growth this year, fueled by their ability to swiftly adapt to volatile exchange rate movements, research firm Morgan & Co has said.

The research firm highlights these companies as top contenders for investor attention amid Zimbabwe’s challenging economic landscape.

The economy continues to grapple with inflationary pressures and exchange rate instability, yet Delta and Econet have demonstrated resilience. Their dynamic pricing strategies and strong market positioning have allowed them to navigate these challenges effectively, making them attractive bets for the year.

According to the Zimbabwe Economic Outlook & Equity Strategy Report, increased liquidity is expected to underpin Delta and Econet’s stellar performance. The report emphasizes their potential to capitalize on economic shifts despite macroeconomic headwinds.

“Delta Corporation and Econet Wireless are expected to be top performers in 2025, driven by their liquidity and price competitiveness despite the tight Zimbabwean dollar (ZWG) liquidity environment,” the report states.

The research firm anticipates that Delta will benefit from projected favorable agricultural conditions in the 2024/2025 cropping season. A strong maize harvest across Zimbabwe and Zambia is expected to lower production costs, complemented by improved electricity supply in the region.

Delta Corporation has maintained its foothold in the market despite encountering operational hurdles.

The company posted a modest 3% revenue increase, buoyed by robust sales in its Lager and Sparkling Beverages divisions. However, weaker demand for Sorghum Beer in Zimbabwe and Zambia, coupled with competitive pressures in the opaque beer market, led to a 24% drop in overall profits.

Exchange rate volatility at the close of the first half of FY25 resulted in an $11 million exchange loss, which was partially offset by associate profits. Operating cashflows dipped by 4% due to rising operational expenses, but lower capital expenditures following the commissioning of Sorghum Beer plants in Zimbabwe and South Africa helped sustain positive net cash balances.

Despite these challenges, Delta’s management maintained an interim dividend of US1.00 cent per share. The report projects that tight monetary policies and fiscal constraints will impact sales in the second half of the year.

Nevertheless, the research firm remains optimistic about Delta’s long-term prospects.

“We revise our 12-month target downward to US77.40 cents, reflecting persistent margin pressures and macroeconomic constraints. However, Delta retains significant upside potential due to its current price weakness on the Zimbabwe Stock Exchange. We maintain our BUY recommendation,” the report concludes.

Econet Wireless, another standout performer, has shown remarkable resilience in the face of exchange rate distortions.

The company’s strategic moves, including the recent launch of Starlink services in Zimbabwe, position it to capture a larger market share and increase volumes.

Econet reported substantial growth in data and voice usage, with increases of 56% and 36%, respectively. For the first time, revenue from data services surpassed revenue from voice services, underscoring the company’s ability to adapt to shifting consumer preferences.

Mobile money services also contributed significantly to total revenue, bolstered by the reacquisition of EcoCash and related insurance businesses.

Despite exchange losses, Econet’s bottom line improved slightly due to reduced monetary gains and stronger operational performance.

The report highlights that Econet’s asset value rose, largely due to the addition of assets from EcoCash. However, shareholders’ equity declined, reflecting higher payables and liabilities linked to recent acquisitions.

“Econet remains a compelling investment opportunity,” the report asserts. “Its deleveraged balance sheet and strategic initiatives position it for growth, even amid constrained ZWG liquidity and limited US dollar inflows. We maintain our BUY recommendation.”

Both Delta and Econet have faced challenges from exchange rate distortions, which continue to exert pressure on their financial performance.

However, their ability to adapt and innovate has mitigated the impact of these distortions.

Econet’s exchange losses are expected to persist in the short term, but its robust growth in data and mobile money services offers a promising counterbalance. Similarly, Delta’s cost-cutting measures and investment in efficient production facilities are expected to support its recovery.

The outlook for Delta Corporation and Econet Wireless underscores their resilience and potential to deliver strong returns. While Zimbabwe’s economic environment remains fraught with challenges, these two counters have proven their ability to thrive under pressure.

Investors seeking opportunities in Zimbabwe’s equity market should consider the strategic positioning and long-term growth potential of Delta and Econet.

With their strong market presence, adaptability, and focus on innovation, both companies are well-positioned to emerge as top performers in 2025.

Delta Corporation and Econet Wireless represent compelling investment opportunities for those looking to capitalize on Zimbabwe’s evolving economic landscape.

Their ability to navigate exchange rate volatility, leverage market dynamics, and implement strategic initiatives positions them as leading lights in the country’s business environment.