Sell the laggards, buy disruptors

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BATANAI MATSIKA

As Jorge Paulo Lemann, co-founder of 3G Capital would put it, “I’ve been living in this cozy world of old brands, big volumes, nothing changing very much and you could just focus on being very efficient and you’d be okay, but now we are being disrupted in all ways and we are running to adjust”, change has become the new normal and company executives in today’s era are right to be worried.

According to a recent report by Accenture Research entitled; “Breakthrough disruption, embrace the power of the wise pivot”, the way we live today is driven by new innovations that we scarcely could have dreamt of a mere generation ago. Consumers are now demanding more personalised and flexible services while business leaders are left to navigate an ever-changing landscape. C-suite mentions of “disruption” during earnings calls, investor conferences, and company announcements have also increased significantly over the past decade. And with it, the anxieties of executives across industries.

While it is clear that industry participants are acutely aware of the threats posed by disruption, the question is; How are they responding? Industry
players will have to build stronger defences and become more efficient and innovative.

Looking at the Zimbabwean context, there is no sector that has been immune to the merciless influx of disruptors. A good example is how
Cassava’s Eco-cash platform has disrupted the payments system in Zimbabwe.

Cassava has managed to capitalise on the lack of M1 currency in the country through the EcoCash platform. Recent data from the Postal
and Telecommunications Regulatory Authority of Zimbabwe (Potraz) shows that the number of mobile money transactions jumped 21% in Q2 2019 to 477.4 million on the back of growth in users as well as general increase in prices of goods and services.

Cassava has also penetrated the insurance industry where it more than doubled its written premiums in the last 12 months. The company also has greenfield projects that span across various industries (Transport, Logistics, Agriculture, Health and Education) and latest venture has been the bureau de change. Overall, the investment case in Cassava lies in the optionality embedded in the technology-based business model. The company can easily build new technologies on its already established platforms allowing it to generate high returns from a light asset base.

We currently estimate a full year EPS of 6.39c, implying a forward PER of 24.9x (Technology stocks such as Amazon trade at high PE ratios of c81x). The disruptive nature of FinTech globally and the rise of digital banks also
warrants a premium. We reiterate our BUY call on Cassava!

Batanai Matsika is the Head of Research – Morgan & Co. He can be contacted on +263 78 358 4745 or e-mail batanai@ morganzim.com