Diving into the nuanced tapestry of Zimbabwe's economic forecast for 2024, the Ministry of Finance, Economic Development & Investment Promotion (MoFEDIP), alongside global financial titans, the IMF and the World Bank, foresee a year that may test the resilience of the average Zimbabwean. With a projected 3.5% economic growth, representing a 200 basis points dip from 2023, challenges loom on the horizon.
The conservative projection in 2024 was necessitated by a number of factors the hues of an El Nino-induced drought, waning commodity demand, and a geopolitical landscape fraught with tension. The electricity situation leaves a lot to be desired with erratic power cuts, despite the expansion of units in Hwange.
The cocktail of taxes that are no longer just a proposal but part of the Finance Act is also likely to reduce disposable incomes. Civil servants’ covid allowance will also be taxable starting this month.
Already the price of basics like bread has gone up, whilst fuel price is expected to do so as well during the year to cater for the increase in the strategic reserve levy.
Although a commitment to maintain inflation under 20%, currency devaluation will also threaten real growth in 2024. With over three-quarters of the Zimbabwean Economy now dollarised and the government extending the multicurrency regime to 2030 some of the listed companies are now considering reporting in hard currency, regardless of the exchange they are listed on.
This makes it easier to employ a top-down approach to identify counters that may perform well throughout the year.
A multi-factor research approach and valuation model that lets you fundamentally sound businesses with significant income growth potential should be the main components of your decision-making process in 2024.
That approach provides the flexibility to tilt our portfolios in favour of more stable and quickly expanding businesses like manufacturing, consumer goods, and construction — that is, industries that are currently expected to be less impacted by drought.
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Real Estate Sector
The Real Estate and construction sectors have been consistent in terms of activity and growth in Zimbabwe over the past 5 or so years.
The various government projects including roads, dams and other major infrastructural projects. On the other hand, the private sector has also put its weight through the construction of malls and houses amongst other superstructures.
Masimba Construction and Tigere REIT are exciting counters to monitor in the sector. The former has a well-diversified order book comprising of contracts in roads & earthworks, mining, housing and energy infrastructure.
The Group had an order book that was worth US$72 million in 2020, US$214 million in 2021, and US$104 million in 2022 and is evenly balanced between private and public sector projections.
The six to eighteen-month tenure of the projects give comfort that the company will be relatively stable as it executes and add more projects to the book.
Masimba also raised its rental yields from 3.5% in 2021 to 9% in 2022 by strategically refurbishing its properties.
Furthermore, a value preservation plan was put into action in 2021 by buying a land bank for US$3.6 million, and then another one for US$439 000 in 2022. This bank will be far more valuable in the next few years, making it a pure-play asset
The Tigere REIT has the opportunity to add to their asset portfolio the Phase 2 of the Highland Park and the Greenfields Retail Center.
With occupancy levels already at full capacity in the current Highland Park Phase 1 and Chinamano, the addition of the new properties only makes sense. Highland Phase 2, which is now complete is likely to added to the REIT this calendar year via a rights issue exercise.
Consumer staples sector
Consumer staples counters are usually defensive, in the sense that when the economy is in recession, economic agents cut spending on discretionary spending and stick to the basics.
In this category, Innscor and National Foods are worth eyeing, Simbisa too, although it exhibits some characteristics of a consumer discretionary counter.
Innscor has a significant shareholding in National Foods making it an associate and have integrated product offerings hence I will combine them in this article, notwithstanding the technical difference in other aspects.
An ordinary Zimbabwean is likely to consume a product from these two every day from the mealie meal to soft drinks, and we expect their defensive attribute to keep them afloat through the tough year.
Simbisa, straddling the line between staple and discretionary, embarks on a regional expansion, leveraging the real estate boom by getting to locations and opening new counters.
Simbisa is yielding $4 in revenue for every $1 invested capital, boasting a Return on Invested Capital (ROIC) exceeding 30%, surpassing what we consider to be Zimbabwe's average cost of capital.
Its strategic alliance with Ndoro Finance positions it to rival banks in the realm of money transfers, potentially venturing into credit extension
Financial services sector
Through experience, we have realised that financial services companies especially banks survive and post positive results despite the inflationary environment and tough economic conditions.
However, most banks according to 2023 numbers weighted the agriculture sector and if this trend continues they might incur losses due to repayment failure.
In this sector, CBZ is an interesting counter to keep an eye on, because of the transaction that is underway where it hopes to consolidate ZB Holdings and First Mutual.
The transaction has been on the cards since 2021 and could be concluded during the calendar year or not.
The transaction brings excitement as it will create a financial powerhouse that has the capacity to attract cheap capital and deploy it for the development of local projects. Although this thesis requires a separate article on its own, the counter remains a good one to watch for nevertheless.
Mining sector
The VFEX listed gold miners, Padenga and Caledonia are also other counters to keep an eye on.
The latter is a very illiquid one though, despite the constant and consistent dividend payments and the increase in gold production. Padenga over the past few has been shifting from being a crocodile skin manufacturer to a mining giant with the full acquisition of Dallaglio Mine as the latest stroke in that direction.
In conclusion, a multi-factor research approach that allows you to invest in fundamentally sound businesses with significant income and growth potential should be the main components of your decision-making process in 2024.
Investors should constantly concentrate on regions where they think they may gain an advantage, where irrationality is more common and mispriced assets are more likely to occur.
They should take a gorilla strategy, patiently hiding in the weeds and spotting possibilities amid the obscure and banal, instead of competing with anyone else on the market or observing what others are purchasing. True wealth is not found in the sunshine but in the shadows.
Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms. Mupanduki is a financial analyst. — sylvestermupanduki@gmail.com.
