eBusiness Weekly
Taking Stock Kudzanai Sharara
Quite a number of Zimbabwe Stock Exchange (ZSE)-listed firms have been forced to shut down as part of the Government-imposed lockdown aimed at curbing the spread of coronavirus.
Only essential consumer-facing services such as medical facilities, pharmacies, food stores, banks (back offices), security operations and fuel stations may operate during this lockdown.
What this means is that some businesses would be unable to trade for at least 21 days and there is no guarantee that, thereafter, trade would normalise in the short to medium term.
It is a fact that we are in a period of unprecedented uncertainty and businesses are facing extremely challenging times and hopefully there won’t be long term casualties.
Very few businesses will come out and say they benefited immensely from this lockdown. For now, what is certain is that most businesses are losers of this lockdown. The negatives outweigh the positives.
Even those that have been allowed to open, the associated costs of remaining open are higher than normal. The Confederation of Zimbabwe Industries, in its latest snap survey, revealed that companies have had to spend more than usual on Covid-19 related costs.
The study also revealed that the cost of mitigating the impact of Covid-19 as a percentage of companies’ annual expenditure budget was estimated at 14 percent on average.
Most of the expenses companies are incurring are to do with the purchasing of protective clothing that include; face masks, spraying equipment, disinfectants, hand sanitisers and other protective clothing.
Given the above, there are no outright winners from this lockdown in specific and Covid-19 in general.
In this article we attempt to point out the impact of the Covid-19 induced lockdown on ZSE-listed stocks.
A most likely winner
Econet Wireless’ experience during lockdown must be largely positive. With the country under lockdown and practicing social distancing, technology has become the preferred means of communication.
A lot of work is being done from remote locations and companies have had to invest in providing data for their employees working from home.
Companies are taking to Zoom, Google Hangouts and other teleconferencing products that rely on data and Econet has a fair share of that market, in particular if gadgets being used are mobile phones. Econet also has shares in Liquid Africa and the impact of revenue during lockdown across the continent will be significant.
Viewership figures of online content providers such as Netflix have increased quite significantly while a lot of time is also now being spent on social media as people search for news, entertainment and companionship. This will certainly boost Econet’s revenue numbers. But if this economic crisis deepens, discretionary spending such as data to go on social media could be among the first casualty.
Food and beverages producers
Food and beverages listed stocks, such as Delta, Dairibord, and National Foods, among others have been allowed to continue operating, but with movement of customers restricted and some having lost their sources of income, the outlook for luxury consumption, such as soft drinks and ice creams, is challenged.
Restrictions imposed on many customers, as well as other limitations and social distancing measures such as closure of bars, restaurants and bottle stores will also result in a significant drop in beer sales. National Foods, which produces maize meal, rice and flour among other products is likely to fare a little better if it continues to produce without much challenges.
Retailers
Other companies battling the lockdown wave are Zimbabwe Stock Exchange-listed entities OK Zimbabwe, and Meikles Limited which runs Pick n Pay Supermarkets.
Although they provide essential services, they have had to close some of their top selling outlets in the CBD where, as a result of the lockdown, it was not going to make sense to leave them open. As we report elsewhere in this publication, the impact of the lockdown was that average daily sales in April dropped significantly from the average generated in March.
The extent of the supposed benefit has also been limited as stocking up during the lockdown and the COVID-19 pandemic has meant manufacturers are unable to meet demand.
The situation is even worse for clothing retailers, Truworths and Edgars, who have had to close their doors for the entire duration of the lockdown. Not only have they lost sales but are also supposed to pay expenses that are not backed by income. The disruption in cash flows, will make it difficult to pay employees, rentals, and service bank loans among other obligations.
Property owning stocks
Property owners, Zimre Property Investments, Mashonaland Holdings Limited, First Mutual Properties and Old Mutual are likely to feel the impact of this lockdown as tenants will not pay or will struggle to pay rentals.
The arrangement between grocery retailers and property owners is that rent is paid as a percentage of revenue generated, and if some tenants are closed, or not generating enough sales, then the landlords will feel the pinch.
Even in cases where rentals are fixed, rent defaults are likely to be high during and post lockdown.
Not many businesses can go for a month without making sales and still be able to meet all cost obligations. These landlords are likely to see a spike in rent defaults in the short to medium term.
Tourism sector players
The tourism sector is one of the hardest hit with ZSE-listed entities African Sun and RTG having been forced to close their doors during the lockdown period. The companies will now be forced to meet some fixed and operating expenses that are not backed or generating any income.
Even after reopening their doors, there is no guarantee that they will start generating meaningful revenues. The Covid-19 pandemic is likely going to change the way people travel and spend their time.
At least for this year, whether the pandemic is over or not, people will not be too keen to start travelling again. Countries are likely to put restrictive measures on travellers into or outside their borders and some might just decide it’s not worth the trouble.
The impact on African Sun will be extended to landlord Dawn Properties. Unless changes were made in the recent past, the bulk of Dawn’s revenues depend on the performance of African Sun.
And with the hotel operator having to close for nearly a month and the impact of Covid-19 likely to extend for much longer, Dawn Properties revenues will be significantly lower in the short to medium term.
Banking stocks
There are five banks listed on the ZSE. It is a fact that local banks, in the past few years, have been getting bulk of their income from trading and not lending which was limited with the loan to deposit ratio for 2019, averaging 36 percent.
The lockdown has, however, resulted in a significant slowdown in economic activity and by extension the number and value of transactions. This will impact on revenue generation for banks during the lockdown. Cost to income ratios are likely to spike and reduce profits.
However, post the lockdown and the full impact of Covid-19, firms might come out in full force to look for working capital loans as their cash flows would have been significantly messed up. This could be an advantage to banks.
Whichever way you look at it, the lockdown, and the coronavirus crisis is likely to leave some long-term scars that investors need to start considering now. No one might escape unscathed.
