TA HOLDINGS ANALYSIS

TA HOLDINGS February 18, 2014

TA Holdings fundamentals and valuations indicate a strong buy.

Using a WACC of 13% to discount its FCFF and deducting the

market value of debt, an intrinsic value of USD 0.78 was obtained,

an upward potential of 817% from the current market price of USD

0.085. TA Holdings has high quality quoted investments, local and

foreign exposure with operations in countries of the region which

ensures a significant higher base of normal earning power and a

strong balance sheet with low gearing levels with debt been used

sparingly. Also TA Holdings has access to two low cost source of

leverage that allows TA Holdings to safely own far more assets than

equity capital alone would permit, deferred taxes and float (funds

insurance business holds because it receives premiums before

needing to pay out losses).

Main price growth drivers TA Holdings strengthened insurance business liquidity position

coupled with improved business diversification and the maintenance

of healthy underwriting margins would be a growth driver. Improved

liquidity and reduced capital risk achieved by rebalancing the

investment portfolio will also come into play. The strength of the

group’s balance sheet and, most importantly, its ability to preserve and

grow surplus capital is a key determinant of its longer term financial

soundness

Sound financial position: low leverage, cash sufficiency and high

margins. Improved Revenue Per Available Rooms (RevPARs) at all

hotels in the Group for instance from the refurbished Cresta Lodge

and Cresta Sprayview. A number of property development projects

will also be implemented in the coming years with the aim of

increasing rental yield levels.

High discount to peers (87%) with respect to PBV2012 expected to

fall substantially. The main reasons for discount decrease are

increased operational efficiency by Group through cost reduction, a

continued focus on improving underwriting margins and increased

use of technology to improve operations. Also TA’s business

portfolio which entail a diversified and expansive earnings base that

stretches across several sectors which include agriculture, tourism,

mining, insurance and manufacturing. Geographical diversity adds to

the group’s attractiveness with a presence in Zimbabwe, Botswana,

and Uganda. Its diversity reduces the group’s exposure to risks still

inherent in Zimbabwe’s fragile economy.

Robust pipeline of projects resulting in growth of earnings yield and

production volume, in particular at Sable Chemicals the coal

gasification project is now at the design stage which will ensure that

TA holdings will continue to have an expansive revenue base even

Highlights

INDUSTRY-Investment holding

Share Price: $0.085

Target Price: $0.86

Market Cap: $ 14.01M

52-Wk Range: $0.05- 0.10

12-Month Trailing P/E: 0.12

EPS: 0.78cents

Listing: ZSE

Recommendation: BUY

ANALYST: Adam Mupinda

[email protected]

Financial

Capital Expenditure


after the anticipated divestures in ZFC and PG. A number of

property development projects will be implemented in the coming

years with the aim of increasing rental yield levels. TA Holdings

will consolidate its position through hotel property acquisitions as

additional properties should see operations attain critical mass over

the medium term, ensuring stronger earnings. Growth will be

driven by sustainable growth in rental income and operating profit.

Moreover, such growth would likely have a positive impact on

property valuations, which in turn would reduce gearing levels and

enhance credit worthiness.

Focus on developing new products, especially in the micro

insurance area and expanding distribution channels, mainly bank-

assurance. TA Holdings as a group has room for further market

penetration underpinned by appropriate capitalisation and solvency

levels. The group is expected to generate underwriting profits and

continue to focus on expense control and be a low cost operator for

its insurance business both inside and outside Zimbabwe.

TA needs to increase its brokers' capability in the insurance

business to write more business outside its main motor premium

base. Capacity, speed, decisiveness incorporated with a motivated

human capital will go a long way in driving growth northwards.

Main risks issues

Too much government control on Sable Chemicals. Although TA

Holdings have a 51% stake, it does not exercise control but only

influence through board appointments. Government, the other

partner, considers the sole ammonium nitrate producer in

Zimbabwe, as strategic to the agro-based economy and closely

regulates the pricing and distribution of the ammonium fertilizer.

Insurance risk

Fluctuation in the timing, severity and frequency of claims

presents insurance risk. Inadequate reinsurance protection or other

risk transfer techniques exposes the Group's insurance business to

significant unexpected losses.

Foreign currency risk

TA Holdings has significant operations in Botswana, Uganda and

South Africa and the group financial position can be affected by

movement of the $US against other trading currencies like the

PULA and Rand. If the Zimbabwe economy fails to gain traction,

and continue to recover, TA sales will be adversely affected.

Deflation might be a problem.

Interest rate risk

Because of the non-existent monetary intervention, Zimbabwe is

exposed to external interest rates rise. If TA requires debt capital

Market

Human capital


for financing activities, rising interest rates will reduce EPS,

significantly

TA holds 100% stakes in Zimnat Lion, Grand Reinsurance

and Cresta Zimbabwe. Controlling shareholding in the

following companies, Botswana Insurance Company(62%),

Lion Assurance Company (54%), Sable Chemicals as well as

holdings in the following associates Cresta

Marakanelo(35%), Minerva(30%), ZFC(22%), PG(13%

which has been impaired)

Zimnat Lion is wholly owned by TA Holdings Limited.

Underwriting performance improved due to growth in

premiums and improved retention and claims ratio. In the

absence of new capital, solvency is expected to continue

declining. In the FY12 it decreased from 63% to 55%.

Capital risk remains high with property investments

representing about 50% of its capital. The relative expense

ratio remains high at 53%, exposing the insurer to higher

claiming years.

The insurer exhibits significant reliance on motor, with 68%

of Net Written Premiums derived from this class, elevating

operational risk from external events.

To that effect Global Credit Ratings affirmed a claims paying

ability (CPA) rating of BBB+ which is a rating taken as

within investment grade by potential investors. This plays a

critical role on how much the company can pay to access

debt markets outside Zimbabwe and also indicate how

financial stable is the company in paying out claims.

BUSINESS OVERVIEW

Segment Profit % ‘FY12

The insurance business

contributes the bulk of TA

Holdings share of profits with a

total of 85% share of profits. So

understanding the insurance

business is vital to understanding

TA Holdings

INSURANCE – ZIMBABWE

a) ZIMNAT LION

Source: Annual report


Zimnat Life is 100%-owned subsidiary of TA Holdings. It

increased benefits paid largely due to higher group life

claims as well as the rebasing of investment contract

policyholder liabilities. On the other hand an increase in

gross written benefits was registered largely due to an

increase in individual life and employee benefits business.

In addition, the combined property and listed equity

exposure has decreased in line with the expected medium

term regulatory limit of 70%. This was done even under the

environment of unavailability of domestic long term debt

instruments. Zimnat Life has shown its flexibility to

restructure its balance sheet under limiting conditions.

Grand Reinsurance is a wholly owned subsidiary of Freecor

Holdings. Freecor is in turn 100% owned by TA Holdings

Limited. Grand Re maintains a comparatively strong capital

base, with solvency measures recorded at levels above the

statutory requirement of at least 25%. Solvency is at 63%, a

rise from 37%. Increased claims in the fire and farming

classes resulted in the rise of the claims ratio 27% to 45%

resulting in a flat underwriting profit.

TA Holdings share of profits in Minerva slightly took a

deep although it was positive, from $239,000 to $160,000.

Management changes which took place recently are

expected to improve profitability with cost containment as a

major factor. Minerva is the largest insurance and

reinsurance broker in Zimbabwe (18.99% and 94.6%

respectively) in terms of brokerage income (Appendix 9)

b) ZIMNAT LIFE


c) GRAND RE


d) MINERVA


The majority of BIC’s shares (62.5%) are currently held by

TA Holdings Limited. In turn BIC owns 86% of Lion

Assurance Company (LAC) in Uganda giving TA Holdings

an effective 54% interest in LAC. BIC has a non-life

insurance market share of 22%. It is a market leader in the

domestic non-life insurance arena.

The insurer continues to adopt a moderately aggressive

investment strategy, with non-cash investments collectively

comprising largest share of capital. Profit before tax was

boosted by impressive returns on equity investments.

BIC obtained an upgraded credit rating of AA- from Global

Credit Ratings which will help it to access cheaper capital

outside Botswana and also reflect its ability to pay out

claims.

A turnaround of fortunes as LAC registered an underwriting

profit compared to an underwriting loss the previous year,

mainly due to more prudent writing and cost rationalization.

Cresta Zimbabwe increased revenue per room to USD49

from USD42 due to better management of room rate yields.

With more rooms with the acquiring of the newly

refurbished Cresta Sprayview, revenues are expected to

rise.

TA Holdings have effectively fully impaired its investment

in PGIZ due to poor performance on the Zimbabwe Stock

Exchange therefore no longer consider it a strategic

investment

TA Holdings has put a buffer on negative performance of

its loss making agriculture based associates so as to limit

their effect on its short term performance. TA is

anticipating divesture in ZFC and concentrating on cost

rationalisation for SABLE Chemicals by importing

ammonia to augment local production whilst negotiating for

a viable electricity tariff.

TA Holdings does not consolidate SABLE Chemicals

although it holds 51%, a move which greatly overstates its

turnover ratios like return on assets considering that its

investment in the business is quite huge.

TA Holdings owns an effective 35% in Cresta Marakanelo.

Revenue increased due to improved room rate yield

INSURANCE – OUTSIDE

ZIMBABWE

a) BOTSWANA INSURANCE

COMPANY (BIC)


b) LION ASSURANCE

COMPANY


NON INSURANCE-

ZIMBABWE CRESTA ZIMBABWE

PGIZ, SABLE Chemicals and ZFC Aggregate company investments

Source: Annual Report

NON INSURANCE-OUTSIDE

ZIMBABWE CRESTA ZIMBABWE

MARAKANELO


although translation losses were incurred due to the

depreciating PULA against the US dollar

The insurance and hotel sectors have performed

well year-to-date, in Zimbabwe and would recommend

an exposure to this sectors.

Continued economic recovery will serve as a

fundamental catalyst for this positive performance.

This coupled with the end to the liquidity

shortages currently experienced in Zimbabwe, which

have put a downward pressure on consumption.

Insurance business will remain highly

competitive and given the need to advertise more, hence

increase in costs inflation. Insurance industry growth and

profitability are therefore expected to come under further

pressure in the medium term.

Growth rate in GWP slowed down from 39.62%

in 2011, 21.6% in 2012 and 8.71% in 2013 for non-life

insurance business in Zimbabwe. Slow rate of economic

growth has resulted in people and business

underinsuring.

Regional and domestic tourism arrivals in

Zimbabwe are also expected to rise after a decline

recorded in 2012.

Move from mass tourism to attracting high

spending tourists- explains increase in tourist receipts

and this trend will continue in the medium to long term.

The five forces model indicates that the TA

Group insurance business has a favorable position in the

regional insurance industry. Given the Groups financial

capabilities, significant market share in Botswana, strong

brand name requirement, it shields it from threat of new

competitors. On the other hand the hotel industry has

high sunk costs and geographic factors which limit

competition (see appendix 8)

Industry Overview and

Competitive Positioning

Source-2012 ZTA annual report

Five Forces Model Insurance Industry

Hotel Industry


High quality quoted investments

Lean structure after restructuring

Local and foreign exposure with operations in

different countries of the region which ensures a significant

higher base of normal earning power

Strong balance sheet with low gearing levels with

debt been used sparingly

Owns one of Southern Africa’s largest hotel

management groups

Grand Re has a high illiquid balance sheet, with more

than 90% of its invested assets been long term assets

resulting in increased investment and capital risk

Grand Re has most of its cash holdings, about 85% in

a particular institution which is a red flag because it increases

banking counterparty risk

There are too much property revaluations and if they

are excluded from shareholders interest will result in

deteriorating solvency ratios.

For BIC, there is so much reliance for premiums

written on motoring, contributing the largest share of the Net

Written Premiums, which is a risky business to write.

Room to be a dominant leader in sales of

participating traditional fixed life insurance, such as whole

life insurance, a product whose features are highly supportive

of insurer creditworthiness

Continued regional spread- potential new markets

opening as Sub Sahara Africa has the least hotel penetration

Use of analytics tools to gain insights about consumer

preferences and deliver a differentiated experience-

Consumers want to leverage a mixture of digital and face-to-

face interactions with their insurers, and they want greater

transparency about costs and services.

SWOT ANALYSIS

STRENGTHS

WEAKNESSES

OPPORTUNITIES


Political risk-uncertain socio-political outlook is

likely to curb capital inflows and economic growth

Competition from financial institutions –

underwritten profits have generally remained thin and

volatile leaving the reinsurance business susceptible to

future high claims years and limiting its financial

flexibility to write premiums which competitors might be

incapacitated to write but are profitable. This gives room

to daring financial institutions to come in and take away

the business

Liquidity a challenge as volatile markets will

make it unprofitable to divest from some businesses at a

particular point in time

There is a possibility of the group suffering

significant capital loss resulting from weak operating

environment driven by high claims severity and fixed

overheads whilst having sub-economic pricing. Also

capital erosion can be attributed to deteriorating asset

quality or inappropriate asset liability matching

Cognisance is taken of the volatile nature of the

hospitality industry, where economic shocks or security

concerns can have a sudden and severe effect on

occupancy levels and pricing.

Other Considerations

Access to two low cost sources of leverage that allows

TA Holdings to safely own far more assets than equity

capital alone would permit, deferred taxes and float

(funds insurance business holds because it receives

premiums before needing to pay out losses, in this case it

includes insurance contracts and investment contracts).

Insurance contracts are when the Group has accepted

significant insurance risk to provide reimbursement and

financial protection to the insured in the event of an

unfortunate future event. An investment contract transfer

financial risk, which is the risk of a possible future

change in one or more of a specified interest rate,

financial instrument price, commodity price.

THREATS

Total Liabilities Disaggregation



TA Holdings is relatively very cheap as it is trading

at greatly discounted PBV ratio of 0.2892 times compared

to the peer group of 2.2571 times meaning an 87%

discount

This provides room for share value appreciation, as

well as share repurchases.

By applying a PBV of 1 which is lower than the

lowest PBV of the comparable group of companies, well

below industry averages, TA has significant room to grow.

A target price of 93 cents per share can be obtained

compared with the current market price of 8.50 cents per

share. Using peer group average the target price will be

$2.11

Using a WACC of 13% (see Appendix 3) to

discount its FCFF and deducting the market value of debt,

an intrinsic value of USD 0.78 was obtained (see

Appendix 2), an upward potential of 817% from the

current market price of USD 0.085.

TA has a growth generating

portfolio. Only 9% of its total assets

are in the form of cash and cash

equivalents meaning that most of its

assets are committed to the growth

of the business assets. 2012 2011 2010

ASSETS USD'000 USD'000 USD'000

Property, plant and

equipment 17% 15% 14%

Intangible

assets 1% 1% 1%

Investment

properties 9% 10% 8%

Investment in

associates 18% 20% 24%

Financial

assets 20% 17% 15%

Deferred tax asset 0% 0% 0%

Inventory 0% 0% 0%

Reinsurance

assets 12% 13% 12%

Deferred acquisition

costs 2% 2% 3%

Insurance

receivables 7% 7% 6%

Trade and

other

receivables 4% 3% 2%

Taxation 0% 1% 1%

Cash and

cash equivalents 9% 10% 14%

Total assets 100% 100% 100%

Source: company data

VALUATION

Source: Estimates

TA holdings does not have local comparable companies with a similar portfolio mix so regional

investment holding companies ,invested in insurance and hotel business have been used as a peer group

Earnings based valuations of PER and EV/EBITDA

will not capture the true value of the conglomerate because of significant earnings attributable to

minority shareholders and associate companies and

an extensive portion of investments in financial assets which record earnings gains on dividends, interest

payments or capital gains when the asset is sold.

Source: Estimates


Target Price is USD 0.86 given as an average

obtained from relative valuation as per PBV and discounted

cash flows.

TA Holdings has significantly improved its

operating margin from 3% to 10% owing to containing

operating costs. A decomposition of ROE explains the

decrease in ROE from 9.6% to 4.73% (see Appendix 6)

TA Holdings has a strong balance sheet with a debt

to equity of 0.092 times meaning that the company has

financed most of its assets from equity. Also a quick ratio of

99% shows that TA Holdings is almost meeting its current

obligations from current assets.

TA Holdings need to strengthen its insurance

business liquidity position coupled with improved business

diversification and the maintenance of healthy underwriting

margins.

The interest burden multiple marginally decreased

but will be higher in the near future because of cheaper long

term funds(11% with maturity in 2018 compared to

previous year long term cost of 17% maturing in 2014)

Asset turnover slightly declined whilst the equity

multiplier increased

Without debt TA Holdings ROE will be 2.2% for

2012

The tax burden was very high contributing only a

multiple of 0.47 compared to 0.93 the previous year and

was the major reason for the decrease in ROE

Share Repurchases

At a price of USD 0.085, TA is greatly undervalued

presenting a possibility of more share repurchases.

Valuation

TA looks cheap on the following metrics P/E and

PBV, compared to regional peer group.

Also very cheap compared to its intrinsic value

based on FCF valuation, $0.081 v $0.78

TA Holdings share price is an ideal stock for value

investing, considering that over the years it has diverged

from its intrinsic value,

FINANCIAL ANALYSIS

INVESTMENT THESIS


Secondly an important tenet for value investing is that

buy in should be done when the stock is at its lowest level to

ensure limited downward risk, at USD0.085 TA Holdings

provides that opportunity

Economic Recovery

The insurance business in Zimbabwe is posed to grow

with the economy recovering

Has been modest to date, but predicted to accelerate

and gain traction over the next 3-5 years provided external

funding for the economy is secured.

Business with prestigious brand power, and formidable

management with great experience and good allocators of

capital

Still has room to expand

Management has strong relationships with investee

companies.

Stable income generating portfolio.

LONG EQUITY POSITION WITH SAFE 3-5 YEAR

HOLDING PERIOD


Disclosures:

Ownership and material conflicts of interest: The author of this report holds a financial interest in the securities of this company.

The author or a member of his household, of this report does not know of the existence of any other conflicts of interest that might

bias the content or publication of this report.

Receipt of compensation: Compensation of the author of this report is not based on investment banking revenue.

Position as an officer or director: The author, or a member of his household, does not serve as an officer, director or advisory board

member of the subject company.

Market making: The author does not act as a market maker in the subject company’s securities

Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and

believed by the author to be reliable, but the author does not make any representation or warranty, express or implied, as to its

accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or

entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security


Appendix 1

Financial Ratios Financial year 2012 2011 2010

Liquidity Ratios

Current Ratio = Current Assets 0.99

0.99

1.04

Current Liabilities

Quick Ratio=

Current Assets – Inventories 0.987718 0.984494 1.0381121

Current Liabilities

Efficiency Ratios

Inventory Turnover = Cost of Sales 216.4848 211.2201 161.67913

Inventory

Accounts Receivables Turnover = Sales 10.36477 16.01755 18.311096

Account Receivable

Average Collection period = Accounts receivable x 365 35.21545 22.7875 19.933269

Sales

Average Payment period = Accounts payable x 365 41.86

29.06

31.41

Cost of Sales

Fixed Asset Turnover Ratio = Sales 2.467445 2.871847 2.8928829

Fixed Assets

Total Asset Turnover Ratio = Sales 0.421334 0.435028 0.4031479

Total Assets

Leverage Ratios

Total Debt Ratio = D/A Total Debt 0.04

0.02

0.02

Total Assets

Debt to Equity = D/E Total Debt 0.09 0.04 0.04

Total Equity

LT Debt to Equity Long-term Debt 0.03

0.00 -

Total Assets


Coverage Ratios

Interest Cover EBIT 11.99688 12.22296 0.5553097

Interest Expense

Cash Cover cash and cash equivalents 21.10452 23.84027 40.070796

Interest Expense

Profitability Ratios

Gross (Profit) Margin Gross Profit 13% 13% 0%

Cost of Sales

Operating (Profit) Margin Operating Profit 13% 0%

Cost of Sales

ROA= EBIT 5% 5% 0%

Total Assets

ROE Net Income 4.73% 10% -8%

Total Equity

ROE @ MV Net Income 20% 32% -15%

Average Equity @ MV

Earnings per share Net Income 0.80 2.81 -3.86

Average number of shares

Historic PE Market Price 0.124883 0.042669 -0.054379

EPS

Retention Ratio Retained Income 100% 100% 100%

Net Income

Earning Growth 44% -58%


Appendix 2

FMI Investments (Pvt) Ltd the major shareholder has a 31% stake. Other shareholders include Old

Mutual Life Assurance (14%), Capital Ventures Holdings (11%) and Masawara (Mauritius) Limited

(9%). Previous shareholder support has been evident through a subscription of preference shares to

raise USD$1,000,000


Appendix 3

TA HOLDINGS Multi-year Proforma Financial Statement

Assumptions Forecast

Actual 2015 2014 2013 2012 2011

Sales Growth 0.04

0.04

0.04

0.04

Gross Margin 0.13

0.13

0.13 0.134553471 0.134281432

Fixed Expenses (Mainly leases) -

-

-

Fixed Asset Growth 0.22

0.22

0.22 0.216226223

Depreciation Rate 0.04

0.04

0.04 0.040374443

Other income growth -

-

-

Interest Rate on Interest Bearing Debt 0.10

0.10

0.10 0.100470219 0.207312867

Tax Rate 0.26

0.26

0.26 41% 12%

Dividend Cover -

-

-

-

-

-

Inventory turnover (days) 1.69

1.69

1.69 1.686030235 1.728055424

Collection period 35.22

35.22

35.22 35.21544678 22.78750081

Liquidity 0.98

0.98

0.98 0.983467506 0.929397924

Accounts Payment Period 41.86

41.86

41.86

41.86

29.06

Pro Forma Financial Statements

Income Statement USD’ 000 USD’ 000

For the FY ending 2015 2014 2013 2012 2011

Sales 73,987.48

70,803.97

67,757.44

64,842.00

62,052.00

Cost of Sales 84,331.21

79,920.97

75,793.20

57,152.00

54,706.00

Gross Profit 10,343.72

9,117.00

8,035.76

7,690.00

7,346.00

Fixed Expenses - -

EBITDA 10,343.72

9,117.00

8,035.76

8,751.00

8,060.00

Depreciation


1,908.79 1,569.44 1,290.42 1,061.00 714.00

Operating Profit 8,434.93

7,547.56

6,745.34

7,690.00

7,346.00

Other income -

-

- - -

EBIT 8,434.93

7,547.56

6,745.34

7,690.00

7,346.00

Interest expensed 641.00

641.00

641.00

641.00

601.00

Pre Tax Profit 7,793.93

6,906.56

6,104.34

7,049.00

6,745.00

Taxation 2,006.94

1,778.44

1,571.87

3,771.00

451.00

Net Income 5,786.99

5,128.12

4,532.48

3,278.00

6,294.00

Dividends Paid -

-

- - -

Retained Earnings 5,786.99

5,128.12

4,532.48

3,278.00

6,294.00

Balance Sheet USD’ 000 USD’ 000

Proforma Balance Sheet 2015 2014 2013 2012 2011

ASSETS

Land & Buildings : net

Plant & Equipment : net 47,277.22

38,872.06

31,961.21

26,279.00

21,607.00

Fixed Assets 47,277.22

38,872.06

31,961.21

26,279.00

21,607.00

Investments 3,448.78

2,835.64

2,331.51

1,917.00

2,038.00

Trademarks, Patents, Licences 75,349.59

61,953.59

50,939.20

41,883.00

42,862.00

Other Long-Term Assets - -

Total Long-term Assets 126,075.58

103,661.29

85,231.92

70,079.00

66,507.00

Inventory 389.55

369.18

350.11

264.00

259.00

Accounts Receivable 7,138.36

6,831.22

6,537.28

6,256.00

3,874.00

Other Current Assets (33,905.89)

(14,326.03)

1,810.96

13,528.00

14,328.00

Cash & Equivalent 72,764.29

69,633.41

66,637.25

63,770.00

57,671.00

Total Current Assets 46,386.30

62,507.77

75,335.60

83,818.00

76,132.00

Total Assets 172,461.89

166,169.07

160,567.51

153,897.00

142,639.00

Funded by: - -

LIABILITIES - -

Ordinary Shares 1,919.00

1,919.00

1,919.00

1,919.00

1,919.00


Reserves incl Retained Earnings 70,534.59

64,747.60

59,619.48

55,087.00

52,205.00

Equity 72,453.59

66,666.60

61,538.48

57,006.00

54,124.00

Minority Interest 12,298.00

12,298.00

12,298.00

12,298.00

11,447.00

Deferred tax benefit -

-

- - -

Shareholders’ Funds 84,751.59

78,964.60

73,836.48

69,304.00

65,571.00

LT Loans 4,361.00

4,361.00

4,361.00

4,361.00

516.00

St Loans 2,019.00

2,019.00

2,019.00

2,019.00

2,383.00

Total Interest Bearing Debt 6,380.00

6,380.00

6,380.00

6,380.00

2,899.00

Interest Free Long-Term Liabilities -

-

- - -

Deferred Tax : Liability -

-

- - -

Total Debt 6,380.00

6,380.00

6,380.00

6,380.00

2,899.00

Capital Employed 91,131.59

85,344.60

80,216.48

75,684.00

68,470.00

Accounts Payable 9,672.30

9,166.47

8,693.04

6,555.00

4,355.00

Other Current Liabilities 71,658.00

71,658.00

71,658.00

71,658.00

69,814.00

Total Current Liabilities 81,330.30

80,824.47

80,351.04

84,593.00

77,068.00

Total Liabilities 172,461.89

166,169.07

160,567.51

153,897.00

142,639.00


Appendix 4

Risk premium on lending (lending rate minus Treasury bill rate, %)

Source: http://data.worldbank.org/indicator/FR.INR.RISK

Source: Estimates

Treasury rate = lending rate – risk premium = 13%- 6% =7%

Borrowings comprise:

Non-current

Long term bank loans 4,361 516 4,361.00 516.00 -

Current

Bank overdraft 1,308 1,000 1,308.00 1,000.00 847.03

Short term bank loans 711 1,383 711.00 1,383.00 1,592.35

Total borrowings 6,380 2,899 6,380.00 2,899.00 2,439.38

Borrowings

The Bank borrowings represent the following:

(i) Overdraft facility of US$1.300 million with an interest rate of 16% plus LIBOR rate 16% 1.30

(ii) Short term bank loan of US$0.711 million with interest rate of 18%, maturing in August 2013 18% 0.71

(iii) Long term loan of US$0.343 million with an interest rate of 17%, maturing in 2014 17% 0.34

(iv) Long term loan of US$3.985 million with an interest rate of 11%, maturing in June 2018 11% 3.99

6.34

EFFECTIVE INTEREST RATE 0.03

0.02

0.01

0.07

weighted avg 0.13

Data Source World Development Indicators

Country Name Country Code Indicator Name Indicator Code 2012 Botswana BWA Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK 7% Nigeria NGA Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK 3% South Africa SAS Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK 4% Uganda UGA Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK 11% Zimbabwe ZWE Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK Avg 6%

Sub-Saharan Africa (IFC classification) CAA Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK

http://data/


Appendix 5

TA HOLDINGS

Multi-year Proforma Financial Statement

USD'm

Projected Free Cash Flow Projected Actual

Financial Year 2015 2014 2013 2012

Profit after Tax 5,786.99 5,128.12 4,532.48 3,278.00

add back Depeciation 1,908.79 1,569.44 1,290.42 1,061.00

add back Interest Expensed net of tax 165.06 165.06 165.06 263.39 net of tax

subract Other Cash income net of taxes - - -

add back Decrease in non-cash current assets 19,252.35 15,823.99 11,349.65 8,486.00

add back Increase in current liabilities 505.83 473.43 (4,241.96) 7,525.00

subtract Increase inproperty & Equipment @ cost 8,405.16 6,910.85 5,682.21 4,672.00 use at cost

Free Cash Flow 19,213.86 16,249.18 7,413.43 (1,030.61)

Growth 0.18 1.19 -8.19

Calculation of WACC

Assumptions

Risk free Bond Rate 7%

Credit premium 6%

Rel Duration 1.5

Tax Rate 26%

Equity Premium 13%

Beta for TA Holdings 0.8

Growth rate beyond 2012 4%

Funding Vehicle Market Value Weight Before Tax After Tax

Equity 16,484.59 15% 17.35% 17.35%

Debt 96,891.00 85% 16% 12%

Enterprise 113,375.59 1 16% 13% <<===WACC

Valuation using Free-Cash-Flow & WACC

Years Forward 1 2 3

Financial Year 2013 2014 2015

Cash Flow 7,413.43 16,249.18 19,213.86

Terminal Value 243,479.88

Sum of Future values 7,413.43 23,662.61 286,356.35

PV of Future cash flows 225,014.42

add Cash Available -

Enterprise free cash value 225,014.42

less Debt (96,891.00)

Shareholders Value 128,123.42

div by Number of share in issue '000 164,845.91

FCF Valuation per share ==>> 0.78


Appendix 6

Du Pont Decomposition of ROE

ROE 4.73% 9.60%

The interest burden multiple marginally decreased but will be higher in the near future

because of cheaper long term funds(11% with maturity in 2018 compared to previous year

long term cost of 17% maturing in 2014)

Asset turnover slightly declined whilst the equity multiplier increased

Without debt TA Holdings ROE will be 2.2% for 2012

The tax burden was very high contributing only a multiple of 0.47 compared to 0.93 the

previous year. Major reason for the decrease in ROE

Net Income = Net Income x PreTax Profit x EBIT x Sales x Assets

Equity PreTax Profit EBIT Sales Assets Equity

= Tax Burden x Interest Burden x Margin x Turnover x Leverage

2012 2011

Net Income 3,278.00 6,294.00

PreTax Profit 7,049.00 6,745.00

EBIT 7,690.00 7,346.00

Sales 64,842.00 62,052.00

Assets 153,897.00 142,639.00

Equity 69,304.00 65,571.00

Tax Burden 0.47 0.93

Interest Burden 0.92 0.92

Margin 0.12 0.12

Turnover 0.42 0.44

Leverage 2.22 2.18


Appendix 7 Google trends

The Cresta Brand Worldwide

Cresta brand worldwide is well known in the following markets, Switzerland, South Africa and

United Kingdom. Other notable markets with prospects that can come as tourists to Zimbabwe or

Botswana and be interested in the Cresta brand, include Italy and Germany.


Appendix 8 FIVE FORCES MODELS Five forces model for the insurance industry

Final rating: 3.2

Intensity of existing rivalry

Relatively few competitors (especially Life insurance industry). Few competitors mean fewer firms

are competing for the same customers and resources, which is a positive for insurance industry.

Government limits competition. Government policies and regulations can dictate the level of

competition within the industry. When they limit competition, this is a positive for Life insurance

industry

Exit barriers are low. When exit barriers are low, weak firms are more likely to leave the market,

which will increase the profits for the remaining firms. Low exit barriers are a positive for insurance

business.

Threat of Substitutes

Limited number of substitutes. A limited number of substitutes mean that customers cannot easily

find other products or services that fulfil their needs. Limited substitutes are a positive for insurance

industry

Buyers require special customization. When customers require special customizations, they are less

likely to switch to producers who have difficulty meeting their demands. Buyer customization

positively affects insurance industry

Limited number of substitutes means that customers cannot easily switch to other products or

services of similar price and still receive the same benefits.

Threat of New Competitors

Customers are loyal to existing brands. It takes time and money to build a brand. When companies

need to spend resources building a brand, they have fewer resources to compete in the marketplace.

These costs positively affect insurance industry

High capital requirements mean a company must spend a lot of money in order to compete in the

market. High capital requirements positively affect insurance business

0

1

2

3

4

Intensity ofexisting rivalry

Threat ofSubstitutes

Threat of NewCompetitors

BargainingPower ofSuppliers

Threat ofSubstitutes

Series1


Strong distribution network required. Weak distribution networks mean service provision is more

expensive to render and will not get to some of the end customer. The expense of building a strong

distribution network positively affects insurance business

Strong brand names are important for the insurance industry. If strong brands are critical to

compete, then new competitors will have to improve their brand value in order to effectively

compete. Strong brands positively affect insurance industry

Bargaining Power of Suppliers

High competition among suppliers. High levels of competition among suppliers acts to reduce prices

to producers. This is a positive for insurance industry

Large number of substitute inputs. When there are a large number of substitute inputs, suppliers have

less bargaining leverage over the insurance companies. This is due to competition among substitutes.

Greater competition positively affects

Bargaining Power of Customers

Substantial product differentiation

High cost of switching to substitutes

Substitute has lower performance

Five forces model for the hotel industry

Final rating: 2.4 Intensity of existing rivalry

Large industry size

Threat of Substitutes

Large compared to cheaper budget motels and lodges which offer a lower service.

Threat of New Competitors

Customers are loyal to existing brands. It takes time and money to build a brand. When companies

need to spend resources building a brand, they have fewer resources to compete in the marketplace.

These costs positively affect hotel industry

0

1

2

3

4

5

Intensity of

existing

rivalry

Threat of

Substitutes

Threat of New

Competitors

Bargaining

Power of

Suppliers

Bargaining

Power of

CustomersSeries1


High capital requirements mean a company must spend a lot of money in order to compete in the

market. High capital requirements positively affect hotel business

High sunk costs

Geographic factors limit competition

Entry barriers are high

Bargaining Power of Suppliers

High competition among suppliers. A high level of competition among suppliers acts to reduce

prices to producers. This is a positive for hotel industry

Large number of substitute inputs. When there are a large number of substitute inputs, suppliers have

less bargaining leverage over producers. This is due to competition among substitutes. Greater

competition positively affects hotel business

Critical production inputs are similar.

Low cost of switching suppliers.

Bargaining Power of Customers

Low dependency on distributors

The scale of the interaction

0 no interaction 2 low 4 high

1 insignificant 3 average 5 very high Source: estimates and wikiwealth.com


APPENDIX 9

ZIMBABWE INSURANCE FIRMS MARKET SHARES

Market Share for Insurance Brokers in Terms of Income and Premium Written

SOURCE: IPEC QUARTERLY REPORT

Market Share for Insurance Brokers in Terms of Brokerage Income



Market Share of Insurers in Terms of GPW and NPW


Market Share of Insurers in Terms of Total Assets



Market share for life companies by Net Written Premium for the quarter ended September 2013



http://data.worldbank.org/indicator/FR.INR.RISK

http://www.morningstar.com/invest/stocks/346732-sbv-sabvest-limited.html

http://markets.ft.com/research/Markets/Tearsheets/Financials?s=HCI:JNB&subview=IncomeStatement

http://www.stockexchangeofmauritius.com/officialquotes/

http://www.afdb.org/en/countries/southern-africa/zimbabwe/zimbabwe-economic-outlook/

TA Holdings Annual reports for 2011 and 2012

IPEC quarterly reports

Global Credit Rating Co. – Global Master for Rating Insurance Companies Methodology (July, 2013)

http://data.worldbank.org/indicator/FR.INR.RISK

Documents

TA HOLDINGS ANALYSIS