ZIMBABWE’S light manufacturing conglomerate Innscor Africa Limited’s volumes across operating units closed the reporting period in positive territory, Inter-Horizon Securities (IH) says.
In a financial results analysis, IH, a securities trading company facilitating trades on the Zimbabwe Stock Exchange, said Innscor registered above inflation performance.
“Influenced by a relatively stable macro-environment, volumes in the majority of Innscor’s operating units closed the period in positive territory,” IH said.
“For the Mill-bake segment, the Bakery division experienced a 26% increase in volumes as flour availability improved, volumes however are still trending below historical norms. Volumes at National Foods yielded a 25% uptick to 264 000mt owing to improvements in the trading environment whilst Profeeds recorded a 18% improvement in feed volumes, with the segment focusing on diversification of its operations.
“In the protein segment, Colcom reported a rebound in performance as sales volumes increased 31%, with processed product volumes being up 199%. Irvine’s recorded a 10% growth in table eggs production off a high base effect, whilst frozen chicken and day-old chick volumes were up 6% and 14%, respectively.”
IH says Innscor growth was largely spread across various divisions and brands.
“Owing to continued growth of the retail network, volumes at AMP Group improved by 9% against the prior period. Growth was observed across all Other Light Manufacturing and Services segments, where Natpak and Prodairy experienced volumes improvement of 26% and 47%, respectively, whilst Probottlers delivered a 57% increment in volumes,” it said.
“Probrands volumes were 43% higher than those in the previous comparable period. Complying with IAS 29, Innscor presented inflation adjusted results, however, for the purpose of our analysis historical financials were considered for the period under review.”
On volumes recovery across most segments, revenue grew by 774% to ZWL$25.34 billion.
The group realised exchange rate gains of ZWL$530.68 million in the period whilst fair value adjustments on livestock and listed equities fell into negative territory at ZWL$50.37 on plateauing of inflation.
Its EBITDA – earnings before interest, taxes, depreciation, and amortisation; a measure of a company’s overall financial performance used as an alternative to net income in some circumstances – growth trailed revenue growth a 546% to ZWL$6.16bn in 1H21 from ZWL$953.70m in 1H20 due to a steady reversal in the cost lag.
The EBITDA margin subsequently shrunk to 24.36% from 32.9% for the same period.
The group reported 457% y/y growth in profit after tax to ZWL$5.52bn from ZWL$990.68mn reported in 1H20. Operating cashflow to EBITDA came in at 46% coming from a negative position in the prior comparable period.
The group’s assets grew 95.6% y/y whilst liabilities grew 136.7% attributable to the high cost of borrowing locally. NAV resultantly went up by 64.7% from ZWL$7.32bn in 1H20 to ZWL$11.99bn in 1H21.
An interim dividend of ZWLc110 was declared for the period, payable on the 23rd of April 2021. Shares will be traded cum-dividend up to the 6th of April 2021. Dividend yield for 1H21 stood at 5.8%.
IH also ddalth with balancing growth objectives and cost containment.
“We anticipate that as lockdowns start to ease and the operating environment normalises on arrival of vaccines, the group will start to scale up on re-establishment of its trading channels,” it said.
“Change in consumer spend is looking to be the biggest driver of growth for the group as low disposable incomes in the most recent past periods weighed on volumes performance. We believe that Q3 volumes will come in weaker relative to 1H21 due to muted demand which was as a result of the strict lockdown imposed in the first two months of the year.
“We however expect a volumes recovery in Q4 as trading hours normalise and economic activity picks ups. With the 2020/21 agricultural marketing season just weeks away, it is our view that this bottom of the pyramid liquidity will drive a rebound in consumer spend which we foresee trickling especially into consumer facing names like Innscor driving up volumes and the topline to FY22. It is our view that margins will further contract as we expect full cost indexation and re-alignment going forward.”
It said Innscor management has committed to adapting their operating models according to the current environment, this includes balancing volume objectives with appropriate return levels, carefully managing the overhead cost profile whilst also ensuring balance sheet value remains protected.
“Given their track record, we are optimistic that the business will continue to adjust their strategies and plan accordingly to ensure viability and profitability of the group’s operations,” it said.
“We forecast revenue will grow 395% in FY21 to ZWL$55.19bn, up from ZWL$11.16bn recorded in FY20. EBITDA is expected to grow 208% from ZWL$3.41bn to ZWL$10.49bn over the same period. We estimate Innscor trades on a P/E (+1) of 5.2x to 2021, below its historical average of 6.2x and relative to regional peers trading at an average P/E (+1) of 15.73x. We forecast an EV/EBITDA (+1) of 3.5x compared to peers at an average EV/EBITDA (+1) of 9.09x. Using a blended DCF and multiples-based valuation we have arrived at a target price of $130.40 for Innscor implying upside of 90.3% at current levels. We there maintain our buy recommendation on Innscor.”
Inter-Horizon Securities (Pvt) Limited is a company facilitating trade on the Zimbabwe Stock Exchange. IH Securities has assembled a well-regarded Equity Research team.
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