Ramblings from a Raging Bull on the high multiples on the ZSE

Sean Bvurere

Here are my quick thoughts on the high multiples on the ZSE.

I have been having lots of conversations with fellow equities analysts and fund managers in Zim lately, generally people seem to be a little taken aback by the high valuations on the ZSE, particularly with the blue chips.

Here’s how I figure we need to look at; firstly, Zim really is poised for growth, the political events towards the end of last year really did change investor confidence (both international and domestic) and this has resulted in REAL value creation for local companies. Yes, granted the monetary environment and protectionist measures have played a part in driving volumes, but what we’ve experienced in the past few months with regards to volumes growth is what I think we can look to expect with the coming growth in disposable income, which i’m sure we all agree is coming regardless of the results of the “free and fair elections”.

Now tying this up into the high multiples; we witnessed on average 25%-30% growth in volumes and revenues this past reporting period for most blue chips with companies operating closer to their optimal levels and thus improving net margins. Profits galore. This growth in my view is just the beginning, a slight jump in local consumption had a profound effect on performance across the board. We’re expecting high growth driven by FDI and policy support of agricultural and mining industries. We’ve heard it a million times over, ‘Zimbabwe Is Open For Business’, and if the current administration continues to be on the charm offensive with international then this cry of theirs will without a doubt turn into a reality.

So basically we’ve set up an environment where we can expect accelerated growth, reduced risk perception and a perception of relative political “stability”.The high multiples in my opinion are a reflection of this, especially against the back of stumbling growth regionally. Additionally, local companies are awash with cash, meaning we can expect acquisitions and mergers. With the regulators promising Forex support for capital equipment we can also expect increasing capacity and production, possibly (probably) even higher export volumes.

Zimbabwe is a high multiple country for a reason, even after considering risk adjusted return we can only expect a meteoric rise in productivity coming up. If you ask me, what we’re paying now is still massively discounted for returns we can expect in the next few years! Exciting times!

The Raging Bull.

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