RETAIL and specialty distribution group Axia Corporation Limited’s dividend pay-out is seen remaining below 20% for the next two financial years to 2022 as the depreciation of local currencies in Zambia and Malawi remains a cause for concern.
These have been negatively impacting the net assets of the consolidated business, according to IH securities. During the first half of 2021, DGA Zimbabwe increased sales of locally produced products as substitutes for some imported products, which helped defend volumes (up +4%) while Transerv had a decent increase in sales.
DGA Region was adversely affected by the devaluing kwacha, loss of distributorship agency in Zambia as well as shrinking modern trade space in Malawi while consolidated turnover for DGA Zambia and Malawi, in US dollar terms, declined by 16% over the comparative period .
This saw contribution to the Zimdollar top line decreasing from 20.89% in the first half of 2020 to 14.03% in the first half of 2021.
“The depreciation of local currencies in Zambia and Malawi remains a cause for concern as they negatively impact the net assets of the consolidated business. Given the continued drive to reinvest in earning capacity of the business, dividend pay-out ratio is forecasted to remain below 20% for FY21 and FY22.Q4 recovery in consumer spend to dull effects of Covid-induced slump in Q3,” IH said.
AXIA is re-investing most of its free funds into its bedding and lounge suite manufacturing businesses and therefore declared a dividend of ZWc24.50 per share. The trading environment in the third quarter was significantly impacted by the level 4 Covid-19 lockdown, however, with the grain selling season and tobacco auction floors opening, as well as the relaxed lockdown restrictions, IH expected a drastic recovery in consumer spend going into the company’s 4th quarter.
“We anticipate that inflationary pressures will ease as the interbank market stabilises foreign exchange rates, further boosting consumer confidence. Revenue is forecast to increase by 378.39% for FY21 from ZWL$3 656.93 million in FY20 to ZW$17 494.54 million in FY21.
SI (Statutory Instrument)185 of 2020 allowing the use of free funds in the trading of local goods and services allows the company to earn foreign currency in the local market, easing the strain from foreign creditors.
DGA Zimbabwe concluded a major local distribution agency, we expect the positive impact on operating profit to be more apparent going into FY22. Management’s strategy to take control of their value chain and focus on local products will aid in containing operating costs, we expect a marginal decrease in EBITDA margins from 20.26% FY20 to 18.00% for FY21.
Going into FY22 we expect margins to return to historical averages,” IH noted. During the period, the operating environment eased as Covid-19-induced restrictions were relaxed and inflation declined, giving rise to a relatively stable local currency.
With the stabilising currency, TV Sales & Home reintroduced credit sales, allowing the company to defend market share and grow volumes (the debtors’ book grew 130% year-on-year¹).
TV Sales & Home volumes were up 40%, driven by growth in the store network.
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