Zimbabwe Booklet May 2012

7/31/2019 Zimbabwe Booklet May 2012

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EXECUTIVE SUMMARY

Recent results released by leading hoteliers point towardsimproving occupancies, RevPARs and ADRS locally. Weexpect this positive earnings outlook to continue, given the

positive outlook for the tourism sector. Our range ofscenarios for RevPAR growth is xx, given the limited supplygrowth until 2013.

With occupancies recovering towards peak levels we couldsee room supply coming at a premium. Prospects fordiscount business with corporate transient customers.

Tight supply environment an important tailwind for AfricanSun

An increase in local salaries should boost local consumerspent while investment interest in the country should boostforeign business visitors

An improvement in the global economy will also support thetourism industry.

Better earnings visibility for Cresta Hospitality and Meikles,because of their simpler more defensive business model.Business travel and tourism is less fickle than leisure travelso the groups profits are likely to show defensive qualities.

We also like African Sun because it has already expandedregionally, and is more diversified.

Operating cost inflation, and subdued consumer andcorporate profits.The lack of incremental costs on newmanagement contracts should buoy results for African Sun

Not cash generative because of capex projects.

Prospects for hotels have strong longer term drivers,

Economic growth and varied and unique tourist offering.

Zimbabwe Stock Exchange Overview- May 2012

Fortune favours the brave....

Analysts

Addmore Chakurira Batanai Matsika Nontando Zunga+263 772 265 454 +263 772 889 556 +263 772 772 [email protected] [email protected] [email protected]


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CONTENTS SECTOR PAGE

EXECUTIVE SUMMARY 4

ZIMBABWE IN FIGURES: MACROECONOMIC INDICATORS 5

ZIMBABWE MACRO-ECONOMIC OVERVIEW 6

THE ZIMBABWE STOCK EXCHANGE OVERVIEW 10

Companies In Detail

AICO AFRICA LI MITED Agriculture 15

BARCLAYS BANK ZIMBABWE LIMITED Financial 18

BAT ZIMBABWE LIMITED Tobacco 21

CBZ HOLDINGS LIMITED Financial 24

DAIRIBORD HOLDINGS LIMITED Food 27

DELTA CORPORATION LIMITED Beverages 30

ECONET WIRELESS LIMITED Telecoms 33

HIPPO VALLEY ESTATES Agriculture 36INNSCOR AFRICA LIMITED Conglomerate 39

MASAWARA Investment Holding 42

MASHONALAND HOLDINGS LIMITED Property 44

MEIKLES Conglomerate 47

OK ZIMBABWE LIMITED Retail 50

NEW DAWN MINING Mining 53

PADENGA HOLDINGS LIMITED Agriculture 56

PEARL PROPERTIES LIMITED Property 59

SEED CO Agriculture 62

TA HOLDINGS LIMITED Conglomerate 65

ZIMPLATS LIMITED Mining 68


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Appendix to Abbreviations:ADR: Average daily rateAfDB: African Development BankARPU: Average Revenue Per UserCB: Central BankCIMCG: China International Mining Group Corporation

FAO: Food and Agricultural OrganisationFDI: Foreign direct investmentFMCG: Fast Moving Consumer GoodsForex: Foreign ExchangeGDP: Gross Domestic ProductGNU: Government of National UnityHIPC: Heavily Indebted Poor CountriesIES: Imara Edwards Securities (Pvt.) Ltd ZimbabweIAS: Imara Africa Securities LimitedIFSC: International Financial Services CentreMDRI: Multi-lateral Debt Relief InitiativeNIEEF: National Indigenisation and Economic EmpowermentNII: Net Interest IncomeNIM: Net Interest Margin

NPL: Non Performing LoanNPV: Net Present ValueNSAS: National Sugar Adaptation StrategyOMIR: Old Mutual Implied RatePp: per personRBZ: Reserve Bank of ZimbabweREVPAR: Revenue per available roomSADC: Southern African Development CommunityS.O.P: Sum of partsSSA: Sub-Saharan AfricaUS$: United States DollarW.H.O: World Health OrganisationZIMRA: Zimbabwe Revenue AuthorityZSE: Zimbabwe Stock Exchange

Z$: Zimbabwe Dollar


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EXECUTIVE SUMMARY

Recovery on course although beleaguered somewhat by unfavourable atmosphere..Four years on in a dollarised economic environment and the economy is still on a growth path, beleagueredsomewhat by an unfavourable financial and political atmosphere. The global economy is expected to grow by2.5% in 2012 and 3.1% in 2013 according to the World Bank. High income growth countries are expected to posta 1.4% growth in 2012 and 2.0% in 2013. Developing countries are forecast to grow by 5.4%. These estimateshave been revised downwards from initial estimates made in June 2011 and the Bank insists that even achievingthese outturns is very uncertain. The downturn in Europe and weaker growth in developing countries raises therisk of the two developments reinforcing each other. Despite the global economic crisis, Sub Sahara Africa is setto growth by more than 5%, while the Zimbabwean economy is expected to grow by 9.4%.

Agriculture/mining sectors, the biggest talking pointMajor propellers of local economic growth have been the mining and agricultural sectors. The Ministry ofFinance estimates that the mining sector (projected to grow by 15.9% in 2012) will remain the major drivingforce behind overall economic growth. The sector is expected to benefit from firming international commodityprices, strategies to lower electricity supply interruptions and additional private capital injections. Theagricultural sector is expected to grow by 11.6% in 2012 on the back of increased funding initiatives. Thecountrys annual inflation is also expected to end the year at 5%. Several issues, however, threaten the stabilityof the inflation rate including high utility charges, higher import duties on some basic goods and exchange raterisk against the Rand as most of the basic goods are still being imported.

Pell-mell performance on the local bourse due to indigestible policiesFor 2011 both the industrial and mining indices were down with the industrial index losing 3.58% whilst themining index lost 49.75%. Although the performance was in line with regional exchanges and some internationalindices, the mining index was further weakened by the local policy issues. Year to date, the indices haveweakened further with the industrial index down 10.62% whilst the mining index is down 9.51%, this is incontrast to the positive performance on the regional and international bourses, where the regional exchangesare up on average by 7% whilst the main international indices have gained an average of 5%. The poorperformance on the local front could be attributed to inconsistency on policy pronouncements mainly relatingto indigenisation and elections. For 2012, we expect some improvement driven by improving companyperformance. The market capitalisation to GDP ratio declined in 2011 to 36% from 45% in 2010, this howeverstill compares favorably with the SSA average of above 50%.

The other side of the coinPost the hyperinflationary era, most companies are now afloat, after an almost precarious position. A number ofcorporate earnings statements have been positive in support of an improving economy. The indigenisation issuehowever remains contentious, with the end document not having been clarified. Investor sentiment has beenrattled with minimal foreign direct participation. Consoling, however, is the fact that in October 2011government released a Gazette revising the indigenisation regulations to state that foreign owned firms couldnow indigenise their 51% equity over 4 years; with 26% to be localised in the first year, 10% in the second year,10% in the third year and 5% in the fourth year. Despite talks of elections, we see them as unlikely to occur in2012, as the liquidity strain continues to bite. The constitution making process is yet to be finalised, then thereferendum has to follow before we can have elections. We forecast that at the earliest, we could have theelections late 2013, however, the noose is still ominously around the neck as politicians continue to issuedivergence statements.

Jump onto the bandwagon..Despite top line growth ahead of inflation, heavy interest costs continue to negate positive performance inmany listed companies. A classic case is that of PG Industries, whose gearing stands at a high of 136%. Severalother companies remain hugely undercapitalised hampering earnings growth and curtailing share priceperformance. Rio Zim recently concluded a rights offer which should see its huge debt being paid, thus loweringfinance costs and possibly returning the group to viability. Several other companies are also carrying outcorporate activities, and although the prospects of deleveraging are attractive, other factors such as theunclear indigenisation policy and likelihood of elections continue to draw back significant progress. Theeconomic recovery should however continue and is likely to accelerate if further reforms are enacted by theauthorities. It is our view that Zimbabwe offers great potential as a recovery play and we urge investors to takepositions in rapidly growing, dominant, well managed and strong cash generating companies such as BATZ,Dairibord, Delta, Econet, Innscor, OK Zimbabwe, Padenga and SeedCo.


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2008 2009 2010e 2011 2012f

GDP Growth rate

Source: IMF, Ministry of Finance

%

0.000.050.100.150.200.250.30

GDP Growth Rates

2011 2012F

Source: Ministryof Finance

VAT31%

Excise Duty11%

Customs Duty12%

Non taxrevenue

8%

Other directtaxes7%

Corporate10%

PersonalIncome

20%

Other1%

2011 Revenue Contribution

Source: Ministry of Finance

Zimbabwe in Figures: Macroeconomic indicators

THE 2009-2014 MACRO-ECONOMIC FRAMEWORK

2009 Act 2010 Est 2011 Proj 2012 Proj 2013 Proj 2014 Proj

Real sector and inflation (US$ m and %)

Nominal GDP level in US$ m 5,623.0 6,716.0 8,998.0 9,959.0 11,297.0 12,711.0

Real Gdp growth (%) 5.4 8.1 9.3 7.8 6.6 6.4

Annual Inflation (average %) -7.7 3.0 4.5 5.0 5.5 5.7

Central Government (US$m)

Total revenue and Budget Grants 974.4 2,339.1 2,744.9 3,400.0 3,841.0 4,321.0Revenue(Tax and Non Tax) 933.1 2,339.1 2,744.9 3,400.0 3,841.0 4,321.0

Budget Grants 41.3 0.0 0.0 0.0 0.0 0.0

Off Budget Grants 93.0 500.0 500.0 500.0 0.0 0.0

Total expenditure Central Government 920.9 2,106.9 2,744.9 3,400.0 3,841.0 4,321.0

Current expenditure 804.0 1,603.0 2,140.2 2,495.5 2,734.7 2,975.2

OW: Employment costs 550.3 1,098.5 1,800.0 2,040.0 2,112.5 2,160.9

Other recurrent expenditures 182.0 504.8 340.2 340.2 455.5 622.2

Capital expenditure 45.2 415.3 550.0 850.0 1,056.3 1,296.5

External Sector(US$m)

Exports(fob) 1,613.3 3,380.1 4,143.7 4,604.1 5,164.4 5,684.6

Imports(fob) 3,213.1 5,161.8 5,599.6 5,731.5 6,015.5 6,355.0

Current Account Balance (1,140.3) (1,852.5) (1,565.0) (1,247.6) (1,034.3) (894.6)

Capital Account (656.5) 617.5 775.4 809.5 849.8 847.7

Overall Balance of Payments (1,867.0) (412.1) (789.7) (438.2) (184.5) (46.9)

Memorandum Items As a % of GDP

Revenues 16.60% 34.80% 30.50% 34% 34% 34%

Expenditure and Net Lending 16.40% 31.40% 30.50% 34.10% 34% 34%

Current expenditure 14.30% 23.90% 23.80% 25.10% 24.20% 23.40%

OW: Employment costs 9.80% 16.40% 20% 20.50% 18.70% 17%

Other recurrent expenditur 3.20% 7.50% 3.80% 3.40% 4% 4.90%

Capital expenditure 0.80% 6.20% 6.10% 8.50% 9.40% 10.20%

External Sector

Exports fob 28.70% 50.30% 46.10% 46.20% 45.70% 44.70%

Imports fob 57.10% 76.90% 62.20% 57.60% 53.20% 50%

As % of Total Expenditures

Current expenditure 87.30% 76.10% 78% 73.40% 71.20% 68.90%

OW: Employment costs 59.80% 52.10% 65.60% 60% 55% 50%

Other current expenditures 19.80% 24% 12.40% 10% 11.90% 14.40%

Capital expenditure 4.90% 19.70% 20% 25% 27.50% 30%

Source: Ministry of Finance, Reserve Bank of Zimbabwe


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ZIMBABWE MACRO-ECONOMIC OVERVIEW

Economy expected to remain on a growth pathThe gross domestic product has been on the rise, growingby 5.4% in 2009, 8.1% in 2010, 9.3% in 2011 and isprojected to move up by 9.4% in 2012. Major propellers ofeconomic growth have been the mining and agricultural

sectors. The Ministry of Finance estimates that the miningsector (projected to grow by 15.9%) will remain the majordriving force behind overall economic growth. The sectoris expected to benefit from firming internationalcommodity prices, strategies to lower electricity supplyinterruptions and additional private capital injections.The agricultural sector is expected to grow by 11.6% in2012 on the back of increased funding initiatives.

...although the IMF expects the growth rate tomoderateAs we pointed out in our 2012 Outlook report, in its 2011Article IV Consultation (May 2011), the IMF cited twoscenarios for the economy. Under an unchanged policies

scenario, the group forecast that the GDP growth ratewould decline to about 3.0% as investment remainssubdued as a result of:

Significant structural impediments, The acceleration of indigenisation in mining Uncertainties about the ownership requirements in

the sector

Higher commodity prices and increased diamond exportsif achieved were however forecast to underpin highergrowth, higher budget revenues, and a faster reduction ofthe current account deficit.

According to the IMF, additional downside risks for the

outlook include: Political disturbances Export price declines Higher-than-anticipated increases in import food

and fuel prices Unfavourable weather Reversals of capital inflows Banking system instability.

Under the alternative, recommended policies scenario,the IMF assumed that the government would eliminateexpenditure overruns while leaving more fiscal space forcritical infrastructure and social spending in 2011 andstart rebuilding fiscal buffers in the medium term,

forcefully address financial sector vulnerabilities, andstrengthen the business climate.

According to its forecast, in 2011, the economy was tohave grown by 7.2% mainly because of higher capitalinflows providing for more working capital and higherinvestment into the mining sector, as well as from higherpublic investment in critical infrastructure. In themedium term, the country could thus potentially boostgrowth performance by about 3.0% relative to the

unchanged policies scenario, and increase internationalreserves to about 1 month of imports by 2016.

Revenue CollectionsQ1 2012 - (Zimbabwe Revenue Authority) Zimra total

gross collections stood at US$ 773.7m (against a targetUS$ 715.4m). Net collections for the quarter amountedto US$ 723.9m, 1.2% above budget. Value added tax wasthe highest contributor at US$ 292.7m (38% of total),individual tax 19% and excise duty US$ 88.9m.

According to the Minister of finance, diamonds and non-tax revenues for February 2012 amounted to US$ 5.0mand US$ 7.4m against targets of US$ 41.5m and US$10.5m, respectively. For January and February, actualdiamond collections totalled US$ 19.5m, against a targetof US$ 77.5m, (non-tax revenue US$ 18.5m against atarget of US$ 21.0m). In terms of the budgetperformance, there is already a gap with total

expenditure of US$ 286.9m exceeding revenues of US$227.7m.

The Revenue to GDP ratio is expected to grow from 30%to 34%, from ongoing tax reforms focusing on ZIMRArestructuring, compliance initiatives and increasedautomation of tax collection systems. In total for FY2012, government revenues are estimated at US$ 4.0bn,with US$ 0.6bn expected from diamond revenues. Totalexpenditure is expected to amount to US$ 3.4bn, withUS$ 2.0bn committed to employment costs (60% of totalexpenditure) whilst the US$ 600.0m from diamondreceipts is targeted for capital projects. The MoFtargets to reduce the employment costs/total

expenditure ratio to 50% by 2014, whilst capitalexpenditure is expected to improve to about 25% in2012, against a desired target of 30% by 2014.

Inflation expected to remain stableInflation, stood at 4.3% for the first two months of 2012down from 4.9% for December 2011, while for March2012 the y-o-y rate was 3.98%. On a month-on-monthbasis, inflation decreased from 0.49% in February 2012to 0.43% in March 2012.

The countrys annual inflation is however expected toend the year at 5%. Several issues threaten the stabilityof the inflation rate including high utility charges,

higher import duties on some basic goods and exchangerate risk against the Rand as most of the basic goods arestill being imported.


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2010 2011 2012

Zimbabwe Inflation Rates

Inflation rate (%) monthly Inflation rate (%) Annual

Source: CSO

The country still has a colossal trade deficitFor 2011, total export earnings amounted to US$ 4.1bn,registering growth of 30.2%, whilst 11.1% growth isforecast for 2012 which should bring export earnings toUS$ 4.6bn following firm international commodity pricesand increased throughput from agriculture, mining andmanufacturing. Imports for 2011 amounted to US$ 5.6bn,and are expected to grow to US$ 5.7bn for 2012 leading

to a further expansion in the trade deficit and a wideningcurrent account (CA) deficit as other contributors such asservices and investment income have not yet fullyrecovered. Imported goods largely comprise fuel, food,machinery and motor vehicles as the local manufacturingsector is still characterised by undercapitalisation. Thecurrent account deficit of US$ 1.5bn stands at 17% of thecountrys GDP.

Liquidity situation set to improve from PTA andinternational banks supportPTA Bank has a keen interest in resuscitating the countryand has been working with banks and corporates in theprovision of affordable funding to alleviate the liquidity

challenges. The bank is looking at lending out US$ 0.5bnin 2012 in the SSA region. The bank recently lent US$4.0m to Dairibord, at an 11% all in cost for a period of 12months. In an environment faced with high liquiditystrain, local banks have been charging a huge premium onsupply of funding with high interest rates averaging 20%per annum. Cooperation from international banks,charging affordable rates, will thus assist to alleviate theliquidity crisis in the cash stripped economy.

Money market rates softer backed by improving moneysupplyProceeds from the tobacco selling season and repatriatednostro account balances have somewhat led to a softening

in money market rates. From the banks, US$ 200.0m wasexpected from the nostro accounts. As a result, moneymarket interest rates declined from 14% - 16% at thebeginning of the year to between 10% - 12%, whilstlending rates now range between 15% - 18% from previoushighs of 18% - 22%. The measures are short term however,thus the long term liquidity position still remainsunresolved meaning the lending rates are unlikely todecline significantly in the near term.

Political OutlookZimbabwe recently celebrated 32 years of independence,with four years in a dollarised economic environment;most companies are now afloat, after an almostprecarious position. A number of corporate earningsstatements have been positive in support of an improvingeconomy. The indigenisation issue remains contentious,with the end document not having been clarified.Investor sentiment has been rattled with minimal foreigndirect participation.Consoling, however, is the fact thatin October 2011 government released a Gazette revisingthe indigenisation regulations to state thatforeign ownedfirms could now indigenise their 51% equity over 4 years;with 26% to be localised in the first year, 10% in thesecond year, 10% in the third year and 5% in the fourthyear.

Despite talks of elections, we see them as unlikely tooccur in 2012, as the liquidity strain continues to bite.The constitution making process is yet to be finalised,then the referendum has to follow before we can haveelections. We forecast that at the earliest, we could havethe elections late 2013, however, the noose is stillominously around the neck as politicians continue to issuedivergence statements.

SECTOR OVERVIEWS

Annual mineral production for precious commodities hasbeen on the rise as shown below.

Annual Mineral Production

2010 Actual

2011 Budget

Forecast

2011 Revised

Forecast 2012 Proj

Gold/kg 9,620 13,000 13,000 15,000Nickel/t 6,133 7,680 7,700 8,800

Coal/t 2,668,183 3,000,000 3,000,000 3,500,000

Chrome/t 516,776 700,000 700,000 750,000

Platinum/kg 8,639 12,000 10,500 12,000

Paladium/kg 6,916 9,600 8,400 9,600

Black Granite/t 169,318 168,000 168,000 170,811

Source:IES;MinistryofMines,ChamberofMinesFor Q1 2012, gold deliveries grew by 5.8%, to register atotal of 3,126kgs, the average growth rate for small-scaleand primary producers stood at -3.2% and 8.3%respectively. Y-o-y growth was 21.64% for cumulative

gold deliveries, 19.2% and 22.3% for small-scale producersand primary producers respectively. The growth rateshave been attributed to firming gold prices, as gold priceshave increased from just above US$ 1,300/oz in January2011 to the current US$ 1,650/oz. The Minister of Financehowever pointed out that, despite the increase in theinternational metal prices, the amount of royaltiescollected from precious metals has remained low. For2011 it totalled US$ 44.1m against sales of US$ 1.7bn.


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IMF forecasts that commodity prices will remain largelyunchanged in 2012,According to the IMF, global commodity prices lost someof their luster in 2011, and although they remained highin real terms the prices declined for most of the year,with the exception of crude oil which was increasinglydriven by geopolitical supply risk towards the end of theyear. The commodity prices rebounded in Q1 2012,

although they are still below their end of 2010 levels. Anumber of factors are at risk of affecting the broadupside potential, including recent downgrades ofcommodity assets from overweight to underweight anddoubts about the continued sustainability of the decadelong commodity markets boom. Uncertainty about thenear-term global economic prospects is still on the chartswhile slowdown in the Chinese real estate market hasalso renewed concerns.

Thus given the constrained global economic environmentexpected for 2012-2013, commodity prices are projectedto remain largely unchanged, although cyclicalcommodity prices may pick up if global growth is

stronger than currently expected. The pickup is howeverexpected to be moderate as the growth in 2012 isunlikely to be stronger while the expected reduction inpotential growth in China and other emerging economieswould dampen cyclical upward pressure.

Source:IES;goldprice.orgProgress being made on indigenisation in the miningsectorAccording to media reports, since the indigenisation billwas gazetted in March 2011, the Youth Development,Indigenisation and Economic Empowerment ministry hasreceived more than 200 indigenisation implementationplans from mining businesses. Australian listed Zimplats

also agreed to cede 51% of its shareholding, with 10%intended for the local community, 10% for employees and31% for the NIEEF (National Indigenisation and EconomicEmpowerment Fund). Full details relating to thesettlement are yet to be finalised. Although this affirmsa high compliance rate, concern on the implications ofthe bill are still telling through depressed share prices ofaffected listed companies both on the local bourse andforeign exchanges for the dually listed companies.

However we see the mining sector as poised for amassive revival...RioZim was recently recapitalised, after Gem Raintreeinvestment underwrote a US$5.0m rights issue and aprivate placement of US$45.0m, despite the threat ofindeginisation. Gem Raintree investments represents theinterests of Gem Group a US$3.4bn alternative investmentfirm whose focus is on emerging markets and Raintree

Mining a Zimbabwean owned junior miner.

Bindura is also set to recapitalise, as Mwana AfricaPlc(52.9% shareholder) has sought to raise funding for theentity. An update from Mwana Africa shows that a total of140.6m new ordinary shares of 1 pence each in theCompany have been conditionally placed by LiberumCapital Limited with investors at a price of 5.5 pence perPlacing Share. Further, China International Mining GroupCorporation ("CIMGC") had conditionally subscribed for242.4m new ordinary shares at the placing price. Thegroup expected that this would assist them secure furtherproject funding for BNC and the Group's other projectsthrough CIMGC's banking and industry connections. Using

the placing price, the gross proceeds of the Placing andthe Subscription would be approximately US$33.5 million.A report compiled by SRK Consulting of UK concluded thatBindura Nickel requires US$26.0m to restart operations.

Agricultural sector to be boosted by increased fundingAccording to the MoF 2012 budget, the agricultural sectorwas expected to grow by 11.6% in 2012 on the back ofincreased funding initiatives. Maize production wasexpected to reach 1.8m tonnes, up from 1.4m for 2011,whilst tobacco production was forecast to reach 150.0mkgs, up from 133.0m kgs in FY 2011. Sugar production,which totalled 259,000 tonnes, was projected to go up to400,000 tonnes for FY 2012. These targets are likely to be

missed due to the dry spell that was experienced in someparts of the country.

The Minister of Agriculture estimates that the maizeharvest could fall by 26% to 1.0m tonnes after nearly halfof the crop was written off because of the prolonged dryspell. The country however has 400,000 tonnes of maize inreserves, which implies that an additional 400,000 tonneswould have to be imported to make up for the deficit.Further imports of wheat will be needed given anexpected wheat output of only 75,000 tonnes this year,against annual requirement of 400,000 tonnes.Accordingto the Food and Agricultural Organisation (FAO), otheragricultural crops, such as millet,groundnuts, soy beans,

sunflower, sugar beans and sorghum are estimated to bebelow the levels of 2011, on account of reduced plantingsand lower yields. Consequently, cereal production in 2012is put at 1.17 million tonnes, or one third less than lastyears output even after including a forecast increase inthe winter wheat crop to be planted in May following thegovernments decision to provide low-interest loans, tohelp facilitate greater investment in wheat production.


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Zimbabwe Cereal Production

2007-2011

Average 2011

2012

Forecast

change

2012/11

000 tonnes percent

Maize 1135 1452 968 -33

Sorghum 107 95 65 -32

Wheat 59 41 60 46

Others 100 97 80 -18

Total 1401 1685 1173 -30

Source: FAO/GIEWS Country Cereal Balance Sheets

The organisation however notes that higher yields fromtobacco and a larger planted area for cotton contributed to amarginal increase in production of about 2%.

Seasonal Tobacco Sales*

Total Auction Total Contract Total 2012 Total 2011 % Change

Mass sold (kg) 34,578,964 45,008,544 79,587,508 68,603,246 16

Value (US$) 127,427,605 173,245,821 300,673,426 189,808,834 58

Average Price US$/kg 3.69 3.85 3.78 2.77 36.55

*As at 4 Ma y 2012-Source: Tobacco Ind ustry Marketing Board

A total of 34.6m kg of tobacco have been sold through theauction system whilst 45.0m have been sold through thecontract system. In total, the mass sold is 16% above that oflast year. The average price has also increased and averagesUS$ 3.78/kg up from the previous seasons US$ 2.77/kg, a36.6% increase.

Construction sector set to boomThe local construction sector is set to grow by an average of8% per year between 2012 and 2016. The residential realestate sector and office sector have been experiencing thehighest growth in demand on the back of an improving

economy and consumer wealth.

According to the ministry of finance, 80% of the countrys88,100km road network is in need of rehabilitation and44,671km of the road network has outlived its lifespan. Thereare also several road dualisation projects meant to expand thecountrys road network. The African Development Bankestimates that the rehabilitation of the network will costabout US$ 2.7bn, while clearing the backlog of periodicmaintenance will cost about US$ 560.0m (both at 2009constant prices). US$ 1.5bn is also needed by local authoritiesfor the resuscitation and rehabilitation of the countrys watersystems.

Manufacturing SectorThe manufacturing sector is expected to benefit from the spillover effect from growth in the mining and agricultural sectorsand grow by 6% for 2012, with growth driven mainly by food(6%), wood and furniture (8%), metals and metal products(11%), and non-metal products (25%). The manufacturingsector capacity utilisation has picked up in some subsetsincluding the consumer goods sector. For example, forfoodstuffs it increased from 38% in 2010 and is expected toreach 57% in 2012, whilst for drinks, tobacco & beverages it is

expected to reach a high of 95% in 2012. In somesubsectors such as clothing, textiles and printing, ithas however remained low, averaging around 25%,while the textile and ginning industry capacityutilisation is expected to decline further to 19.0% fromabout 23.0% in 2010 mainly to due toundercapitalisation leading to a failure to carry outnecessary capex projects.

0%20%40%60%80%

100%

Manufacturing sector capacity utilisation

2009A 2010Est 2011Proj

Banking sector developmentsA US$ 100.0m Fund funded by international financialinstitutions and a regional financier was created earlyin the year for the rejuvenation of the Central Bank;this should assist the CB to resume its role as alender of last resort, which could also improveinterbank trading.

As at 30 Dec 2011, the banking deposit base wasestimated to be US$ 3.8bn. Lending to the productivesectors grew to US$ 2.6bn in 2011, constituting 78.4%of total deposits. Primary beneficiaries were the

agriculture sector (18.0%), manufacturing, (20.0%),distribution (19.0%) and mining (6.0%).

(500)-

5001,0001,5002,0002,5003,0003,5004,000

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30Sep11

Banking Sector Deposits, Loans and Advances

Deposits Total loans and advances

Log. (Deposits) Log. (Total loans and advances)

Banks asset quality is a major concernBanking institutions in Zimbabwe have seen strongdeposit and credit growth ahead of GDP growth overthe last three years albeit off a very low base.Nonetheless, overall undercapitalisation of most banks

Source:IES;RBZ;MinistryofFinance

Source:IES;RBZ;MinistryofFinance


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remains a challenge especially when non-performing loansare taken into account. In our view, most of the lendingdecisions have been based on the size of the collateralbeing offered and relationships rather than cashflow.Good information is also scarce in the absence of anational credit bureau. Furthermore the value of thecollateral, which is real estate in most cases, tend to beoverstated. This has allowed the official NPLs numbers tobe low. However the IMF estimated that NPLs were about3.1% of outstanding loans. Banks are sitting on a

significant unknown quality of NPLs and these continue togrow.

Interest rate outlookThe loan to deposit ratio remains high at 79.1%. The highlending rates have led to high slippages coupled withweak fundamentals of some local companies (highleverage and low profitability and low risk management)giving concern that credit quality can deteriorate.According to the Reserve Bank, lending rates have beenranging around 30% per annum against a low of between2.5% and 5.0% paid on savings deposits. We do not expectany changes in the short term due to the liquidity strain.

Telecomms sector bearing witness to the improvingeconomic situationFrom the latest Econet results (FY 2012), we note that thegroup continues to record significant growth in subscribernumbers from 1.2m when Zimbabwe dollarised to thecurrent 6.4m (2011: 5.5m), on the back of stabledisposable incomes. ARPUs have been defended at overUS$ 9.00, (FY 2011: US$ 10.33) bearing testimony that theeconomy is recovering. New customer acquisition rateshave also been good, with 1.2m new customers acquiredin March 2012 up from 1.0m acquired in February. Thecompany also contributes significantly to the fiscus, withUS$ 73.4m paid as income tax for FY 2012 while US$414.0m has been paid in cumulative tax, levies and

licence fees since dollarisation.

Tourism sectorThe tourism sector is expected to grow by 13.7% in 2012with average room occupancy rates rising from 56% to60%. However we expect RevPARs to remain largelyunchanged as the ADRs may have to be compromised inorder to be competitive given the limited demand in acash stripped economy, and high competition fromregional destinations.

Room and Bed Occupancy

Indicator 2009 2010 2011 Est2012 Proj

Average bed occupancy rate (%) 35 36 37 37Average room occupancy rate

(%) 46 52 56 60

Overall sector growth (Tourism,

Hotels and Restaurants (%) 6.5 0.5 10.3 13.7

Source: Zimbabwe Tourism Authority & MoF

THE ZIMBABWE STOCK EXCHANGE OVERVIEW

HistoryThe first stock exchange in Zimbabwe was opened inBulawayo in 1896, to raise money for gold miningactivities in the country and was closed after the SouthAfrican Anglo-Boer war of 1899-1902. Another exchangewas also opened in Umtali (Mutare) in 1896 and it wasclosed in 1924 after it was realised that the local mining

deposits in the area were not extensive. Between 1900and 1930 an exchange also operated in the town of Gwelo(now Gweru). In 1946 a new exchange was opened inBulawayo and a second one was opened in Salisbury(Harare) in 1951. The Zimbabwe Stock Exchange Act of1974 consolidated the two Exchanges under a legal andoperational framework, based in Harare. The Actgoverned the rights and obligations of members of thestock exchange and the general investing public.

At eighth place, ranked by market capitalisation,Zimbabwe is not one of the largest markets in sub-Saharan Africa. However, with 81 listed companies, theZSE has more depth and diversity than some of the

regions markets. The stocks on the exchange includefinancial, insurance, retail, construction, transport,pharmaceuticals, property, telecommunications,manufacturing and agricultural-related stocks.

There are currently two indices on the Stock Exchange;the Mining Index with four companies and the IndustrialIndex comprising of 77 companies. The indices arecalculated using a 2009 base date and are weighted bymarket capitalisation. The Industrial Index is dominatedby price movements in a few big cap stocks such as Deltawhich represents 20% of the index, Econet (19%), Innscor(8%), SeedCo (6%) and Hippo (5%).

Trading on the ZSEPresently trading is by call over, using an open-cry floorsystem on a matched bargain basis. This trading system ispaper based and settlement is on a T+7 basis againstphysical delivery of scrip (seven day settlement for bothshares and payment).

Custodial options: Barclays Nominees Stanbic Nominees Standard Chartered Bank Zimbabwe Limited Three Anchor Investments T/A Old Mutual

custodial Services ZB Bank Limited

Share dealing is done through stockbrokers once a day,from Monday to Friday. The call over session commencesat 10.00 hours. The financial instruments traded on theZSE are common stock, preference shares, corporatedebentures, warrants, government stocks and fixed-interest securities. However, the bulk of trades andlistings on the exchange are for common stock.


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Dealing costsThe set legislated transaction costs amount to 4.21% for abuy and sell.

ZSE Transcation costs

Buying % Selling %

Brokerage fees 1.00 1.00

Stamp duty (buying) 0.25Capital Gains Tax (selling) 1.00

Securities Commission Levy 0.18 0.18

Investor Protection Levy 0.05 0.05

VAT at 15% on Brokerage 0.15 0.15

Total costs 1.73 2.48

Total costs for both buying and selling 4.21%

Basic Charge US$2 US$2

Source: ZSE

Foreign Participation and Regulation

Foreign participation in stock market trading wasintroduced in mid-1993, following the partial lifting ofexchange control regulations. Foreign investors may holdup to 10% of any listed company without recourse toExchange Control. Collectively foreign ownership in alisted company may not exceed 40% of the issued capitalof that company. These rulings exclude holdings whichwere acquired before June 1993.

Any violation of the above limits would not seeregistration. It would be reported by the transfersecretary to both the ZSE and RBZ resulting in a directivefrom the RBZ to the investor to sell any excess holding.

Fungibility is permitted for some dually listed companies,such as Old Mutual and PPC.

Patience is a virtue when trading emerging marketsIn the last 12 months the ZSE turned over US$ 0.4bn invalue or 10% of total market capitalisation. Given the sizeof the market, patience is generally required to build aposition, equally so when fund managers want to sell.The market is characterised by high levels of localinstitutional investors who are relatively inactive,compounding the liquidity problem.

Key ZSE Statistics

1995 1996 1997 2008* 2009 2010 2011

Market Cap US$b 2.1 3.9 5.7 4.2 3.9 4.2 4.0

Average da ily turnover US$ '000 549 942 1,264 1,225 1,859 1,555 1,905.9

Annual turnover US$m 150 245 329 311 437 392 477.4

Number of listed companies 64 64 65 81 81 81 81.0

Market cap as % of GDP 21 58 66 86 75 67 44.9

*based on OMIR Source: IES, ZSE

For 2011, total value traded amounted to US$ 477.4mon 4.7bn shares; up from 2010s US$ 392.0m on 6.2mshares (implying higher value shares were mainly tradedin 2011). Net foreign activity amounted to US$ 77.2m(16% of market activity) on 1.4bn shares with net buyingat US$ 190.7m whilst net selling totalled US$ 152.1m.The market cap was at US$ 3.8bn up from US$ 3.7bn.

Year to date, value traded amounts to US$ 159.0m on1.4bn shares. The net foreign activity at US$ 38.0m

constitutes 24% of total value traded, on 513.8m shares.

-

20

40

60

Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12

MillionsofUS$

Monthly value traded US$mFeb 09 - Apr 12

Source: IES, ZSE

(1)

9

19

29

Aug-10 Dec-10 Apr-11 Aug-11 Dec-11

MillionsofUS$

Monthly net foreign dealing US$mAug 10 - Apr12

Source: IES, ZSE

For 2011 both the industrial and mining indices weredown with the industrial index losing 3.58% whilst themining index lost 49.75%. Although the performance was

in line with regional exchanges and some internationalindices due to the tight liquidity caused by the Eurozone crisis, the mining index was further weakened bythe local policy issues. Year to date, the indices haveweakened further with the industrial index down 10.62%whilst the mining index is down 9.51%, this is in contrastto the positive performance on the regional andinternational bourses, where the regional exchanges areup on average by 7% whilst the main internationalindices have gained an average of 5%.


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The poor performance on the local front could be attributedto inconsistency on policy pronouncements mainly relating toindigenisation and elections. For 2012, we expect someimprovement driven by improving company performance.The market capitalisation to GDP ratio declined in 2011 to36% from 45% in 2010.

0

50

100

150

200

250300

350

2/19/2009 2/19/2010 2/19/2011 2/19/2012

ZSE Industrial and Mining Indices

Industrial MiningSource: IES

Local institutions remain overweight in equitiesPresently, local institutions are overweight in equities, a

result of the hyperinflation era. We believe this will changewith the re-introduction of prescribed asset ratios. Localfund managers have to redesign their portfolios, building uptheir cash positions and diversifying away from an overexposure to equities and fixed assets. We expect this toimprove liquidity as local fund managers sell off theirholdings.

Recapitalisation remains keyDespite top line growth ahead of inflation, heavy interestcosts continue to negate positive performance in many listedcompanies. A classic case is that of PG Industries whosegearing stands at a high of 136%. Several other companiesremain hugely undercapitalised hampering earnings growth

and curtailing share price performance. Rio Zim recentlyconcluded a rights offer which should see its huge debt beingpaid, thus lowering finance costs and possibly returning thegroup to viability.

Several other companies are also carrying out corporateactivities, and although the prospects of deleveraging areattractive, other factors such as the unclear indigenisationpolicy and likelihood of elections continue to draw backsignificant progress. The economic recovery should continueand is likely to accelerate if further reforms are enacted bythe authorities. It is our view that Zimbabwe offers greatpotential as a recovery play and we urge investors to takepositions in rapidly growing, dominant, well managed and

strong cash generating companies such as BATZ, Dairibord,Delta, Econet, Innscor, OK Zimbabwe, Padenga andSeedCo.

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

ZSE 2011 Volume Traded

Source:IES

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

ZSE 2011 Value Traded US$

Source:IES

3.00

3.25

3.50

3.75

4.00

4.25

4.50

4.75

5.00

ZSE US$ Market Cap

Source:IES


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ZSE Listed Companies

Companies Analyst Y ear Shares Price Mkt cap Eps (USc) P/E (x) PBV (x) EV/EBITDA (x) OPM* (%)

end in issue (USc) (US$m) hist +1 +2 hist +1 +2 hist +1 +2 hist +1 +2 hist +1 +2 ST LT

Agricultural na 3,368.3 470.9 20.5 8.5 6.5 0.6

Ariston NSZ Sept 1,378.4 1.1 15.2 (0.5) 0.1 0.4 na 9.5 3.5 0.6 0.6 0.5 (5.3) 7.2 2.4 (13.0) 4.9 10.6 Sell Sell

Border Timbers NSZ June 42.9 10.0 4.3 11.7 8.9 9.0 0.9 1.2 1.2 0.0 0.0 0.0 (3.7) 20.1 5.3 (14.5) 2.4 7.4 H old Hold

AICO NSZ Mar 531.7 12.0 63.8 1.7 1.8 2.0 11.6 11.0 9.9 1.3 1.2 1.1 5.4 4.9 4.1 15.8 12.2 13.5 B uy BuyHippo Valley Estates NSZ Mar 193.0 100.0 193.0 4.6 9.7 15.2 18.7 8.8 5.6 0.9 0.8 0.7 16.6 8.8 5.7 12.0 14.0 18.0 B uy Buy

Interfresh NSZ Dec 487.6 0.2 0.7 (0.3) (0.5) (0.8) na na na 0.1 0.1 0.1 (3.8) (3.1) (2.6) (19.0) (24.9) (22.4) Sell Sell

Padenga Holdings NSZ June 541.6 5.5 29.8 0.7 1.3 1.5 8.2 4.2 3.7 1.0 0.9 0.7 5.2 2.8 2.4 26.2 47.1 48.6 Buy Buy

Seed Company NSZ Mar 193.0 85.0 164.1 9.0 9.5 11.8 12.4 11.7 9.5 3.1 2.6 2.2 9.7 7.8 6.3 22.3 21.5 22.3 B uy Buy

Building and Allied na 3,114.3 146.2 0.1 0.0 0.0

Lafarge NSZ Dec 80.0 55.0 44.0 3.4 4.5 5.1 20.9 15.6 1 3.8 2.8 2.3 2.0 13.9 9.5 8.9 9.7 13.0 12.0 B uy Buy

M & R NSZ Jun 214.3 6.0 12.9 0.5 1.4 1.6 24.7 9.5 8.2 1.6 1.4 1.2 10.3 5.1 4.5 4.2 5.7 6.2 Buy Buy

PGI NSZ Mar 478.3 2.0 9.6 (1.4) (0.6) (0.0) na na na 0.7 0.7 0.9 (2.1) (2.6) (27.6) (29.1) (17.5) (1.1) Sell Sell

Turnall NSZ Dec 493.0 7.0 34.5 0.7 0.9 1.0 13.0 10.4 8.7 1.7 1.6 1.4 7.4 6.2 5.3 14.3 13.8 13.9 B uy Buy

PPC NSZ Sept 15.2 260.0 39.6 7.1 7.8 9.0 29.6 26.8 23.3 24.3 24.3 25.1 13.5 13.5 13.5 34.0 37.6 39.8 Hold Buy

Radar NSZ Jun 55.4 7.0 3.9 (0.5) 0.5 0.8 na 66.4 3 9.6 0.3 0.3 0.3 6.2 8.0 14.9 12.4 8.0 3.6 H old Hold

Willdale NSZ Sept 1,778.0 0.1 1.8 (0.1) (0.0) (0.0) na na na 0.3 0.4 0.4 (3.7) (6.8) 17.8 (101.5) (41.2) (7.0) Sell SellBeverages, Hotels and Leisure na 4,305.9 1,167.3 14.2 9.8 7.4

Afdis ATC Jun 95.2 10.0 9.5 (1.0) 1.9 2.9 na 6.7 4.5 3.2 2.2 1.5 (37.9) 5.8 3.2 (3.8) 9.5 12.7 Buy Buy

Delta ATC Mar 1,192.1 70.0 834.5 6.2 7.9 10.0 11.3 8.9 7.0 3.2 2.4 2.0 7.2 5.7 4.5 17.7 18.4 19.2 Buy Buy

Innscor ATC Jun 541.6 53.0 287.0 4.8 7.1 9.6 11.0 7.4 5.5 2.5 2.8 2.2 9.8 6.5 4.0 5.6 7.5 10.3 Buy Buy

RTG ATC Dec 1,645.5 1.8 29.6 (0.1) (0.1) (0.1) na na na 1.7 1.8 2.0 (37.0) (144.3) (290.4) (7.1) (1.5) (0.7) Sell Sell

Afrisun ATC Sept 831.5 0.8 6.7 (0.6) (0.3) (0.3) na na na 0.4 0.3 0.3 (2.6) 29.3 43.0 (16.8) (3.7) (3.7) Sell Hold

Engineering na 2,270.6 33.5 -5.2 -4.6 -4.0

CAFCA NSZ Dec 8.2 50.0 4.1 15.7 17.9 24.0 4.4 3.9 2.9 0.8 0.7 0.5 2.9 2.3 1.5 10.8 10.9 12.7 Hold Buy

Gulliver NSZ Sept 554.9 0.0 0.2 (0.5) (0.8) (1.1) na na na 0.0 0.0 0.0 (0.9) (1.0) (0.8) (90.4) (88.3) (85.7) Sell Sell

Powerspeed NSZ Sept 379.2 1.4 5.3 0.1 0.1 0.1 0.2 0.1 0.1 0.0 0.0 0.0 3.0 3.0 2.9 3.0 3.0 3.0 S pec Buy Spec Buy

Steelnet NSZ Dec 538.0 0.0 0.0 - - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Susp Susp

ZECO NSZ Jan 463.3 0.2 0.9 (0.4) (0.5) (0.5) na na na 0.0 0.0 0.0 (0.2) (0.2) (0.1) (130.1) (138.4) (110.6) Avoid SellZimplow NSZ Dec 327.1 7.0 22.9 0.8 1.0 1.1 9.0 7.8 6.9 1.7 1.5 1.3 5.9 5.4 4.7 22.3 19.9 20.3 Buy Buy

Financial na 6,975 240.8 3.5 2.4 1.6

ABC ATC Dec 64.4 54.0 34.8 18.9 30.9 36.9 2.9 1.7 1.5 0.4 0.4 0.3 84.7 82.8 81.5 Accumulate Hold

Barbican ATC Dec 119.0 0.0 0.0 - - - 0.0 0.0 0.0 0.0 0.0 0.0 na na na Susp Susp

Barclays Bank ATC Dec 2,152.6 3.7 79.6 0.1 0.2 0.4 56.7 16.0 8.7 2.4 2.1 1.7 93.5 81.8 73.3 Hold Accumulate

CBZ ATC Dec 684.1 7.0 47.9 4.4 5.4 7.1 1.6 1.3 1.0 0.4 0.3 0.3 56.5 49.8 44.9 Spec Buy Spec Buy

Interfin ATC Dec 20.6 1.7 0.4 0.0 (0.2) (0.2) na na na 3.7 6.3 33.4 Sell Avoid

ZBF Holdings ATC Dec 175.2 11.5 20.1 3.3 4.7 9.2 3.5 2.4 1.2 0.5 0.4 0.3 91.3 78.0 67.3 Spec Hold

FBC Holdings ATC Dec 591.9 6.0 35.5 1.6 2.3 2.9 3.7 2.6 2.1 0.6 0.5 0.5 65.9 60.8 60.3 Spec Hold

NMB Bank ATC Dec 2,807.1 0.7 19.6 0.2 0.3 0.4 4.3 2.8 1.9 0.8 0.6 0.5 67.0 66.3 65.8 Spec Buy Buy

Trust Holdings ATC Dec 359.7 0.8 2.9 (0.3) (1.3) (1.2) na na na 0.0 0.0 0.0 Sell Sell

Insurance 1,394.5 122.6 -0.2 -0.3 -0.6Fidelity NSZ Dec 108.9 16.0 17.4 1.8 3.2 4.6 8.8 5.0 3.5 0.7 0.7 0.9 Hold Hold

AFRE NSZ Dec 217.1 6.0 13.0 (2.3) (0.3) 0.4 na na 16.8 0.2 0.2 0.2 Sell Sell

Nicoz Diamond NSZ Dec 559.5 3.0 16.8 0.3 0.3 0.5 10.3 8.6 5.9 1.4 1.2 1.0 Hold Hold

Old Mutual NSZ Dec 67.6 144.0 97.3 (9.4) (8.0) (4.0) na na na 0.5 0.6 0.6 Buy Buy

Zimre NSZ Dec 767.4 1.1 8.4 0.3 0.4 0.5 0.0 0.0 0.0 0 .0 0.0 0.0 Spec Accumulate

OPM* - for finanial companies its cost to income ratio

Recommendation


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ZSE Listed companies contd

Companies Analyst Y ear Shares Price Mkt cap Eps (USc) P/E (x) PBV (x) EV/EBITDA (x) OPM (%)

end in i ssue (USc) ( US$m) hist +1 +2 hist +1 +2 hist +1 +2 hist +1 +2 hist +1 +2 ST LT

Food na 1,269.6 168.4 -28.4 47.3 13.3

Cairns NSZ Aug 167.7 0.3 0.5 (4.9) (3.6) (3.8) na na na 0.7 0.2 0.1 (3.9) (3.9) (2.0) (19.9) (29.6) (30.1) Sell Sell

Colcom NSZ Jun 159.0 28.0 44.5 3.1 3.0 3.7 10.6 10.9 8.9 2.3 2.1 1.8 7.6 7.4 6.1 12.2 10.8 11.9 B uy BuyDairibord NSZ Dec 356.0 16.5 58.7 2.0 2.7 3.6 9.4 7.0 5.1 1.6 1.4 1.3 5.2 4.2 3.1 11.3 11.7 13.3 Buy Buy

National Foods NSZ Jun 68.4 90.0 61.6 7.3 7.3 11.1 16.1 16.1 10.6 1.9 1.4 1.1 8.9 6.5 5.1 3.5 4.2 4.8 Buy Buy

Starafrica NSZ Mar 518.5 0.6 3.1 (2.9) (2.4) (1.8) na na na 0.5 1.1 0.6 (5.0) (2.7) (2.6) (16.0) (23.0) (19.3) Sell Sell

Industrial Holding na 2,868.8 116.0 28.2 17.8 7.1

Apex ATC Oct 503.7 0.1 0.3 (0.2) 0.0 0.0 na 6.7 5.5 0.0 0.0 0.0 (1.1) 0.7 0.6 (14.6) 1.4 1.2 Sell Sell

Astra ATC Aug 139.6 3.3 4.5 0.3 0.9 1.2 5.1 1.7 1.3 0.1 0.1 0.1 1.5 1.1 1.0 5.2 6.3 6.7 Spec Spec

CFI ATC Sep 105.5 5.5 5.8 (0.7) (2.7) (0.4) na na na 0.1 0.1 0.1 (8.5) (9.4) (40.8) (2.9) (2.3) (0.4) Hold Hold

General Beltings ATC Dec 530.2 0.2 1.0 (0.4) (0.3) (0.2) na na na 0.0 0.0 0.0 0.0 (2.7) (2.9) (33.0) (16.0) (9.0) Sell Sell

Meikles ATC Mar 240.8 14.0 33.7 2.4 (0.5) 0.6 6.6 na 29.2 0.3 0.3 0.3 (134.2) 6.7 5.1 (1.8) 1.8 2.1 S pec Spec

Phoenix ATC Oct 87.5 1.0 0.9 0.1 0.1 0.1 33.6 33.3 25.9 0.4 0.4 0.4 5.2 3.8 3.1 1.0 1.4 1.4 Reduce Hold

T A ATC Dec 164.8 12.0 19.8 (3.8) (2.9) (2.1) na na na 0.4 0.4 0.4 15.8 8.8 5.5 0.6 0.6 0.6 Spec Buy Sell

TN Holdings ATC Dec 750.8 3.9 29.3 (0.1) 0.1 0.2 na 30.1 26.3 7.1 5.7 4.7 0.0 0.0 0.0 0.0 0.0 0.0 Sell Sell

T S L ATC O ct 345.9 6.0 20.8 0.3 0.5 0.6 28.7 17.7 15.6 1.5 1.4 1.4 19.9 14.7 13.1 6.1 6.9 7.1 Spec Spec

Mining na 443.4 79.9 -4.8 -4.2 -3.0

Bindura Nickel ATC Dec 126.0 3.5 4.4 (13.1) (15.1) (16.3) na na na (1.8) (0.9) (0.2) (0.3) (0.2) (0.2) (372.6) (626.0) (610.4) Sell Hold

Falgold ATC Sept 111.2 10.0 11.1 1.1 13.7 82.2 6.9 5.2 3.7 0.0 0.0 0.0 0.0 0.0 0.0 4.9 10.6 12.4 Hold Hold

Hwange ATC Dec 166.2 26.0 43.2 3.7 5.0 7.0 na na 14.3 0.0 0.0 0.0 0.0 0.0 0.0 ( 6.9 ) (6 3. 0) 6.9 Buy Buy

RioZim ATC Dec 40.0 53.0 21.2 (5.6) (31.4) 3.7 na na na 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Hold Hold

Paper and Packaging na 1,363.0 31.1 -13.8 12.2 7.3

Amalgamated Reg iona l Trad ing ATC Sep 467.3 0.3 1.4 (0.6) (0.0) 0.2 na na 1.8 0.1 0.1 0.1 5.4 4.2 2.3 0.5 2.0 3.7 Sell Sell

Hunyani Holdings ATC Oct 319.7 7.5 24.0 0.0 0.6 0.8 172.3 10.7 7.9 1.0 0.8 0.7 (54.9) 14.5 8.2 (4.6) 0.1 1.6 Hold Buy

Zimbabwe Newspapers ATC Dec 576.0 1.0 5.8 0.1 0.1 0.2 7.7 4.9 3.8 0.4 0.4 0.3 6.0 (3.4) (1.9) (0.8) 1.0 1.3 S pec Spec

Pharmaceuticals and Chemicals na 2,814.9 2.9 -2.1 -2.3 54.2

Chemco ATC Oct 15 0.5 0.1 (5.7) (7.3) 1.3 na na 3.9 0.2 0.2 0.2 0.6 (0.2) (1.0) (5.1) (13.6) 3.3 Sell Sell

Medtech ATC Dec 2,800 0.1 2.8 (0.1) (0.0) (0.0) na na na 16.3 51.7 (49.5) 123.9 80.7 61.0 (1.5) (1.0) (0.9) Sell SellRetail stores na 5,417.8 148.0 26.3 10.0 5.2

Celsys NS June 1,599.6 0.1 1.3 (0.1) (0.1) (0.1) na na na (0.4) (0.2) (0.1) (2.3) (4.0) (5.1) (64.2) (26.3) (17.9) Sell Sell

Edgars Stores NS Jan 282.7 7.3 20.5 0.8 1.3 1.9 11.7 6.9 4.7 6.1 3.2 1.9 9.7 5.4 4.0 11.9 15.1 15.7 Add Buy

OK Zimbabwe NS Mar 1,020.9 10.0 102.1 0.4 0.8 1.3 25.7 12.3 7.6 2.6 2.2 1.7 11.7 6.5 3.6 2.1 3.4 4.8 Buy Buy

Pelhams NS Mar 995.6 0.6 5.5 0.0 0.0 0.3 69.5 30.0 2.5 3.0 2.6 1.2 13.9 11.5 2.5 8.5 9.4 35.0 S ell Sell

Redstar NS Mar 1,145.3 0.0 0.0 - - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Susp Susp

Truworths NS Jun 373.6 5.0 18.7 0.5 1.0 1.3 19.7 9.8 7.1 9.7 5.7 3.7 14.9 11.2 7.7 10.1 12.2 13.4 Hold Buy

Tobacco na 17.4 37.4 7.7 4.3 4.1

BAT Zimbabwe ATC Dec 17.4 215.0 37.4 28.1 41.8 43.4 6.4 4.3 4.1 3.7 3.5 3.3 4.9 3.6 3.5 16.0 16.0 13.3 Buy Buy

Technology na 171.6 694.8 4.2 3.5 3.1

Econet ATC June 171.6 405.0 694.8 97.8 115.8 132.9 4.1 3.5 3.0 1.8 1.3 1.0 2.8 2.6 2.1 40.0 40.2 40.1 B uy Buy

Transport na 463.5 23.5 -535.9 8.3 5.7

Pioneer ATC Dec 55.0 2.5 1.4 (2.8) 0.8 1.0 na 8.7 6.9 0.9 0.8 0.7 (21.5) (19.6) (18.1) (1.6) (1.6) (1.6) Sell Sell

NTS ATC Dec 253.8 2.0 5.1 0.1 0.3 0.5 23.6 11.8 6.9 2.2 1.9 1.5 (54.3) 12.3 6.3 (2.7) 6.6 10.7 Hold Buy

TPH ATC Aug 154.7 11.0 17.0 0.8 1.2 1.6 11.2 7.6 5.5 1.0 0.9 0.8 0.0 0.0 0.0 3.9 4.7 5.4 Hold Buy

Property na 7,271.1 105.8 2 3 4

Dawn Properties NS Mar 2,457.2 0.7 16.0 0.5 0.0 0.0 1.3 23.0 13.9 0.2 0.2 0.2 713.1 15.4 10.1 0.4 15.9 19.9 Hold Hold

Mashonaland Holdings NS Sep 1,859.1 2.0 37.2 1.3 0.3 0.3 1.5 7.5 6.0 0.4 0.4 0.4 0.6 0.9 1.3 61.0 63.9 66.9 Buy Buy

Pearl Properties NS Dec 1,238.2 2.8 34.7 1.3 1.5 0.5 2.1 1.8 5.4 0.4 0.3 0.3 6.2 6.5 7.2 56.5 53.0 50.2 Buy Buy

Zimre Properties Investments NS Dec 1,716.7 1.1 18.0 0.3 0.4 0.5 2.9 2.8 2.2 0.4 0.3 0.3 (0.2) 0.2 0.4 39.1 48.8 57.0 B uy Buy

Recommendation


15/73

15

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

0

5

10

15

20

25

30

35

Feb-09 Oct-09 Jun-10 Feb-11 Oct-11

AICO Africa: Price vs Volume

Middle Price USc LHS To tal Volume (m) RHS

Beneath complexity lies hidden valueThe AICO share price has remained weak as the deadlock ofarrangements for a possible capital injection slackenedinterest in the counter. Consequently, concerns over thegroups high borrowings and net finance costs haveresurfaced. The company is likely to benefit from the firmcommodity prices, although the cancerous finance costswill continue to garner a large portion of the gain. Thegroup however still has its invaluable business portfolio andthrough the cash-cow SeedCo, upcoming Cottco and debtrestructuring we expect an improved performance as thedebt issue is addressed.

Increasing sales volumesGroup sales volumes for H1 2012 increased 19% y-o-y asseed business sales volumes grew 63%, cotton businesssales volumes increased 15% and FMCG volumesdeclined 19%. The FMCG business was negativelyimpacted by working capital constraints and capacityutilisation remained low averaging between 25% and30%.

Steady market share despite decline in nationaloutputThe national cotton crop declined by 10% to 242,000tonnes and AICOs intake declined by 7% to 103,224tonnes although market share improved to 43% from41%.

Attractive valuationUsing a S.O.P valuation approach, we derived a valueof US 36c, implying 140% upside potential to thecurrent price of US 15c. AICO remains undervalued ona sum of parts (S.O.P). BUY.

Source:IES

BLOOMBERG: AICO:ZH BUY

Current price (USc) 15.0

Target price (USc) 36.0

Upside/Downside (%) 140.0

Liquidity

Market Cap (US$m) 79.7

Shares (m) 531.7

Free float (%) 37.7

Ave. daily vol ('000) 309.2

Share price performance

6 Months (%) (31.8)

Relative change (%)* (19.7)

12 Months (%) (16.7)


*Relative to ZSE Industrial Index

Financials (US$m) - FY 31 Mar 2011 2012F 2013F

Turnover 210.6 278.0 296.1

EBITDA 41.1 41.9 42.7

Net finance income (17.2) (15.3) (14.2)

Attributable earnings 8.9 9.4 10.4

EPS (USc) 1.7 1.8 2.0

DPS (USc) 0.0 0.0 0.0

NAV/share (USc) 15.2 16.3 17.1

Valuation Ratios

PBV (x) 1.0 0.9 0.9

PER (x) 8.9 8.5 7.7

EV/EBITDA (x) 3.1 3.0 3.0

EBITDA margin (%) 12.3 19.4 15.3

Dividend Yield (%) na na na

Earnings Yield (%) 11.2 11.8 13.1

Gearing (%) 39.4 85.4 71.2

RoaA (%) (2.0) 0.5 1.8

RoaE (%) (5.2) 1.2 3.8

STRENGTHS WEAKNESSES

Diversified business Input scheme recoveries

Dominant market share

Strategic Partneships

Strong management team

OPPORTUNITIES THREATS

Continued regional expansion Competition from new entrants

New products for FMCG business i.e. the Chinese

Improving disposable incomes Volatile international lint prices

SI 142 ensures favorable recoveries Drought

EQUITY RESEARCH

ZIMBABWE

AGRICULTURE/FMCG


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16

AICO Shareholding - 30/12/11

Shareholder # of Shares (m) % of Total

1 NSSA 101.9 19.1%

2 Old Mutual Life As surance Co. Zim Ltd 72.2 13.5%

3 Burket Associates Limited NNR 40.3 7.5%

4 Barclays Zimbabwe Nominees (Pv t) Ltd 35.9 6.7%

5 Caperal Limited NNR 27.1 5.1%

6 Barclays Zimbabwe Nominees (Pv t) Ltd 26.5 5.0%

7 NSSA (W.C.I.F) 16.1 3.0%

8 Stanbic Nominees (Pvt) Ltd 12.8 2.4%

9 Old Mutual Zimbabwe Limited 10.2 1.9%

10 Fed Nominees (Pvt) Ltd 10.2 1.9%

Nature of businessAICO Africa Limited is an integrated agro-industrial conglomerate. Thegroup wholly owns Cottco, which with nine ginneries, constitutes theginning operations of the group. AICO also holds a 51% stake in SeedCoLimited, which in turn holds a 100% interest in Quton Seed Company, acotton planting seed production house. The group also has a 49% stakein Olivine Holdings and a 75% interest in Scottco.

Overview of H1 2012 resultsAICO posted improved financials driven by a strong performance fromthe Cotton business which benefited from the firm lint prices. TheCotton business contributed 65% to group revenue from 45%, seedbusiness 25% from 36% and FMCG 8% from 13%. The medium termtarget for revenue contribution is 33% from each division.

EBITDA margins recoveringEBITDA margins recovered to 13.8% as the cotton business recordedEBITDA of US$ 16.5m, seed business US$ 2.4m, FMCG US$ 0.2m andspinning, a loss of US$ 0.9m. Group operating profit of US$ 8.5m wasnegatively impacted by impairments of US$ 5.2m of which US $3.0mrelates to investment in subsidiaries (mainly Scottco) and US$ 1.4mcotton business inventories.

Finance charges increased with approximately US$ 10.0m in thecotton business as the producer price doubled. The cotton businesshowever contributed US$ 4.6m to group PAT from a loss of US$ 5.6m,the seed business a loss of US$ 1.4m, FMCG a loss of US$ 3.4m versusUS$ 1.3m and spinning a US$ 1.6m loss from a loss of US$ 0.6m.

Cash flows were strained due to increased working capitalShort-term borrowings increased to US$ 162.0m from US$ 119.0m andthe average cost was approximately 10.8%. The borrowings areexpected to wind down to approximately US$ 50.0m by FY 2012 withabout US$ 30.0m in the cotton business.

OutlookManagement anticipates a marginal increase in group sales volumes forFY 2012 mainly impacted by the FMCG business. Nonetheless, thecotton and seed businesses are expected to post significant earningsgrowth. Recoveries in the cotton business for the out grower schemehave recovered to average above 90%. The FMCG business is expectedto turn to profit in FY 2013. The disposal of Exhort is nearingcompletion while Scottcos disposal has remained problematic and islikely to be closed.

Valuation and RecommendationAICO remains undervalued by the market on a sum of parts (S.O.P)basis. AICOs 51% stake in SeedCo is currently valued at US$ 88.6m.This value is in actual fact greater than AICOs current marketcapitalisation of US$ 79.7m. The market has somewhat missed the cueas it also means that the value of the other businesses (Cottco, Olivineand Scottco) are not being factored in.

Using a S.O.P valuation approach, we derived a value of US 36c,implying a 140% upside potential to the current price of US 15c. BUY.

AICOH12012 resultsI ncome Statement (US$ '000) H1 2011 H1 2012 % change

Turnover 53,082.0 115,021.0 116.7

EBITDA (500.0) 15,900.0

PBIT (4,173.0) 8,591.0

Net finance income (8,170.0) (13,337.0) 63.2

PBT (11,706.0) (4,086.0) (65.1)

Attributable earnings (10,060.0) (4,105.0) (59.2)

EPS (USc) (1.82) (0.74) (59.3)

Balanc e S heet (US$ '0 00 ) FY 201 1

Total Assets 251,735.0 350,263.0 39.1

NAV 80,595.0 83,808.0 4.0

Current Assets 146,620.0 238,186.0 62.5

Current Liabilities 101,716.0 200,236.0 96.9

Current ratio 1.4 1.2 (17.5)

Cash flow (US$ '000) H1 2011

Operating activities (63,337.0) (76,406.0) 20.6

Investing activities (6,599.0) (9,006.0) 36.5

Financing activities 44,515.0 57,718.0 29.7


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17

AICO- 5 YEAR CGR COMPARISON

31 MAR (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F

Balance sheet

Shareholders' equity 16.3 5.4 82.6 85.7 82.5 80.6 86.7 91.0

Minority interests 4.2 3.5 17.9 29.6 32.1 36.0 43.9 44.8

Total shareholders' funds 21.3 10.3 136.9 154.9 114.6 135.3 144.2 149.4

Interest Bearing Debt 33.5 7.2 15.4 40.7 57.3 115.6 102.7 95.6

Trade creditors 8.0 1.0 5.6 9.3 40.1 0.0 0.0 0.0

Current Liabilities 44.9 2.7 7.5 17.4 52.8 0.8 2.0 1.7

Total Liabilities and equity 67.2 20.2 159.8 212.9 224.7 251.7 248.8 246.7

Fixed Assets 4.7 6.8 126.1 132.8 116.8 104.2 105.2 110.5

Investments 0.0 0.0 0.8 2.0 0.7 0.4 0.8 0.2

Stock - Trade net 11.2 5.7 10.1 29.6 37.4 0.0 0.0 0.0

Debtors 13.7 5.6 18.9 30.8 29.9 0.0 0.0 0.0

Cash at bank 31.4 1.4 1.5 5.7 12.2 0.0 0.0 0.0

Current Assets 62.5 13.4 32.9 78.2 107.1 147.2 142.8 136.0

Total Assets 67.2 20.2 159.8 212.9 224.7 251.7 248.8 246.7

Income Statement

Turnover 67.5 47.4 145.0 120.7 162.9 210.6 278.0 296.1Gross profit 2.8 31.0 94.6 83.4 57.7 86.4 80.6 91.8

EBITDA 33.5 34.8 40.0 41.3 40.8 41.1 41.9 42.7

Net finance income 0.0 8.0 (6.7) (9.0) (10.8) (17.2) (15.3) (14.2)

Profit before Tax 22.5 27.4 61.6 16.8 4.9 20.0 18.7 25.7

Taxation 0.0 7.5 13.2 2.9 0.3 1.5 1.4 6.4

Profit after Tax 22.5 19.9 46.0 15.3 4.5 18.6 17.4 19.3

Minorities 0.0 1.8 10.7 7.6 6.7 8.5 8.0 8.9

Attributable Income 31.1 19.8 35.3 7.8 -4.3 8.9 9.4 10.4

Weighted shares 531.7 531.7 531.7 531.7

EPS (USc) 5.8 3.7 6.6 1.5 (0.8) 1.7 1.8 2.0Cash EPS (USc) 5.8 3.7 6.6 1.5 (0.8) 1.7 1.8 2.0

DPS (USc) 1.2 0.0 5.1 0.0 0.0 0.0 0.0 0.0

NAV per share (USc) 3.1 1.0 15.5 16.1 15.5 15.2 16.3 17.1

Growth Ratios

Sales growth (%) (58.81) (29.73) 205.68 (16.75) 34.97 29.32 32.00 6.50

Pre-interest profit growth (%) (32.94) (13.64) 251.83 (60.59) (52.45) 160.07 2.31 17.43

Earnings growth (%) (5,697.84) (36.18) 78.24 (78.00) (154.93) (309.51) 4.98 10.96

Margins

Gross margin (%) 4.1 65.4 65.2 69.1 35.5 41.0 29.0 31.0

EBITDA margin (%) 33.3 43.6 51.5 28.8 12.3 19.4 15.3 16.6

Pre-interest margin (%) 33.3 40.9 47.1 22.3 7.8 15.8 12.2 13.5

Interest cover (times) n/a n/a 10.2 3.0 1.2 1.9 2.2 2.8

Pre-tax profit margin (%) 33.3 57.7 42.5 14.0 3.0 9.5 6.7 8.7

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which

may not reflect a true account due to variability of exchange rates during that period.


18/73

18

Slowly but surely

Barclays Bank turned the corner to post a profit in FY 2011.This was on the back of improved efficiencies following the

two restructuring exercises as well as growth in both fundedand non-funded income. We believe that Barclays is anattractive play on the Zimbabwean economy.

Operating in the blackThe bank reported attributable earnings of US$ 1.4m asfunded incomes contribution increased to 21% of totalincome.

Superior asset qualityThe quality of the advances book remained solid withimpairments less than 1% of the book. The coverageratio improved to 552% from 250%.

Cost to income ratio to recedePost the restructuring management believe that thebanks cost structures have been optimised and focuswill be on growing income. The banks long term targetcost to income ratio is 50%. The banks opex is covered86.8% by the fee income, hence Barclays is well poisedfor significant earnings growth once the advances bookstarts to grow.

Valuations are demandingCurrent ratings are demanding versus the sectoraverage PBV of 0.8x and PER of 7.7x. Nonetheless,valuations based on earnings are fraught with high riskdue to the significant uncertainties prevailing in the

local financial sector. Traditionally, Barclays trades at apremium as it offers a perceived safe haven and due toits conservative approach to business. We believe thatBarclays is an attractive play on the recovery of theZimbabwean economy. HOLD.

Source:IES

BLOOMBERG: BARC:ZH Hol

Current price (USc) 3.

Target price (USc) 5.

Upside/Downside (%) 48.

LiquidityMarket Cap (US$m) 79.

Shares (m) 2,152.

Free float (%) 20.

Ave. daily vol ('000) 244.


6 Months (%) (26.0

Relative change (%)* (17.6

12 Months (%) (20.0

Relative change (%)* (17.6


Financials (US$m) - 31 Dec 2011 2012F 2013

Net Interest income 6.7 11.0 15.

Profit before tax 2.1 6.6 12.Attributable earnings 1.4 5.0 9.

EPS (USc) 0.1 0.2 0.

DPS (USc) - - -

NAV/share (USc) 1.6 1.8 2.

Ratios

RoaA % 0.6 1.8 2.

RoaE % 4.4 13.8 21.

PBV (x) 2.4 2.1 1.

PER (x) 56.7 16.0 8.

Cost/Income (%) 93.5 81.8 73.

Advances/Deposits (%) 27.4 27.7 30.

Earnings Yield (%) 1.8 6.2 11.

Net Interest margin (%) 3.3 4.5 5.Cost of funds (%) 1.0 1.5 2.


Strong management team High cost base

Strong parent company Breakdown in credit histories

Access to lines of credit No scope to expand regionally

Extensive network/clientele Less flexible/agile

Extensive skills pool


Technology transfer New entrants into the market

Recapitalisation of industry High credit risk

and commerce Indegenisation

Huge credit appetite from pvt Systemic risk

sector Domestic disintermediation

0

1

23

4

5

-

3

6

9

May-11 Sep-11 Jan-12 May-12

Barclays - volume vs price

Vo lu me (m) RHS Price (USc) L HS

EQUITY RESEARCH

ZIMBABWE

BANKING


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19

Barclays shareholding - 31 December 2011

Shareholder # of shares (m) %

1 Afcarme Zimbabwe Holdings 1,457.3 67.7%

2 Old Mutual Life Assurance A 173.3 8.0%

3 Stanbic Nominees P/L- NNR 113.5 5.3%

4 Old Mutual Zimbabwe Ltd 76.0 3.5%

5 Barclays Zimbabwe Nominee 63.6 3.0%

6 Barclays Zimbabwe Nominee 52.9 2.5%

7 Fed Nominees (Pvt) Ltd 27.1 1.3%8 Mining Industry Pension Fun 14.8 0.3%

9 Communication and Allied P 8.4 0.4%

10 Guramatunhu Family Trust 8.0 0.4%

Nature of businessBarclays is a world-class bank and one of the leading commercialbanks in Zimbabwe. The bank operates 43 ATMs from an installedcapacity of 76 and, 36 branches which are located in the largecommercial centres, with the other branches dotted around thecountry. Barclays commands approximately 8% and 3% marketshare, in terms of deposits and total lending respectively,employing a total of 619 employees.

Overview of FY 2011 resultsOperating in the blackBarclays Bank turned the corner to post attributable earnings ofUS$ 1.4m from a loss of US$ 1.3m. This was on the back ofimproved efficiencies following the two restructuring exercises aswell as growth in both funded and non-funded income. The totalcost of the restructuring amounted to approximately US$ 14.0mand total savings are estimated at approximately US$ 3.3m peryear.

Strong improvement in marginsNII surged by a healthy 140.3%, albeit off a low base to US$ 6.7msupported by a 36% increase in advances and expansion in netinterest margin to 3.5% from 1.7%, mainly triggered by the lowfunding costs. We estimate that Barclays loan spreads hoveredaround the 5%15% region. The NII contribution to total incomeimproved to 21.0% from 10.9% in FY 2010.

Traction in multiple fee income streamsAdjusted non-funded income accelerated 11.3% to US$ 25.8m onincreased transactional volumes and comprised ledger fees of33.3% (vs 26.8% in the prior period), cash withdrawal fees 30.0%(31.3%), other fee & commission income 23.5% (26.6%) and forexincome 10.3% (13.0%). Transaction volumes increased to over4.0m, from 3.3m in FY 2010 on the back of a 19.2% increase inaccounts to 155,000 as well as the launch of new products.

Cost to income ratio declinedThe adjusted cost to income ratio improved to 92.9% from 105.7%.Although the bank remained very conservative, adjusted opex wascovered 86.8% by non-funded income. Staff costs comprised 54%of total opex. Post the restructuring the banks opex has beenoptimised.

Superior asset quality maintainedThe balance sheet increased 13.6% to US$ 260.0m on the back of a35.6% and 16.7% growth in advances and deposits, respectively.The quality of the advances book remained solid with impairmentsless than 1% of the book. The coverage ratio improved 552% from250%. The capital adequacy ratio was 19% against a regulatoryminimum of 10%. Liquidity was also high with a liquidity ratio of69%. Return on shareholder funds was low at 4.0% reflecting thebanks reluctance to take on risk assets.

OutlookCost to income ratio to continue to improvePost the restructuring, management believes that the banks coststructures have been optimised and focus will be on growingincome. We estimate that the banks CIR will ease toapproximately 75% in FY 2012 before receding further to about60% in FY 2013. The banks long term target cost to income ratiois 50%. The banks opex is 86.8% covered by fee income, henceBarclays is well poised for significant earnings growth once theadvances book starts to grow.

Agriculture 27%Light & Heavy Industry 41%

Transport & Distribution 9%

Trade & services

16%Personal loans 7%

Loan book

Source: IES, Company


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20

BARCLAYS - 5 Y EAR CGR COMPARISON

31 DECEMBER (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013Fa ance ee


Deposits and current accounts 52.4 20.9 116.8 122.3 183.2 213.7 253.2 287.4

Current and other liabilities 7.1 2.4 22.6 14.9 14.8 12.8 12.4 12.1

Total Liabilities 59.6 23.4 139.4 137.1 198.0 226.5 265.6 299.6

Liabilities and shareholders' funds 73.3 27.9 165.6 169.3 228.9 260.0 304.1 347.2

Fixed assets 7.7 5.0 18.4 21.2 21.9 21.1 22.8 25.1

Total cash and short term funds 37.5 16.2 67.3 46.5 61.0 78.2 98.2 103.5

Total advances and acceptances 9.7 6.4 2.8 20.3 43.1 58.5 70.2 87.8

Total operating assets 65.5 22.9 132.0 131.8 190.9 222.3 264.4 305.0

Total assets 73.3 27.9 165.6 169.3 228.9 260.0 304.1 347.2

Income Statement

Net interest income 44.5 22.1 0.4 1.2 2.8 6.7 11.0 15.8

Non funded income 6.2 1.6 5.1 16.4 29.7 33.5 29.5 33.2

Total operating income 50.7 23.8 5.5 17.5 32.5 40.2 40.5 49.0

Total Expenses 19.0 10.1 0.9 16.9 34.3 38.1 33.9 36.8

Operating profit 31.8 13.6 4.6 0.6 (1.9) 2.1 6.6 12.2

Associate income

Profit before Tax 31.8 13.6 19.6 0.6 (1.9) 2.1 6.6 12.2

Taxation 11.7 5.0 6.9 (0.9) (0.6) 0.7 1.7 3.0

Profit after Tax 20.2 8.6 12.7 1.5 (1.3) 1.4 5.0 9.1

Adj.Attributable Income 20.2 8.6 3.0 1.5 (1.9) 1.4 5.0 9.1

Weighted shares 2,152 2,152 2,152

Adj. EPS (USc) 0.9 0.4 0.1 0.1 (0.1) 0.1 0.2 0.4

DPS (USc) 0.2 0.0 - - - - - -

NAV/share (USc) 0.6 0.2 1.2 1.5 1.4 1.6 1.8 2.2

Growth Ratios

NII growth (%) (34.1) (50.3) (98.0) 164.3 143.1 140.3 64.1 43.4

Op exp growth (%) (34.0) (46.6) (90.7) 1,701.7 102.9 10.9 (10.9) 8.6

PBT growth (%) (42.2) (57.2) 43.7 (96.9) (403.0) (214.3) 212.5 84.0

Eps growth (%) (41.3) (57.3) 48.0 (88.5) (187.2) (210.1) 253.5 84.0

Deposit growth (%) (52.0) (60.1) 458.5 4.7 49.9 16.7 18.5 13.5

Advances growth (%) (56.9) (33.5) (56.8) 632.5 112.1 35.6 20.0 25.0

Net Asset Growth (%) (25.5) (66.7) 471.9 22.8 (3.9) 8.4 14.8 23.7

Profitability/Efficiency (%)

Adj. Non-interest income:total income 12.3 6.8 92.1 93.4 91.4 83.3 72.8 67.7

Net Interest Income/Assets 60.7 79.3 0.3 0.7 1.2 2.6 3.6 4.6

Return on ave Assets 18.7 17.0 13.2 0.9 (0.6) 0.6 1.8 2.8

Return on Equity 125.2 93.9 82.8 5.0 (4.0) 4.4 13.8 21.2

Costs/Income 35.7 39.9 16.8 98.4 104.7 93.5 81.8 73.3

Costs/Assets 16.8 18.7 1.0 10.3 17.1 15.4 11.8 11.0Asset Management Measures (%)

Net Interest Margin 43.1 50.1 0.6 0.9 1.7 3.3 4.5 5.6

Cost of funds 35.5 17.5 0.0 0.9 1.0 1.0 1.5 2.1

Loan/Deposit ratio 18.4 30.7 2.4 16.6 23.6 27.4 27.7 30.5

Shareholder Equity:Advances 142.4 71.3 943.0 158.1 71.6 57.3 54.8 54.2

Equity/Assets 18.8 16.4 15.8 19.0 13.5 12.9 12.7 13.7

account due to variability of exchange rates during that period.

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true

Management is targeting a 14% growth in total incomein FY 2012. We believe that the income growth can beaccelerated once the bank moves from therestructuring and rationalisation phase. The drive toE-channel is expected to result in improvedefficiencies enabling the bank to ramp up income onthe launch of profitable products.

Valuation and RecommendationBarclays remains expensive from a valuation point of

view despite the improved performance recorded in2011 as it is trades at significant premiums to the

sector average PBV of 0.8x and PER of 7.7x.Nonetheless, investors should note thatvaluations based on earnings are fraught withhigh risk due to the significant uncertaintiesprevailing in the local financial sector. In ourview, the valuations can quickly unwind if theoperating environment changes substantially.

Key attractions for Barclays include the superiorasset quality, extensive low cost deposit base,which will generate substantial funded revenuestreams in the years to come. We recommend aHOLD for long-term investors.


21/73

21

A strong puff of smoke

BATZ is the dominant cigarettes distributor inZimbabwe with a market share of 73% of the smokingpopulation in a market estimated to consumeapproximately 2.5 billion sticks a year. The companysflagship brand, Madison, continues to record strong

growth. We believe that BATZ is well placed to benefitfrom the steady increase in consumption expenditurelikely to emanate from a young population in a growingeconomy.

Dominant market shareBATZ holds a dominant market share estimated at73% of the Zimbabwean market. This is largely dueto the prohibitive set-up costs of production,

marketing and distribution functions. Smokers arenotorious for their strong brand loyalties and newplayers would incur significant advertising costs.

Strong cash generationCash generation was strong with net operating cashflow of US$ 5.1m, implying a cash interest cover of12.5x. Net gearing significantly improved to 43%from 90%.

Strong distribution networkBATZ has a strong countrywide distribution networkoperating out of five depots in Harare, Bulawayo,Gweru, Mutare and Masvingo, with outlying areas

being serviced by third parties.

Generous dividend policyThe companys dividend policy of paying out 100% ofnet earnings and a high dividend yield (c14% in FY12) provides attractive returns to investment.

Ratings are undemandingRatings are undemanding at a historic PER of 6.4xand PBV of 3.7x. Return on shareholder funds (RoaE)and asset utilization (RoaA) are impressive at 71%and 15%, respectively. The company has a generousdividend policy. BUY.

BLOOMBERG: BATZL:ZH BUY

Current price (USc) 215.0Target price (USc) 250.0


Liquidity


Shares (m) 17.4

Free float (%) 17.4



6 Months (%) 34.4

Relative change (%)* 49.6

12 Months (%) 19.4

Relative change (%)* 49.2


Financials (US$m) - FY 31 Dec 2011 2012F 2013F

Turnover 39.8 54.7 67.0

EBITDA 6.4 8.8 8.9

Net finance income (0.4) (0.5) (0.4)


EPS (USc) 28.1 41.8 43.4

NAV/share (USc) 48.8 51.9 55.1

DPS (USc) 26.0 38.7 40.2

Valuation Ratios

Volume (m) 1,650.0 1,450.0 1,595.0

PER (X) 7.7 5.1 5.0

PBV (X) 4.4 4.1 3.9

EV/EBITDA (x) 6.4 4.7 4.6

Earnings Yield (%) 13.1 19.4 20.2

Dividend Yield (%) 12.1 18.0 18.7

Gearing (%) 42.6 30.5 16.5

RoaA (%) 15.3 19.5 18.0

RoaE (%) 70.6 83.0 81.1


Market leader Low disposable incomes

Strong brand Energy disruptionsStrong cash generation Commodities driven

Strong dis tribution network

Strong management


New products Commodity price shocks

Economic recovery Not a dominant manufacture locally

Well established competition

Source: IES

-

25,000

50,000

75,000

100,000

125,000

-

50

100

150

200

250


BAT - volume vs price

Vo lu me RHS Price (USc) LHS

EQUITY RESEARCH

ZIMBABWE

TOBACCO/FMCG


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22

BATZ Shareholding - Jan 2011

Shareholding No. shares %

1 B.A.T International Holdings (UK) Limited 9.9 57.0%

2 Old Mutual Life Assurance Co Zim Ltd 3.1 17.6%

3 FED Nominees (Private) Limited 1.1 6.6%

4 Barclays Zimbabwe Nominees (Pvt) NNR 0.4 2.5%

5 Barclays Zimbabwe Nominees (Pvt) Ltd NNR 0.3 1.5%

6 Old Mutual Zimbabwe Limited 0.3 1.5%

7 RM Insurance Company Limited 0.1 0.7%

8 Barclays Zimbabwe Nominees (Pvt) NNR 0.1 0.4%

9 Delta Beverages Pension Fund 0.1 0.4%

10 Stanbic Nominees (Pvt) Ltd 0.1 0.4%

Nature of businessBAT processes tobacco products mainly for the domestic market withexports being cut rag tobacco to Mozambique. The companymanufactures approximately 1.8bn cigarettes. BATZs maincompetitor, Savvanna is the largest manufacturer of cigarettesalthough the bulk of its production is exported. The companymarkets both Global Drive Brands (e.g. Dunhill & Newbury) and localbrands like Madison, Everest, Kingsgate and Berkleley. Madison is theflagship brand contributing about 67% of volumes.

Overview of FY 2011 resultsA stellar performanceIn FY 2011, BAT reported a stellar set of financials on the back of astrong growth in volumes (+41% y-o-y to 1.7 billion sticks) andimproved margins. Sales volumes for the main stream brand, Madisongrew strongly at 61%.

Good margin businessImproved production efficiencies, cost management and the changein the sales mix aided margins as GP margins surged to 46% from 31%and operating margins widened to 18.5% from 0.8%, resulting inoperating profits increasing 40x. A generous final dividend of US$0.16 was declared, implying a cover of 1.1x and dividend yield of

15.6%.

Solid balance sheetCash generation was strong with net operating cash flow of US$5.1m, implying a cash interest cover of 12.5x. Net gearingsignificantly improved to 43% from 90%. Trade debtors weresignificantly down to US$ 4.9m from US$ 12.8m. In addition, stockturnover reduced significantly from 90 days to only 20 days reflectingan efficient inventory management system.

OutlookWhile margins in the cigarette manufacturing business are relativelyhigh, the market is very price sensitive. Excise duties in Zimbabweare high for a developing country, and with the Government revenue

inflows remaining under pressure, are unlikely to be reduced in theforeseeable future. For FY 2012 volumes are expected to decline byapproximately 12% due to the price increases effected in December2011.

The increase in awareness of the health risks associated withsmoking has resulted in a decline in cigarette consumption in thedeveloped world while statistics from W.H.O have shown that theopposite is true for most developing nations in Southern Africa. Thetolerant attitude of Zimbabweans in general towards smoking, brandloyalty, considerable barriers to entry and the habit-forming natureof cigarette smoking are all factors that help insulate the industry.

Input cost increases are a particular concern. Leaf tobacco makes up

40% of the non-excise cost of production. Worldwide shortages haveseen prices on the local auction floors rising strongly by xx%. The fulleffects of this have not yet been felt by BATZ, as this leaf will onlycome into production during FY 2013.

Valuation and RecommendationCigarette demand is closely linked to GDP levels, and BATZs longterm growth is therefore dependent on economic growth. BATZ hasstrong brands and a solid distribution network. Margins are set toexpand on improved production efficiencies and effective


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distribution.

Ratings are undemanding at a historic PER of 6.4x andPBV of 3.7x. Return on shareholder funds (RoaE) andasset utilisation (RoaA) are impressive at 71% and 15%,respectively. The company has a generous dividendpolicy.

BATZ is a well managed, strong cash generatingcompany operating in one of the most profitablesectors in the economy. Its growth record andstrong balance sheet warrant above averageratings. BUY.

BATZ - 5 Y EAR CGR COMPARISON

28 FEBRUARY (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013FBa ance S eet


Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total shareholders' equity 2.1 0.1 66.1 8.3 7.6 10.6 10.9 11.3

Interest Bearing Debt 0.0 0.0 0.0 3.9 5.9 5.9 5.3 4.5

Trade creditors 2.3 0.7 0.1 8.2 10.1 14.1 19.4 24.0

Current Liabilities 3.9 0.9 0.5 8.7 19.9 15.5 21.1 26.1

Total Liabilities and equity 6.0 0.9 66.6 20.9 33.4 31.9 37.3 41.8

Fixed Assets 0.2 0.0 0.0 9.3 8.8 9.6 9.6 9.6

Investments 0.8 0.3 65.3 0.3 0.2 0.6 0.6 0.6

Stock - Trade net 1.0 0.1 0.0 2.9 10.5 14.6 19.1 22.0

Debtors 3.7 0.4 0.0 8.0 12.8 4.9 5.5 6.8

Cash at bank 0.3 0.0 1.3 0.5 1.1 2.2 2.5 2.9

Current Assets 5.0 0.6 1.3 11.3 24.4 21.7 27.1 31.7

Total Assets 6.0 0.9 66.6 20.9 33.4 31.9 37.3 41.8

Income Statement

Turnover 14.7 4.3 0.0 15.1 22.9 39.8 54.7 67.0

PBIT 7.3 0.1 0.0 -0.5 -0.2 6.4 8.8 8.9

Other income 0.1 0.3 0.0 0.9 0.4 1.0 1.1 1.2

Profit before Tax 9.5 0.6 0.0 0.2 -0.3 6.9 9.4 9.7

Taxation 3.7 0.2 0.0 -0.1 0.2 2.1 2.1 2.2

Profit after Tax 5.8 0.4 0.0 0.3 -0.5 4.9 7.3 7.5

Minorities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Attributable Income 5.8 0.4 0.0 0.3 -0.5 4.9 7.3 7.5

Weighted shares - -

EPS (USc) 33.6 2.5 0.0 1.7 -2.9 28.1 41.8 43.4

Cash EPS (USc) 33.6 2.5 0.0 1.7 -2.9 28.1 41.8 43.4

DPS (USc) 31.6 2.4 0.0 0.0 0.0 26.0 38.7 40.2

NAV per share (USc) 12.1 0.4 305.1 35.4 30.8 48.8 51.9 55.1

Growth Ratios

Sales growth (%) (22.7) (71.1) (100.0) 50.9 74.1 37.5 22.5

Pre-interest profit growth (%) 22.7 (98.3) (100.0) (48.5) (2,822.2) 37.5 1.7

Earnings growth (%) (9.4) (92.5) (99.8) 40,592.8 (266.3) (1,078.6) 48.8 3.9

MarginsGross margin (%) 95.8 94.2 100.0 53.7 30.6 46.2 46.2 43.5

Pre-interest margin (%) 49.4 2.9 47.1 -3.0 -1.0 16.0 16.0 13.3

Interest cover (times) n/a n/a n/a -1.8 -0.5 15.7 18.4 22.8

Pre-tax profit margin (%) 64.7 15.0 2,769.5 1.6 -1.3 17.4 17.1 14.5

account due to variability of exchange rates during that period.

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a tr


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Bruised, not broken - remains on even keel

In FY 2011, Zimbabwes banking behemoth, CBZH, postedstrong net profit growth of 61% to US$ 30.2m despite thebank having faced tight liquidity constraints in the lastquarter. Strong performance of NII, and an improvementin fee and commission income coupled with costcontainment were the major profit drivers. Despite a 25%plus RoaE, the bank trades at significant discounts (10%-30%) to its peers, mainly due to the poor perception ofits asset quality. In our view, CBZH, as the largest bank inthe country by all matrices should re-rate accordingly.

Dominant positionThe group has the largest depositor base in thecountry at over US$ 830.0m and an advances book ofUS$ 790.0m, controlling 22% of total system assets,

28% of deposits and 31% of advances. The groupoperates 58 branches, 89 installed ATMs and 419 POSmachines.

Group rationalisation to improve efficienciesThe future prospects of the group are highlydependent on its ability to curb costs. The group istargeting a cost to income ratio of approximately50%.

Fee income a core focus areaCBZ Holdings is diversifying and improving its feeincome streams. CBZH views insurance products asan area of significant future growth for the group

and the ability to cross-sell non-banking products toits large customer base can aid future profitability.

Remains undervaluedOn a sum of the parts valuation we estimate a fairvalue for CBZ Holdings of US 26c per share, implying41% upside potential on the current price. In ourview, the discount is likely to narrow in the nearterm. We believe that CBZHs operations are inbetter shape than the market has given it credit for.BUY.

BLOOMBERG: CBZ:ZH BUY

Current price (USc) 7.0Target price (USc) 26.0


Liquidity


Shares (m) 684.1

Free float (%) 30.4



6 Months (%) (46.2)


12 Months (%) (60.9)



Financials (US$m) - FY 31 Dec 2011 2012F 2013F

Net Interest income 75.1 90.2 107.6

Non-interest income 48.0 55.7 63.3

Profit before tax 38.2 58.0 76.1


EPS (USc) 4.4 5.4 7.1

DPS (USc) 0.3 1.1 2.0

NAV/share (USc) 17.4 21.7 26.8

Ratios

PBV (x) 0.4 0.3 0.3

PER (x) 1.6 1.3 1.0

RoaA % 3.5 3.1 3.4RoaE % 29.4 27.8 29.4

Cost/income ratio % 57.0 49.8 44.9

Advances/Deposits % 95.2 74.6 77.8

Net Interest margin (%) 5.9 5.2 5.2

Cost of funds (%) 4.6 4.0 5.1

Earnings Yield (%) 63.1 77.5 101.8

Dividend Yield (%) 3.6 15.5 29.1


Large depositor base Exposure to government

banker to the government H igh cost/income ratio hi st.

Diversified income stream

Access to external credit lines

Well capitalised with large branch ntwk


Growth in local market on recap High cost platform

Established presence in Invest. Bnking Prolonged stretch to recapitalisation

Improving macro env. For Zimbabwe for the local economy

Recovery of public sector

Foreign lines of credit Source: IES

0

2

4

6

-

5

10

15

20


CBZ Holdings - volume vs price

Vo lu me (m) RHS Price (USc) L HS

EQUITY RESEARCH

ZIMBABWE

FINANCIAL


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CBZH Shareholding - Dec 2011

Shareholder # of shares (m) %

1 Government of Zimbabwe 110.0 16.1%

2 Libyan Foreign Bank(NNR) 96.6 14.1%

3 Africa Investments Sub 2 Ltd 92.6 13.5%

4 National Social Security Authority 73.0 10.7%

Documents

Zimbabwe Booklet May 2012