BAT Anticipates Tough Second Quarter Due To Covid-19Zimbabwean companies are enduring their worst run in over a decade as their valuations continue to plunge in record levels last witnessed during the 2008 economic meltdown, 263Chat Business can reveal.
Government’s decision to float the local currency in February of 2019 might have come as a prudent and realistic measure in laying the foundations for the return of the Zimbabwe dollar (ZWL) but failure to sustain the new currency has brought with it unintended consequences for local companies’ s balance sheets.
Prior to the currency changes, local companies had relatively stronger balance sheets in the USD currency which were only devalued following the introduction of the ZWL as the country’s sole medium of exchange in June 2019.
In February last year, the ZWL traded at ZWL$ 2.5 against the USD to settle at ZWL$ 55/USD to date.
To bring perspective into this, Econet Wireless Zimbabwe and Delta Beverages Corporation, two of the country’s traditional heavyweights by valuation took a deep recession on a recent survey published by pan-African publication, Business Africa Magazine.
The survey ranked African or Africa-focused companies listed on public securities exchanges according to their market valuation.
Econet Wireless in 2020 ranked 159 out of 250 top companies, a decline from number 37 last year.
Delta Corporation this year ranked 187 down from 55 in 2019.
In January this year, Econet Wireless Zimbabwe said its revenues increased by 45% to ZW$1,25 billion in the half year of August 31, 2019, in inflation adjusted terms.
Translated to US dollar terms, ZWL$ 1.25 billion reflected just US$ 50 million using the then USD/ ZWL 25 exchange rate and not the fixed interbank rate.
Compare the 2019 figure (US$50 million) with the company half year revenue in 2018 which stood at US$ 600.3 million which even if we are to calculate using the then ZWL 3/USD exchange at that time will still reflect a revenue of US$ 200 million.
This has been the classic case with all of Zimbabwean companies.
The situation has been exacerbated by a very difficult operating environment for business which include power, fuel and water supply challenges and shortage of raw materials for production among a plethora of challenges.
The Zimbabwe Stock Exchange (ZSE) will be the most elaborate example to reflect the devaluations in Zimbabwean companies.
At its peak in USD terms, the ZSE capitalization emerged at US$ 19.36 billion by end of 2018 but even though the valuation if translated to the 3 is to 1 unofficial rate at the time the bourse would still be valued around US$ 7.5 billion, a fairly competitive market valuation by African markets standards.
Fast forward to the current ZSE market capitalization of ZWL$ 142.39 billion, the figures are misleading as they only translate to US$ 2.58 billion, the lowest in 10 years.
The ZSE last traded at such low levels in 2010 at around US$ 3.5 billion.