IH bets on consumer stocks

INTER-HORIZON Securities (Pvt) Limited (IH Securities) predicts government’s efforts to turn around the economy will see a gross domestic product (GDP) growth of 3,8%, translating to the stock market capitalisation growing to $9,19 billion with consumer leaning stocks performing well.


This is down from Finance minister Patrick Chinamasa’s projected gross domestic product (GDP) growth of 4,5% in his 2018 National Budget.

In its report titled Zimbabwe Equity Strategy 2018 ‘A New Era’, released on Monday, IH Securities said under bearish conditions (worst case), they pegged GDP growth at 3% and a Zimbabwe Stock Exchange (ZSE) market cap of $8,64 billion.

“Our base case market capitalisation, based on GDP growth of 3,8% and subsequent earnings growth of 29,6% is $9,19 billion at the end of 2018, representing downside of 8% from December 31 2017 levels and up 1% as at January 31, 2018. Under more bearish conditions, largely linked to underperformance in agriculture, a more conservative economic growth of 3%, we would expect the market to close 2018 at $8,64 billion,” IH Securities.

“Our bull case assumes more robust GDP growth at 4,5% according to the MoF (Ministry of Finance), resultant earnings growth of 35,1% leading to total market capitalisation of $9,74 billion at year end, representing upside of 7% at current levels.”

However, the market capitalisation projection for the ZSE includes Econet Zimbabwe’s class “A” shares that are not listed on the main bourse. Excluding these shares, the ZSE market capitalisation has been trading below $9 billion since January 12.

IH securities said the reason behind the growth trajectory was due to sentiment having improved both locally and foreign, as evidenced by the country receiving its first invite to the recently ended World Economic Forum held in Davos, Switzerland.

The firm said this was buttressed by government efforts to turn the economy around in agriculture, industry and mining.

But IH Securities cautioned that they are “concerned that the impending elections might slow down decisions both on the local front and with international investors”.

The financial and advisory firm believes consumer leaning counters are the ones to watch this year, as the growth in plastic money or local liquidity would force consumers to spend locally.

“We lean towards consumer facing retail in 2018 and will be closely tracking counters such as Delta, Innscor, Econet, Simbisa, Axia and OK Zimbabwe, which will remain in good standing in our view,” IH Securities said.

The securities firm said the retail sector was poised for significant growth based on this increased spending from consumers.

“We expect margins to show signs of improvement following a couple of years of cost-cutting measures taken by companies when the economy was ailing. Competition is expected to remain intense, with the continued expansion of new players, including the informal sector. While the clothing retail sector is expected to benefit from the government’s industry support measures, we anticipate this sector will continue to face competition from cheap imports,” it said.

Apart from retail, the firm also predicted growth for counters involved in tourism such as African Sun and the Rainbow Tourism Group.

“Following the new administration, the tourism sector is poised for significant growth owing to the new publicity and new mantra ‘Zimbabwe is open for business.’ We believe the business aspect of the new government will boost city tourism and we believe African Sun and RTG are in the right space,” IH Securities said.

The firm added that increased usage of local liquidity would translate to improved domestic tourism and that airlines showing interest in adding Victoria Falls in their routes would boost overall tourism.

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