At The Market with Tetrad
WHAT an incredible six months the first half of the year has been for the stock exchange with many punters no doubt smiling all the way to the bank.
I purposefully say punters and not investors as the vast amount of speculative money that has found its way onto the market has to a large extent seen the exchange reduced to a casino with short term trading horizons being the order of the day.
An analysis of the performances of individual counters on the ZSE over the past six months bears testimony to this fact, with counters from virtually all sectors providing some sort of return, irrespective of any negative news that in normal circumstances would have seen their share prices weakening.
This fact is borne out not only by the presence of mining counters in the top two positions in terms of share price appreciation for the year to the end of June, but, also by the fact that of the 80 counters listed on the ZSE, 62 recorded gains of 100% or more, 79 recorded a gain of some sort while only one counter, Barbican, which was down 3,1%, experienced a decline.
The index has continued in much the same vein so far in July, though some profit taking saw it weaken on Wednesday to close at 331 677, still a month todate increase of a further 20% or 54 375 points. Also highlighting the speculative nature of many of today’s investors has been the extreme volatility that counters have shown.
Two examples come quickly to mind, namely, Clan and Zimsun. So far this month, the Clan share price has gone from an opening of $25, to $31; $60; $57; $41; and $49 before closing at $44 on Wednesday. Zimsun opened the month at $30,10, then traded at $31; $32,50; $48; $40; $45; and $68 and closed Wednesday at $58. Talk about a fund manager’s nightmare!
The current rally has seen a mini recovery for what had become virtual pariah stocks, you guessed it, the financials. The gains were led by NMB which, despite its suspension “pending the issue of a cautionary statement which provides information required in compliance with its listing requirements”, subsequently lifted following a meeting between the ZSE and NMB management which “clarified the position to the satisfaction of the ZSE”, as at Wednesday had put on 400% to $115 year todate.
With the exception of Barbican which is down 16% for the year, the other eight financials have put on between 358% (ABC) and 81% (First Bank).
Even that sleeping giant of the exchange, Barclays, has arisen, jumping from $26 at the beginning of the month to a high of $41 before eventually closing Wednesday at $40, as investors decided it too was “due a move”, though it still lags by some margin the performance of most of its peers and the index in terms of share price appreciation.
This underperformance probably reflects the bank’s more conservative operating approach that has seen its earnings growth falling short of the at times fantastic numbers that have been produced by the “newer” and more aggressive financial institutions.
Turning to financial results, David Whitehead recently published its interim performance for the six months to March 31 2003.
Turnover for the group was up just 149% to $4,1 billion, as output was hampered by the 40% reduction in activity at the spinning division due to shortages of lint caused by the countrywide fall in cotton production during the 2001/2 season.
The Fabric division also saw decreased activity as a result of the cotton shortage, while the intermittent availability of coal, electricity and forex also hampered operations.
While the growth in sales was disappointing, operating profit was up 447% to $246 million as margins doubled to 6%, courtesy of inflationary pricing backed up by the now ubiquitous stock holding strategy. Continued investment in capex, with a new fabric printing machine having been commissioned during the period, is likely to have also contributed to increased efficiencies, though offset to some degree by the increased downtime due to the declining throughput.
Despite the operational cashflows being negative for the period, a clean balance sheet with no interest bearing borrowings meant that the company was in a net interest receivable position, with $12,7 million being earned.
Attributable earnings for the half year came out at $181 million, a 302% increase on the same period in 2002.
Refurbishment and replacement of essential equipment will continue in the second half of the year which should see continued efficiency gains being made. The higher inflows of cotton that have already been observed by the company, the desire to push exports and new marketing methods and strategies, such as expanding the company’s participation in the retailing of its end products in line with the changing business environment, should see a better performance in the second six months of its financial year.
To close off this week, we take a look at corporate news emanating from various cautionaries published in the press. Clan and Zimsun issued further cautionaries to those announced previously, both stating that requisite applications for their individual undertakings to the relevant regulatory authorities were still pending and shareholders were thus advised to continue exercising caution when dealing with their shares.
Art advised its shareholders that it had entered into negotiations the conclusion of which may have an impact on its share price.
While the nature of Art’s negotiations was not disclosed, PGI in its cautionary advised that “negotiations for the acquisition of a strategic business had reached an advanced stage”, details of which would be relayed to shareholders in due course. Again, shareholders of both companies were advised to continue exercising caution when dealing with their shares.