It was a terrific year at the Zimbabwe Stock Exchange. The market’s main index climbed 31%.
Surprising, isn’t it? With a disputed election result, tougher indigenization laws, and under-capitalized banks, you’d think investors would be sizing up a good mattress to hide their hard-earned savings under – not investing in stocks.
But while the mood in Harare may have been gloomy, foreign investors saw relatively inexpensive assets, priced in dollars, in an economy with relatively cheap foreign exchange controls. And they swamped the market. Foreigners accounted for more than 80% of trade volume during the second half of the year.
Curious to see what they were bidding on?
Here’s a countdown of Zimbabwe’s top stocks of 2013.
5. Padenga Holdings +86.7%
Apparently there’s money to be made in crocodile hides. That’s right. One of the Zimbabwe Stock Exchange’ best-performing companies in recent years is in the business of raising alligators and crocodiles for the production of luxury shoes, belts, and watchbands.
Consumers have been snapping up exotic leather goods of late, as demonstrated by Padenga’s 37% earnings growth over the past 12 months.
One of the few Zimbabwean businesses with operations on multiple continents, Padenga owns a large alligator farm in Texas and recently built a skin-processing facility in nearby Louisiana. It’s recognized as a global leader in the industry, supplying more than 33% of the global supply of premium crocodile skins.
Padenga recently changed its fiscal year end to December, and management, which had opted to postpone its culling season so that it could produce larger skins, expects to report strong results.
4. African Distillers +113.3%
I don’t know about you, but I’m in need of a stiff drink after the thought of skinning large, toothy reptiles. And, it would appear, African Distillers would be just the company to indulge me.
Zimbabwe’s leading purveyor of wine and spirits has seen demand for its locally-produced brandy and whiskey soar thanks in part to increased duty on alcohol imports. Local beverages now account for over two-thirds of the company’s sales, the remainder being derived from the sale of internationally and regionally popular imports like Smirnoff vodka and Savanna cider.
The company’s shareholders approved a $5 million rights offering this month. The proceeds will be used to build a new cider packaging facility, which will help to skirt the high tax on imports.
Earnings actually dropped 31% during the 2013 fiscal year, due to restructuring costs and a higher debt burden, but operating income surged 43% on the back of improved sales and margins.
3. African Sun +188.9%
Zimbabwe’s biggest hotel operator saw its share price nearly triple in 2013 due to a private equity firm’s November takeover bid, which valued the hotelier at 27x trailing earnings, a 53% premium to the market price. Although the deal has not yet been concluded, it will almost certainly result in the share’s de-listing from the ZSE.
If African Sun’s most recent results are any indication, the hotelier’s new owners have their work cut out for them. The company recently opened a hotel in Ghana and disposed of a non-core asset, but it also reported a drop in operating profit in 2013 and the balance sheet is awash in red ink.
2. TSL Limited +204.4%
TSL’s an interesting little conglomerate that’s engaged in everything from shipping logistics to car rental (it operates the Avis brand in Zimbabwe).
But the company’s primary business is tobacco. It grows it, stores it, processes it, packages it, and, most importantly to its bottom line – auctions it. It owns one of the world’s largest tobacco sales floors.
Zimbabwe enjoyed a fine tobacco harvest this year, which propelled the company’s 34% earnings growth in the first half of 2013.
And the second half may be just as stellar. Management indicated that its new tobacco growing operation, TSL Classic Leaf, will help deliver a buzz to the full year results.
1. British American Tobacco Zimbabwe +233.3%
If a tobacco auctioneer saw the value of its shares triple in the space of a year, I suppose it shouldn’t come as a surprise that Zimbabwe’s largest tobacco grower would receive similar love from the marketplace.
BATZ actually reported an earnings loss during the first half of 2013, because indigenization laws compelled the company to award $10 million worth of shares to its employees, a one-off expense that wiped out the company’s 19% increase in gross profit.
But this looks to be a temporary setback. Tobacco prices have been strong for the past two years due to rising demand from Chinese smokers, Zimbabwe’s largest market.
If you invest in Zimbabwe, let’s hear your predictions for which stocks will appear on this list at the end of 2014. Tell us about them in the comments!