The normalising operating environment prevailing in the country is expected to boost businesses with diversified industrial conglomerate — Innscor Africa Limited — anticipating to enjoy earnings jump in financial year 2021 (FY21).
Market watchers opine that the gradual lifting of Covid-19 induced lockdown restrictions, should see economic activity improving, offsetting months of subdued activity caused by the pandemic.
This year, Zimbabwe implemented a national lockdown, which saw some businesses close completely while essential services remained operational.
However, there had been a gradual improvement in the operating environment as restrictions are being lifted, which is expected to improve businesses.
For Innscor, brokerage firm — IH Securities sees improvements in sales volumes, as supply chain for products also improve. Increased market access post lockdown and regularised trading hours are expected to be some of the drivers of volumes.
“Normalising operating environment is expected to boost sales, we anticipate that the factors plaguing operations in FY20 will start easing in FY21, with Covid-19 restrictions being gradually lifted and the economy rebooting,” said IH Securities in an earnings review.
“We estimate consumer spend will still be somewhat strained in FY20 from the current economic contraction and hyperinflationary environment but volumes across majority of the segments are expected to recover, notably in the defensive basic and essential commodities,” said IH Securities.
Total revenue is projected to grow 241 percent in FY21 to $38 billion from $11 billion recorded in the prior year.
Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) is expected to grow 228 percent to $11 billion.
Said IH Securities: “Overall for FY21, we anticipate high growth in earnings coming off a high base effect from FY20.”
The lifting of maize import controls by the Government to allow entities with free funds to directly import maize into the country is a welcome development for the group which remains the largest grain user in the country.
However IH expressed concerns that countries from which Zimbabwe traditionally imports maize could hold on to some of their stocks in a bid to preserve or enhance their reserves to avert food insecurity.
“We anticipate that the group will still need to import most of its major raw materials as maintaining a strong raw material pipeline remains a key focus area for management for the financial year ahead,” said IH.
Other factors such as power supply challenges are also expected to continue posing a strain in the short to medium term and likely to continue dampening production figures, although management committed to finding auxiliary power solutions.
IH maintained a buy recommendation for the group with a target price of $63,87 on the local bourse.