Sub-Saharan Africa Stock Markets 2010 Review & 2011 ... - Imara

Market Outlook for 2011 Top Picks for 2011
The political outlook in 2011 is marked by
uncertainties revolving around elections. While the
main political theme in 2010 had to do with the new
indigenisation laws in Zimbabwe, we believe that the
“talk” of elections in 2011 will be the main theme in
political and business circles. We have read divergent
statements relating to the possibility of elections in
2011, with the three main political parties echoing
different views. This, in our view has revealed the
disunity within the Zimbabwean Government itself.
Will the GPA dissolve? The Global Political Agreement
(GPA), involving the three main political parties in
Zimbabwe had an initial two-year tenure and therefore
expires in February 2011. As such, this has sparked
speculation that the inclusive government will be
dissolved. However, from events on the ground, our
view is the talk of 2011 elections is a bit premature.
Elections would naturally result in the dissolution of the
inclusive government (GPA). On that note, we re-iterate
that to-date certain milestones provided for in the GPA
have not yet been attained. In addition, there is need
to allow for the completion of constitutional revision
before elections can be held. Furthermore, specific
conditions necessary for the holding of a free and fair
vote in Zimbabwe have not been agreed on. On that
basis, elections could be deferred. Generally, our view
is that there will be increased political bickering in the
next months, given heightened political gatherings and
electioneering. In our opinion, most of the statements
from these gatherings are unlikely to be investorfriendly.
Do not listen to what they say, watch their footsteps.
While we are not advocating that investors disregard all
the statements echoed by politicians, we urge investors
to take most of the statements with caution, given the
discrepancies of reality on the ground and newspaper
headlines. For example, while the Indigenisation and
Economic Empowerment Act was signed, we continue to
witness a number of deals involving foreign firms in
various sectors of the economy. Of interest would be
the acquisition of Zisco Steel by Essar Group of India
and the investment in Premier Banking Corporation by
ETI, a Pan African entity.
Be a bull but graze near the gate. We remain longterm
bulls on the Zimbabwean economy and are
strongly convinced that long-term investors should seek
exposure as a recovery play, with significant upside off
a very low base. However, investors should seek
exposure in companies with limited debt, strong growth
prospects and with defensive business lines. According
to the Ministry of Finance, growth rates of 8.1% and
9.3% are expected in 2010 and 2011, respectively. Most
companies are valued well below asset replacement
value, and have considerable headroom for volume
growth.
COMPANY Price P/E P/BV Recom.
Hist T+1 T+2 Hist T+1 T+2
AICO 19.50 0.0 19.5 19.5 1.2 1.1 1.1 BUY
ART Holdings 1.35 0.0 13.5 12.9 0.4 0.4 0.4 BUY
CBZ Holdings 16.51 11.0 10.5 10.0 1.8 1.7 1.6 BUY
CFI Holdings 14.60 0.0 14.6 9.7 0.3 0.3 0.3 BUY
Dairibord 19.00 13.2 12.6 12.0 2.3 2.1 2.0 BUY
Dawn Properties 1.20 30.5 12.0 11.4 0.5 0.5 0.4 BUY
Delta 73.00 18.5 17.6 16.7 5.3 5.1 4.8 BUY
Econet 500.00 7.1 6.8 6.5 5.4 5.1 4.9 BUY
Hippo Valley 140.00 12.8 12.1 11.6 1.6 1.5 1.5 BUY
OK Zimbabwe 8.00 0.0 16.0 15.2 4.7 4.5 4.3 BUY
RioZim 200.00 0.0 20.0 18.2 1.3 1.2 1.2 BUY
Seedco. 123.00 17.9 17.1 16.3 4.3 4.1 3.9 BUY
Star Africa 4.90 0.0 9.8 9.8 0.0 4.9 4.9 BUY
TA Holdings 25.00 0.0 12.5 10.0 0.7 0.7 0.6 BUY
The 2011 Hot Stocks
For 2011 our top picks include AICO, CBZ Holdings,
Dairibord, Delta, Econet, Hippo, SeedCo and OK
Zimbabwe. However investors should watch out for any
corporate actions as most of these companies have
indicated the need to raise capital. AICO, for example has
indicated a USD 50.0m recapitalisation.
Retail stocks in particular are likely to perform well on
the back of increased disposable incomes. Counters such
as Delta, Innscor and OK Zimbabwe would benefit from
this. Additionally we also urge as buys companies with
minimal gearing. These include Econet, CBZH Holdings,
and Zimplow.
For agricultural stocks, soft commodities prices are
performing well on the international scene mainly due to
supply shortfall of some commodities such as cotton and
sugar. This should bode well for AICO and Hippo.
Other investments to look out for. The luxury consumer
industry is now recovering in line with the global
economy. We see this resulting in better pricing for
commodities such as crocodile skins. Newly listed
Padenga Holdings is likely to benefit from this. In
addition, given the demand for infrastructural
rehabilitation, construction companies are well poised to
take advantage of the opportunities and counters likely to
gain include M&R, Lafarge and PPC.
We also consider the PGI Zimbabwe Convertible
Debentures to be attractive. The CD has a term of 60
months and a coupon rate of 10% p.a. In view of the fact
that the CDs will be convertible at a conversion price of
USD 0.033, there is a high probability that the market
price will be higher than the exercise/strike price;
making it an attractive call option (i.e. holders will
convert the Debentures at a price lower than its market
value).
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