HomeBusinessAt The Market with Tetrad - Wither interest rates Guv'nor?

At The Market with Tetrad – Wither interest rates Guv’nor?


By Brian K Mugabe

OCTOBER proved to be a trying month for stock market investors as the industrial index shed a net 5,5% or 35 646 points to close eventually at 613 287 having opened the

month at 648 933 points.


It was a roller-coaster ride with the index going as low as 584 200 on October 7, then recovering over the next eight days to 662 816 before regressing to the month end close mentioned above.


This typified a clearly nervous market with investors, particularly those who bought in at the late August and, mid-September peaks, now having a very short-term investment horizon as they tried to minimize their losses or lock in profits as soon as the opportunity presented itself.


The looming budget, hardening interest rates, the announcement of a new Reserve Bank of Zimbabwe governor, and resource mobilisation for the various capital raising exercises by First Mutual Life, Clan and Mashonaland Holdings Ltd, which are seeking to raise approximately a combined $86 billion added to the selling pressure affecting the market.


Against this backdrop, only 17 counters recorded gains for the month while 57 recorded declines. The top five gainers and losers for the month are shown in the table on the right.


In November, interest rates have continued to firm with the inter-bank market seeing overnight rates as high as 200%, while a substantive governor, Dr Gideon Gono, has been appointed.


What his policy thrust will be vis-a-vis interest rates, and what measures or surprises, if any, the budget will have to offer, are likely to see a very volatile index in the short term.


Nevertheless though the market has tended not to reward them for it, listed companies have continued to produce commendable results as the year end results to June for Border and Radar showed.


Beginning with Border, turnover was up 254% to $9,3 billion, driven mainly by inflation and the devaluation of the currency.


Volumes at the Paulington factory did see an improvement however, offsetting the failure of the forestry and saw milling division to meet targets due to the fallout from a fire outbreak and reduced volume delivery to the mill, and downward pressure on the prices of doors sold to the United States market.


Operating profit was up seventeen times to $6,7 billion, spurred by the exchange rate movement, which saw exchange gains of $5,3 billion.

Margins improved from 15% to a massive 72%.


Attributable earnings of $4,9 billion were attained for the period, a 1 980% rise.


Mother company Radar’s results were similarly impressive.


Turnover, again inflation-driven was up 236% to $19,4 billion, although Border and Macdonald Bricks recorded significant volume declines.

Operating profits of $9,1 billion were generated, a 12-fold increase on the 2002 figure, resulting in operating margins of 47%, a 34 percentage point improvement.


Once more the exchange gains from Border played a major role in this growth.


Net interest payable at $88 million was approximately half the amount paid in the previous year, reflecting a substantial improvement in the cash generated position which more than compensated for the increase in borrowings.


Attributable earnings of $4,2 billion were achieved for the year representing an increase of 1 168%.


Subsequent to the publication of these results, both companies published cautionary statements, Border to the effect that that two major fires had occurred on its estates destroying approximately 930 hectares of timber.


Due to the age of the plantation it was envisaged that this would have a significant negative effect on the company’s results over the next eight years.


Radar advised shareholders that negotiations were in progress which, if successfully concluded, would result in the disposal of the engineering divisions within the group so as to create a better-focused company.


This transaction was confirmed by the publication of a second cautionary yesterday wherein the group advised that an agreement had been reached for the sale of Commercial and Industrial Holdings for $5,3 billion to a consortium including management, subject to statutory approvals.


Going forward, it remains to be seen what strategies the group will put in place to mitigate against both the impact of the fires, and the sale of the CIH, upon revenues and profits.

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