EDGARS Stores Limited, a clothing retailer listed on the Zimbabwe Stock Exchange (ZSE), said through its new company secretary that it is contemplating migrating to the Victoria Falls Stock Exchange (VFEX), subject to shareholder approval and the required regulatory authorisations.
If successful, Edgars will become the first clothing retailer to list on VFEX, bringing the number of total stock listings to 14, out of which 11 would be direct migrations from ZSE, thus raising inquisitions on the continued delisting from ZSE.
Over the past four years, the ZSE has shown high susceptibility to monetary policy changes within Zimbabwe, which have been inconsistent. Resultantly, the bourse has grown to be the most volatile market in the world, known to record more than -50% losses in real terms in under a week as witnessed in 2022 and 2023, respectively.
This is attributed to the highly fragile trading currency on the market, which is prone to government policy stances. In 2023, the ZSE All Share Index garnered a growth of 982% in ZWL terms, which translates to a mild 4,6% in USD terms, reflective of the currency fragility and weakness.
By mid-May of 2023, the ZSE had grown by a circa 100% in USD terms, and this was reversed by the government policy changes in May and June, respectively. The ZSE has leveraged its growth solely on money supply, as opposed to fundamental companies’ performance.
Meanwhile, the VFEX All Share Index suffered a staggering -26% decline in 2023 despite the addition of six new counters (five migrations from ZSE and one fresh listing through an IPO).
While the bourse has been faced with a liquidity constraint since inception, which has affected activity, the share prices on the market are relatively driven by company performance by virtue of trading in hard currency.
It is also important to note that the wide-margin of -26% is attributed to price rediscovery from newly listed counters, which would have migrated from ZSE based on an interbank market valuation as opposed to black market valuation, which is deemed more market driven.
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Since the beginning of 2024, the ZSE All Share Index is up 168% in nominal terms and 43% in USD terms as at the close of trades on February 9 2024. Meanwhile, the VFEX All Share Index has moved by a mild negative 0,5% over the duration.
The performance on ZSE thus far is equitable to the performance in 2022 and 2023, driven by increased supply of Zimbabwe dollar (ZWL) and vulnerable to further tightening of the currency market hence a projected recession before mid-year.
Meanwhile, the VFEX has reflected the inability to chase high margins of growth since inception, while able to preserve investor value in real terms as shown this year, hence the move from ZSE by Edgars is a viable one.
In addition, by migrating to VFEX Edgars will benefit from the ability to raise capital in the highly sort after foreign currency, while investors benefit from low financial losses risk, as well as, low transaction costs, tax incentives and exemption from capital gains.
During the dollarisation era, the Edgars stock was going for US$0,158 as at February 8, 2019, while overall market capitalisation stood at US$7,9 billion.
As at February 9, 2024, Edgars stock was valued at US$0,025, -84% down in five years, while overall market capitalisation stood at US$3,8 billion, which is -52% down in five years.
The devaluation in both the stock and overall market is mainly attributed to currency depreciation and policy changes. By migrating to VFEX, Edgars positions itself for a long-term price rediscovery given a positive shift in supply of foreign currency, while reducing vulnerability to inconsistent and regular policy shifts.
- Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — twdumah@gmail.com or tinashed@equityaxis.com, Twitter: TWDuma_
