The time on most global watches is earnings o’clock as most listed entities report their FY21 audited performance. For Africa’s copper hotspot Zambia, most listed stocks reported exceptional performance, including those with a track record of losses for the last few years. Ideally many businesses would be sub optimal in financial performance in suppressed environments such as ones homogenous across the globe as the pandemic weighed. For the Zambian bourse the Lusaka Securities Exchange (LuSE) for listed entities representing the agribusiness, banking, energy and telecoms sectors debuted in record high earnings in excess of a billion Kwacha in profits before tax. We give an insight into the stellar performance recorded in four stocks namely Zambia National Commercial Bank, Copperbelt Energy Corporation, Airtel Networks and Zambia Sugar.
Zambia National Commercial Bank head office on Cairo road in the capital Lusaka.
ZAMBIA NATIONAL COMMERCIAL BANK PLC (ISIN:0000000250)
This indigenous banking stock is indeed big strong and reliable having almost quintupled in a space of 1 year to K1.9 per share. Zanaco Plc profit before tax rose 348.0% to K1.58 billion supported by strong operational factors such as growth in credit book (31.0%), lengthened duration (32.0%) and a 23.0% expansion on deposits. Financial drivers include strong recoveries north of K62 million, 35.0% climb in total assets and a 98% increase in borrowing from the central bank targeted medium term facility (stimulus relief package) to service its clientele basis impacted by the pandemic. Zanaco Plc was market leader in all revenue lines save foreign exchange trading. Earning the tag ‘largest indigenous and most profitable bank’ in the copper producing nation, ISIN:ZM0000000250 recorded a price earnings ratio of x2.6 with an earnings per share of x0.67.
Analysts have relentlessly argued that the first K1 billion PAT bank defying all odds, is on track to be regional bank for Southern Africa in the lines of Zenith and UBA banks as is for West Africa. It is likely that the bank will be paying a decent dividend as it has always over the years. With continued risk appetite clawing back into the Zambia economy despite the constrained sovereign credit rating and a stronger digital shift induced by the COVID pandemic, Zanaco Plc is forecast to grow its client base from the current 2.5 million to propel future earnings.
Copperbelt Energy Corporation CEC Plc Head Office in Nkana East of Kitwe, on the Copperbelt of Africa.
COPPERBELT ENERGY CORPORATION PLC (ISIN:ZM0000000136)
A power transmission generation and distribution company whose profit before tax scaled 1,287% to K1.42 billion supported by a growth in mining demand but largely subsiding political risks post August 2021 after the pronounced regulation, Statutory Instrument No.15, declaring the state utility ZESCO Ltd national carrier was reversed. This gave CEC Plc a massive cue allowing for impairments release of circa the Kwacha equivalent of $90 million. The energy distributors is still owed $168 million in debt by Konkola Copper Mines from previous power supplies prior to its liquidation. The 2020 divorce with ZESCO concerning the Bulk Supply Agreement (BSA) has taken a positive turn as negotiations aimed at building a win-win for all parties have commenced. Energy outlook generally in Africa’s red metal producer is more positively skewed given steps by authorities to address much needed reforms such as conclusion of a long awaited Cost of Service Study to determine the cost reflective and optimal tariffs needed to make investment in the faculty attractive.
With a forecast mining boom supported by a more favorable tax regime after the Finance Ministry now pronounced non tax deductibility status of mineral royalties in 2022 and ahead. With mines already consuming 55.0% of power generated a mining expansion given greater exploration propensity will boost energy demand while a strong global decarbonization drive will increase appetite for renewable energy that poses an opportunity for CEC Plc through generation and funding using green bonds. At the next Annual General Meeting, the power transmitter and distributor will pay 2 cents dividend per share for a company worth 19 cents, representing over 10.5% in dividend yield.
A telecoms mast at Airtel Zambia Plc in Lusaka on Addis Ababa Drive.
AIRTEL NETWORKS ZAMBIA PLC (ISIN:ZM0000000342)
The COVID19 pandemic accelerated digital transformation for many corporate entities that needed to solution for transactability to serve clientele and allow for operational resilience for resources working from remote locations. For Airtel Networks all this meant an uptick in demand for data that spelt the need for increased augmentation capacity in capital expenditure to accommodate increased traffic. Airtel’s capital expenditure grew 2.0% to K707 million to that effect. The mobile network operator has seen acute increase in data usage and a steep decline in Voice Over IP. Airtel’s profit before tax rallied 421% to K1.10 billion supported by a 37.0% increase in revenue to K3.6 billion. ATEL stock has continued to see mobile and airtel money growth in the period.
The mobile network operator commands a market share of 8.04 million subscribers having expanded 18.0%. ATELs price earnings ratio headlined x2.55 with an earnings per share of x6.67. The MNOs remains highly leveraged with a debt to current ratio of x7.9 while current ratio was recorded at 0.2. Financing costs ebbed by a significant 85%. Airtel faces competition in the data offering from entities such as Liquid Telecoms etc.
A sugar milling plant at Nakambala in Mazabuka on the Southern part of Zambia.
ZAMBIA SUGAR PLC (ISIN:ZM0000000052)
Supply disruptions globally did give Illovo Sugar an earnings sprint of 201% to K1.35 billion in profit before tax as demand for Zambia’s sugar scaled in the export market supported by currency depreciation that make it cost lower for regional markets. Generally the export side of Zambian business did exceptionally well to include entities like Lafarge, Copperbelt Energy and ZCCM-IH (copper sales).
Twenty eight percent (28%) of sales where exports that totaled K1.64 billion representing 31.2% growth from a year ago. Zamsugar exported 150,000 metric tons. Zamsugar stock showed very low leverage but high liquidity with a debt to current asset ratio of x0.29 and current ratio of x2.1 respectively. The stock nonetheless could be slightly underpriced given a price earnings ratio of x4.22 with a price to book value of x1.75. Zambia Sugar will be paying the highest dividend and the first in 6 years.
LEADING THE SUSTAINABILITY AND GREEN CURVE
Some strides towards compliance with Environmental Social Governance tenet compliance is homogenous across CEC, Zanaco and Zamsugar. Copperbelt Energy Corporation is embarking on a renewable energy journey which could be funded the green fund route while Zanaco jointly with World Wide Fund for Nature (WWF) announced a $30 million Kukula Capital managed green sustainable fund for smart initiatives and Zambia Sugar in conjunction with WWF is ahead of the curve in its stewardship actions in addressing water scarcity and climate risks in the Lower Kafue sub basin. These initiatives will help foster a greener Zambia.
The Kwacha Arbitrageur
