Don't ignore Zim

Sep 20 2012 07:22
Malcom Sharara

Harare - South African companies cannot afford to ignore investments in Zimbabwe any more as those brave enough to take a dive into the troubled country are already realising the benefits of their investments.

Last week National Foods, a Zimbabwean company owned 37.45% by South Africa's Tiger Brands [JSE:TBS], declared a final dividend of US1.55 cents.

The total dividend declared by the company is worth about R8.75m and Tiger Brands will cash in on its 37.45% stake.

The dividend seems pretty small considering the size of Tiger Brands, but a 1.19% yield on any investment - no matter the size - is worth it. Tiger Brands' earnings yield in South Africa is 3.10%.

Another company that took the risk to invest in Zimbabwe is Investec Limited [JSE:INL], through its Investec Asset Management's Africa Frontier Private Equity Fund.

The fund bought an 8.12% stake in OK Zimbabwe (OKZ) after underwriting a US$15m rights issue. The fund also gave a $5m convertible loan to OKZ, Zimbabwe's second-largest supermarket chain by number of stores.

The investment allowed OK Zimbabwe to recapitalise and resume operations that were ravaged by hyperinflation, among other economic ills.

Since then the company has fully recovered and started paying dividends to its shareholders, including Investec.

In its first full year of trading after the recapitalisation, the group declared a declared a final dividend of 0.21c per share payable out of the profits of the company for the year ended March 31 2011.

In the interim period to September 2011, OKZ declared a dividend of 0.15 US cents and followed this up with a final dividend of 0.35c/share for the full year to  March 2012. Ironically another South African company, Shoprite, reportedly spurned the offer to invest into OKZ.

SABMiller [JSE:SAB] is another company which is reaping huge rewards from its 35.64% stake in Zimbabwe-based beverages company Delta.

SABMiller continued to offer both technical and financial support to the Zimbabwean beverages maker and distributor throughout that country's economic turmoil.

In 2009 SABMiller's stake was 33.2%, but it has since increased to current levels as the SA-based company continues to take every opportunity to invest in Delta.

Delta has also not disappointed, declaring dividends since dollarisation. In the last two years total dividends declared by Delta amounted to 3.58 US cents per share, small by SABMiller's standards, but a good measure of the potential embedded in some Zimbabwean companies.

Tongaat Hulett Limited [JSE:TON] is also in the thick of things with its 50.32% stake in Zimbabwe Stock Exchange (ZSE)-listed entity Hippo Valley.

Hippo hasn't declared a dividend yet, but it has registered tremendous growth in operations and profitability.

Earlier this month Hippo said it expects to produce around 190 000 tonnes (2011/12: 170 000t) of sugar for the 2012-2013 season following improved yields from an increased plant area.

Edgars South Africa also has a 39.66% shareholding in ZSE-listed firm Edgars.

The Zimbabwean unit is still recovering from the ravages of hyperinflation and is now recording profits.

Turnover for the interim period to July 7 2012 grew to $25m from $20.5m in the comparable period a year ago.

Retail sales amounted to $24m against $19.5m last year. Earnings per share jumped to 0.38c up from 0.20c for the comparative period. The group might also start to declare dividends in the near future.

The good performance reported by these companies has also resulted in capital gains being recorded on the ZSE. Delta's share price has gained 7.14% since the beginning of the year, while National Foods is up 51.16% year-to-date. OKZ is up 30%. 

With returns recorded in Zimbabwe being not too bad, SA companies ignore investing in Zimbabwe at their own peril.

Even if the returns might not be big enough at the moment, the investments can be used to hedge against other investors getting into Zimbabwe ahead of SA companies.

Chinese companies are making inroads into Zimbabwe every day and it's high time that more SA companies have representation in that country.

Afrifresh has already followed suit after increasing its shareholding in ZSE-listed Ariston to 61%, after snapping up 21% of shares not taken by shareholders of the group after a rights issue.

Investec Asset Management investment principal in Zimbabwe, Richard Honey, told delegates to the Zimbabwe Pensions and Retirement Funds Investment Forum in Nyanga last month that following the global financial crisis, Africa was now offering global investors an opportunity to diversify their portfolios away from China and India.

Likewise, Zimbabwe gives opportunities based on real businesses and not leverage or financial engineering.

Yes, Zimbabwe is calling for 51% indigenisation of local companies but as shown by investments in the companies above, you do not need to own 100% to get value for your investment.

 - Fin24

*Malcom Sharara is Fin24's correspondent in Zimbabwe.

*Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.




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