LISTED agricultural concern TSL Limited is poised for a turnaround in the second half of the year, driven by anticipated increased demand for agricultural inputs due to favourable weather conditions, leading securities firm Morgan & Co has said.
This upswing is expected to propel a recovery across all strategic business units (SBUs) in the financial year 2025, marking a promising outlook for the company’s future performance.
The World Meteorological Organisation projects that Zimbabwe will likely transition from current El Niño conditions to La Niña, which typically leads to wetter conditions from August 2024 onwards.
This will likely result in a rebound in tobacco output which is currently down by 25% compared to the prior marketing season, Morgan & Co noted.
“We opine that the anticipated rebound will, in turn, ripple into TSL’s agriculture SBU as well as the logistics arm,” the securities firm said in its analysis of the TSL’s financial results for the half year to April 30, 2024.
“Further, investments in warehousing capacity, whose demand lends from other units, will also add to the group’s top and bottom line.
“We also expect cost pressures to subside given the introduction of a gold-backed currency, Zimbabwe Gold, which has been a better store of value compared to the ZWL$ [Zimdollar] since its inception in April 2024.”
Morgan & Co noted that the group’s penetration through contracted tobacco will continue to provide a cushion against lower sales volumes in the agriculture SBU in the financial year 2024.
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“Expected wetter conditions in the coming season will likely drive an uptake in agricultural inputs in the second half of the year and drive a recovery in all SBUs in FY25 [financial year 2025],” it said.
“Further, investments in warehousing capacity will add to the group’s top line while softer inflation expectations underpin a rebound in margins.”
The group operations in the agriculture SBU experienced a sales volumes decline in packaging, trading and farming largely because of lower tobacco output in the current marketing year.
The logistics SBU, however, posted a 19% growth in revenue under the new business model with end-to-end support.
Performance of the trading floors was also positive on the back of increased exposure to the growing contracted tobacco market.
Profit for the period went down to US$3,6 million from US$5,9 million recorded during the same period in the prior year.
Revenue dipped 7% to US$19,9 million.
Cost pressures, driven by inflation and the continued dollarisation of transactions, resulted in weaker margins and a 41% decline in the bottom line.
The group’s fixed assets increased by 3% due to capital expenditure, while current assets grew attributed to a 41% increase in receivables.
This was largely funded by cash as well as debt, which increased by 9%.
No interim dividend was declared.
