Diamonds & Dogs: Chimwe chikomba tasa

November’s bad omens have claimed scalp of various personalities & corporate legal entities before. Diamonds & Dogs is however not too sure why that month was deemed “sacred” in the Zimbabwe but this November was no exception.

One just needs to look at the rate of judicial management for local companies from those that sell cars to those that mill flour…yes flour!

Even the returns on ZSE were not so rosy. 10 counters generated 0% returns in the month, 12 traded in the positive territory while the rest lost value.

At least Diamonds & Dogs sailed through November without any incident.

Diamond: M & R (2.85c, MTD +43% YTD:  -78%, Market Cap $6,106,826)

M & R is soon to be remaned Masimba etc etc Holdings. Kind of reminded Diamonds & Dogs of the rural stores names like Kupfuma iShingu, Pfumamaoko, Kurauone, Usandivenge General Dealers etc.

The share price has never recovered following the purchase of 46.6% stake from M&R South Africa and Trinvest in a special bargain at 1.47c per share, compared to M&R's last-traded price of 7c then.

M&R South Africa spokesman Ed Jardim commented that M&R Zimbabwe was "heavily focused on manufacturing and no longer fits within the existing construction Africa and Middle East operating platform or the group's Africa strategy.

However, the 79% discount was so steep that SECZ was forced to investigate the deal. Results of that investigation are still not out though as a meticulous verification of the share price is still underway.

Not much has been happening at M & R though (the same with other construction companies) given that most construction taking place is of sub optimal scale with toll gates coming onto the portfolio.

It would be quite interesting to know the plans that Paddy & Canada have for the group or rather the order book that they have.

Dog: Pelhams (0.2c, MTD -83%, YTD:  -88%, Market Cap $1,991,297)

Diamonds & Dogs remembers quite well the Pelhams price hitting 0.85c post TN transactions which was naturally because of the takeover hyper. The counter also did trade for quite some time on that level.

Then it tanked.

Diamonds & Dogs for now will blame the fall in price to the weak operational performance at 1HY2013.

The company posted a topline of $4.2m, Gross profit $963k, operating profit $447k. The numbers were then weakened by $1.12m finance costs giving a PBT of $678k.

The company is targeting to break even in 2HY2013.

That Pelhams came to the credit market party too late is an open secret. The result was that by the time they came, most consumers had already bought their beds, wardrobes, radios, sofas etc from TN’s Lifestyle and TV Sales & Hire.

Anybody rember the half price for cash TN campaign?

Now Pelhams is in the market and all consumers are debt laden, the sofas are still fairly new to warrant replacement…so where is the performance going to come from?

Even if sales are on credit…what percentage of the available market is still willing to load on more debt?

Diamonds & Dogs has no answers to that but still believes that Pelhams still offers better quality goods compared to its new owners so it makes sense to make it a premium brand if merged with Lifestyle some time in future.

Too bad however if you were the Greater Fool that bought at 0.85c.

Cairns almost a goner now…

And it’s official…Cairns is now under judicial management. Diamonds & Dogs said it two weeks back that this company was in dire straits.

Now we can only say “Chimwe chikomba tasa”

Invest Wisely!

Notes

**The author of this report does not hold shares in any of the companies discussed/ mentioned in this report.

Bulls n Bears

Email: bulls@bulls.co.zw

Website: www.bulls.co.zw

Blogspot: http://bullsnbearszimbabwe.blogspot.com/

If you wish to unsubscribe from this service, please click here.

CONFIDENTIALITY NOTE:

This message is intended for the addressee only, as it contains information that is privileged, private and confidential. If you are not the intended recipient of this message, you are notified that any distribution, use of copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately. Bullish Thoughts, Diamonds & Dogs and Bulls n Bears are products of Faith Capital (Pvt) Ltd. Faith Capital (Pvt) does not and cannot warrant the information sent via electronic mail or results obtained by using this information. This report has been prepared by Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Faith Capital nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other Indices quoted herein are for guideline purposes only and sourced from third parties.

Bullish Thoughts: Corporate looting sabotaging Buy Zimbabwe

Buy Zimbabwe a very noble idea….

Bulls n Bears intends to take the Buy Zimbabwe campaign further than mere talk. You see, the Bulls n Bears subscribers are the consumers, the manufacturers and the policymakers and business leaders, etc.

These subscribers will implement all our collective Bullish Thoughts on Buy Zimbabwe that we are sharing this last quarter of the year.

It cannot be overemphasized that the failure to produce a quality Zimbabwe product, the failure to buy a Zimbabwe produced product is at the core of all our challenges, liquidity, high interest rates (because we send the money that we are supposed to lend, to fetch mineral water from SA etc), unemployment, low income levels, etc.

Zimbabweans need to prove that they are a capable people by coming up with radical and well-conceived measures to extricate themselves from the current sea of challenges. China did it by itself.

We are all encouraged to become dedicated ambassadors of locally produced goods.

You can still buy Kefaloes yorghuts, ice cream etc. Most dairy products locally produced are now fairly priced perhaps due to increasing competition in the sector. The sacrifice has to start now. Olivine reduced the price of cooking oil to within a reasonable variance with imports.

Producers should take it further by addressing the following;

• ·         Supply chain efficiencies,
• ·         Product quality and service quality issues,
• ·         Communication with consumers (they need to create visibility and communicate the good qualities  of  local margarine, chicken, soap, Capri fridges, WRS TV, locally assembled vehicles etc), for example, consumers need to know that whatever was in the mealie meal that was marked "No under 12" could still be in the milk, margarine, chicken, potato crips etc,
• ·         Agriculture needs to be addressed by people who take people's lives seriously without room for politics in supporting all levels of farming (communal, commercial, resettlement, peri urban etc). Rain fed agriculture ceased to be sustainable long long back, many just do not understand why resource providers just do not wake up to that FACT.
• 
  

Consumers’ Big But…

Many consumers and analysts are of the opinion that while the BUY Zimbabwe campaign, noble as it may seem, is overlooking critical economic factors that need to be addressed.

Rather than trying to shove “Zimbabwean” products down consumers’ throats in the name of improving unemployment and all that jazz, it is necessary to critically look at why the companies are uncompetitive in the first place.

Corporate looting...

Corporate Executives at these so called proudly Zimbabwean companies somehow find it befitting to match or even out-do their “comparable” peer execs in foreign companies by giving themselves ridiculous perks and loot and they expect the Zimbabwean consumer downstream to pay for their greed.

That is a raw deal whichever way you look at it. These execs should show consumers just how proudly Zimbabwean they are by aligning their perks and remunerations to the conditions in which their firms are operating in rather than this “comparable peer” nonsense, because if they are going to align their perks and remunerations, they should also align the quality of their product(s).

The reason why this so called “Zimbabwean product” remains more expensive than the foreign product that has crossed oceans and paid all sorts of taxes and duties and yet remain of superior quality is that, in that “proudly zimbabwean” packet of chips consumers are paying for countless Mercs, Cherokees, Landcruisers and $1m/year packages.

Let us not breed a culture of entitlement. Manufacturers fight for your space, and consumers will only support when they see you have a plan. There is a culture that the average Zim proprietor will take the last dollar needed to restock the business and refuel his car and expect a government bail-out of some sort.

You just need to take a look at these “proudly Zimbabwean” companies’ car parks to give you an idea. The car park is worth the 5 year annual turnover of the company, raised through expensive debt. Schweppes’ Mazoe has never needed a “buy Zimbabwe” campaign! Why?  Because it is of the best quality! It says Buy Zimbabwe when you drink it! Not when you say it. Simple as that and its even priced at a premium.

There were countless opportunities to replace and re-equip local factories with more modern equipment. Most of these local companies are labouring in debt that was accumulated in the US dollar era, and there is not a single sign of investment to justify that debt.

Ask any credit officer in your average bank the major cause of default in corporate debt in Zim: Misappropriation of funds!

Consumers will not endorse greed and inefficiency. Being proudly Zimbabwean starts from a leader’s attitude towards their own business! Bullish Thoughts found out that most consumers appreciate the need to save jobs, but they will not do it by buying poor quality chips.

Companies should streamline, go efficient, and become competitive! And yes, it’s not sacriledge, it is done all over the world: companies retrench! They buckle up! The business stays alive. This is not rocket science! This is economics. In the short term it will be painful, it will look ruthless but there will be many more downstream opportunities that will employ more than double the people initially retrenched in the first place.

You are not doing the deer any favours by rescuing it from a somewhat ruthless kill by the lion, in fact in the long run you are destroying the ecosystem and the balance of economics. You may as well go Communist!

Alternative economic path…

Consumers can only buy Zimbabwe if the products are available at a reasonable price.  Try looking for Charhon biscuits, Thingz, Cheezits, geisha, and you get the idea.  The bulk of these products are out of sync with their comparables both in terms of quality & price. Only few corporates like Delta, staying the course. 

Many would never buy imported beef or chicken so that poultry industry for example needs to be supported and it already has a competitive advantage that needs to be managed cost wise.

There is no conspiracy theory on behalf of the population to snub local products. 

Perhaps there is need to concentrate on areas where Zimbabwe has a competitive advantage which is probably the service industry:   education tourism, medical tourism,  Art, work towards being the finance hub of Africa and so on.  That cashflow will assist the rest of the economy to get its act together once all the other usual requirements like rule of law, property rights, reduced corruption, liquidity (added by reduced country risk perceived or real) are in place.

It is good that we encourage the buy Zimbabwe campaign, but we need to look at what is making our products more expensive than the foreign products.

Put on the table with a $200.00 dollar salary will people go for expensive local products  or cheap foreign products what  makes one to sail through the month will prevail lets resolve the problem from the root  not the symptoms, companies need  to work on cutting inefficiencies that are increasing cost, e.g., corrupt buyers, poor production methods etc.

Consumers do not want to postulate a perpetuation of the daylight robbery they face on a daily basis. Consumers would rather ask fellow countrymen and women to modernise their plants so they are efficient, ask them to subscribe to a defined competitive price regime before shutting the borders to imports.

You see, the inefficient butter producer will have to use more water, more salaries and even more fuel and electricity that Zimbabwe imports -chances are, consumers will still pay more to foreigners either through the border or via Zesa, Zimoco, car sales etc that will come knocking because of the rising inefficient output.

Bulls n Bears values your feedback as we seek to make 2013 a year of change for Zimbabwean products.

Buy Wisely!

Diamonds & Dogs: Buying foreign products treason of the highest order!

 

Diamond: BUY Zimbabwe

Diamonds & Dogs picks up from where Bullish Thoughts left off the Buy Zimbabwe discussion. He does not apologise for repeating this topic! Unusual situations do call for unusual measures.

In fact, Diamonds & Dogs would like to thank Bullish Thoughts for the provoking point regarding Buy Zimbabwe Campaign. It is true that Zimbabweans are enemies to themselves.

We are selfish, period! The big companies are even more selfish than small and medium companies.

Diamonds & Dogs emphasizes that there is need to raise the Buy Zimbabwe argument higher and establish the cost of unemployment to our nation Zimbabwe.

Consumers have divergent views but surely no rational person should expect that Zimbabwe, a land-locked country have comparable costs with those countries who have access to oceans.

Even Rhodesia allowed up to 20% price difference of locally produced and imports in favor of locally produced product.

On the extreme, one can conclude that not to support locally manufactured goods is treason of highest order.

We need to also educate each other that buying foreign goods is killing jobs for our families and leading to the export of our own children to become slaves in foreign countries.

Government needs steel balls…

There should be strong will from the Government lest there be no progress at all. Someone comes in with a brilliant idea of banning unnecessary imports like flour, margarine, chicken ofals (chicken ofals…please!!) and even whole chickens and the next thing because some DJs and commentators have said it’s a bad thing after getting calls from some loafers (most of them good for nothing), the ministers reverse decisions on duty.

The country does not need short term policies but policies that benefit us in the long run. There should be quotas on most commodities, that is how the EU and USA survive.

And we want to say it’s backward for Zimbabwe to be protectionist? These are difficult times and they call for hard decisions.

Manufacturers are coming to the party committing to shave off some margins and meet consumers half way.

Diamonds & Dogs rolls the ball into your court. Are you buying Zimbabwe products for the next 33 days to make a difference?

Diamonds & Dogs has already started.

Dog: Colcom (24c, YTD:  -32.41%, Market Cap $39,776,125)

Diamonds & Dogs tends to see to many conspiracy movies like Wall Street by Michael Douglas perhaps!

Unfortunately, that’s just the way he is wired.

The Colcom share price collapsed a few weeks ago to 22c, a 27% decline in one trading session.

Many analysts or at least market watchers will be aware that Colcom had almost established a support level at 30c. Or let’s just say 26c lately…or the past few weeks that is.

It had been like that for a long time…30c, 30c, 30c, 30c, 30c!!!!!

Then it happened on 22 October…the share price collapsed from 30c to 22c!

Diamonds & Dogs could tell something was wrong…no sane person is not worried when Delta price is to say collapse from 93c to 80c in one trading session. Not that Colcom is a lot like Delta, but it was perceived to be a fairly & reasonably managed company and a stable one too.

After all what would go wrong in a business model just meant to kill as many pigs as possible and let as many Zimbos as possible eat the swine meat products!

However after weeks of rumor mongering about shenanigans at Innscor-Colcom, the latter finally came to the market with a cautionary advising shareholders that “it had come to the attention of the board” that the control and governance environment of the company had been compromised and the board had initiated a forensic audit.

Fair and fine! The come Sunday and the papers were saying the FD was arrested over a $16,500 fraud. Seriously! Engaging a forensic audit that will cost upwards of $50,000 to investigate a $16,500 fraud? Diamonds & Dogs feels there was too much PR from the Colcom spin doctors.

Anyway, the rumor mill which broke the story long back has it that the real embezzlement could be somewhere around $3m orchestrated through the procurement channels, etc. Not much of a surprise though…just that the quantum of the loot was a bit on the high side this time!

Shareholders be very scared…there might not be cash for dividend payout!

Invest Wisely!

Notes

**The author of this report does not hold shares in any of the companies discussed/ mentioned in this report.

Bulls n Bears

Email: bulls@bulls.co.zw

Website: www.bulls.co.zw

Blogspot: http://bullsnbearszimbabwe.blogspot.com/

If you wish to unsubscribe from this service, please click here.

CONFIDENTIALITY NOTE:

This message is intended for the addressee only, as it contains information that is privileged, private and confidential. If you are not the intended recipient of this message, you are notified that any distribution, use of copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately. Bullish Thoughts, Diamonds & Dogs and Bulls n Bears are products of Faith Capital (Pvt) Ltd. Faith Capital (Pvt) does not and cannot warrant the information sent via electronic mail or results obtained by using this information. This report has been prepared by Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Faith Capital nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other Indices quoted herein are for guideline purposes only and sourced from third parties.

Bullish Thoughts: Zimbabweans enemies of their own industries Part II

John F. Kennedy, the thirty-fifth President of the United States is famous for his saying: “My fellow Americans, ask not what your country can do for you, ask what you can do for your country.”

In this period of economic stagnation and apparent backward movement, Zimbabweans find themselves at financial & political crossroads and asking a lot of questions.

Bullish Thoughts discussed at length with a number of colleagues across various facets of the economy on whether or not Zimbabweans should "Ask not what Zimbabwe can do for you - ask what you can do for Zimbabwe"

The discussions were premised on the prognosis that BUY ZIMBABWE campaign was and is literally the practical way left to save various manufacturing industries from the financial abyss.

Sometimes it is easier to point and criticize the next person than to accept our own contribution. Business leaders in particular have been guilty of this in running our businesses blaming so called antiquated equipment, low liquidity etc while leaving in excesses!

Zimbabweans are educated enough to create positive change. Zimbabweans rejected the Zim dollar when it became worthless and way before Acting Minister of Finance Patrick Chinamasa made it official and Zimbabweans can therefore make appropriate decisions now otherwise they will not be doing current and future generations any favors.

We are being challenged to become each one of us a voluntary BUY Zimbabwe Advocate and if we can get this message to enough people (particularly women since men generally stay away from the supermarkets) we can at least improve the situation.

Imagine if BUY ZIMBABWE could be allowed to address the people various Cathedrals for Catholics, Anglicans, Methodists, DRCZ on Sundays, congregants at ZAOGA, Makandiwa’s UFI and Pastor Angel’s Spirit Embassy and also various AFM Assembles congregations plus Mapostori, what will be consumed tonight by the 14 million people is enough to create

thousands of jobs.

Buying Zimbabwean Products is the biggest stimulus package. BUY Zimbabwe should also be the focus of the fiscal policy and the various strategies by CZI, ZNCC and CCZ.

Bullish Thoughts appreciates the concerns of the bargain hunters. Many would prefer to buy local products but price becomes a key factor in a place of falling disposable incomes. Therefore there is need for the producers to meet consumers halfway in the short term. All Zimbabweans (producers & consumers) need to make sacrifices if industries & jobs are to be saved and created.

The producers must forego a portion of margins while consumers forego a portion of savings they get from buying cheap imports.  Consumers can't give manufacturing industries executives money to buy Mercs at their own expense.

Certainly consumers wouldn't mind buying Olivine Cooking Oil at $4.40 if Delite is at $3.99 as is the case right now. But if Olivine is to peg the cooking oil at $5.50 then “hapana dhiri”. Bullish Thoughts noticed that consumers still buy Jade soap because it’s of quality and fairly priced

 Bullish Thoughts therefore challenges the producers of various consumer goods to come with quality products, priced and packaged fairly correctly. If they do that, consumers will certainly BUY Zimbabwe products from them.

Bullish Thoughts appreciates that consumers rarely look at who is selling (under any operating environment), that consumers are not emotional about the identity of the seller. They are spending their hard earned cash and they deserve the best product.

No One wants to carry the whole nation by subsidizing inefficiencies in the manufacturing sector!!

What Bullish Thoughts heard from the consumers is that producers should also be willing to meet halfway and not always focus on price increases either implied (reduced contents in packets) or direct!

BUY WISELY! BUY ZIMBABWE during the next 35 days and create jobs in our Proudly Zimbabwean Country!!

Parting Shot: What the market requires of SEC...

Bullish Thoughts wishes to say to SEC that Capital Markets integrity will also be promoted through:-

• ·         Mandatory Cautionary Statements for appalling financial results
• ·         Investigation of potential insider trading
• ·         Penalties against auditing firms that pass through faulty and misleading financial statements.
• ·         Disclosures of Directors Dealings as and when they happen

Special Bulletin-Bullish Thoughts: Are Zimbabweans “enemies” of their own industries?

Bullish Thoughts received the following feedback from a subscriber working at at one of the local Zimbabwean companies and felt compelled to publish it to the broader readership to create more discussion & solutions especially on the BUY ZIMBABWE campaign.

The fact that the majority of goods consumed in the country are imported has created a crisis in Zimbabwe.

Picture this: A hubby works for the company that makes buttercup margarine…Olivine for example. He discusses with his wife how tough things are at work due to low demand and explains that this is the reason that the salary was late. He proceeds to give his wife the grocery money. The following day the wife goes out and buys "cheaper" imported product including imported margarine. The following month the margarine plant downsizes and the hubby is retrenched.

SO are wives (read spouses) destroying their hubby's employment? Did the wife effectively fire the hubby?

If this is being replicated throughout the country are we not being irresponsible with our purchasing power and creating jobs in South Africa whilst our children are without jobs?

The result:-

·         Too many people are unemployed in Zimbabwe

·         Bank deposits and savings are low

·         Revenue collected low as taxes are on low base

·         Zimbabwean Banks cannot save money earned by foreigners so they have no deposits to lend

·         Zimbabwean Government cannot tax foreign companies not operating in Zimbabwe and employees in foreign companies thus no adequate funds to take care of Zimbabwean citizens

·         Too many local people are unemployed ,thus people cannot pay ZESA and the Urban councils for services as they have no earnings

How do people remain employed?

I make margarine for you and you make mealie-meal for me… you drive me to work in your bus and my friend makes plastic packaging for the mealie-meal that you make. A cousin of yours makes the cooking oil and his brother makes corn cereals, his sister makes clothes for you etc.

But if one of these products is imported then one person or several persons get unemployed. If more of the products are imported more people get unemployed.

So make sure at least half of what you buy is a local product and you will CREATE a job or jobs.

You will help save my job and I will help to save your job and the government will collect taxes and sort out the water and power issues (hopefully).

We have the power to help each other. Let’s create jobs here and not in South

Africa or China by Buying ZIMBABWEAN PRODUCTS.

Everytime you buy a product you create a job somewhere so why not create that job here for someone that you know and then you do not have to pay school fees for your brothers children because he will be able to find a job.

Before we blame others for our state, let’s do our bit buying buying Zimbabwean products.

Buy Wisely!

Bullish Thoughts: When falling inflation rate is not celebrated…

No huddling around TV waiting for the budget presentation

Bullish Thoughts did not even bother listening to the MoF presenting the 2013 National Budget. He did not expect anything  that would shift the markets.

During the Z$ era (or at least when the Z$ could still buy in 2006-September 2008), we would all surround the 14 inch ‘guvhu out’ TV set and wait anxiously for the MoF to announce the National Budget or the supplementary one popularized by Minister Murerwa back in the days.

The tax free threshold was the main attraction while the tax free bonus threshold was what it was…a bonus!

This time around, workers did not have that adrenalin moment. If anything, it was only civil servants who were very much interested in their increment.

The tax free bonus of $1000 may just turn out to be but a number.

How many companies can afford that kind of payout to begin with or even a bonus pay out at all?

The manufacturing sector in in dire straits…capacity utilization has taken a dip and there is just no demand for local products…the majority of them that is!

When falling inflation is not celebrated…

Zimbabwe’s inflation has been fairly low as a statistic that is. However, its slowly risking becoming just a statistic.

All students of Economics will know of Japan & the Great Deflation. Prices were so low in Japan that industry existence remained challenged for more than a decade. It even got worse when prices started falling.

Whilst to consumers this may be good news, the same is not true for producers.

Producers need inflation to make profit. Rising prices imply you have a better chance of selling your product or service at above cost of production.

Closer home in Zimbabwe, manufacturers have an idiosyncratic scenario where they have sub optimal operating costs (high labour costs, high power & water costs, high finance costs) which impact materially on the final price of the product.

Now the cost of production is going up and lack of demand is causing market prices to go down.

It doesn’t make economic sense to use premium pricing for a low quality product worse still in a falling prices market.

We have even seen some gymnastics from corporates experiencing price ceilings on their products no matter how good themselves think of their products. The Cascade is now smaller while Delta had the balls to take Shumba Mahewu to 60c. Psychologically, Zim consumers do not accept prices above 50c for cordials and other smaller package products.

If the economic environment does not change Zimbabwe may become the first country in the world to suffer economic damage from both hyperinflation and low inflation.

PUPS…

Anyone remember the Beverly Building Society little book that would be put on a typerwriter to record your transactions?

Bullish Thoughts never had one but remembers seeing such little bank book (the red one for daily transactions and the blue one for PUPS).

It would be interesting to see the uptake of such products or the keenness of mortgage finance institutions to resume such products…

Back in time: No love lost…

Bullish Thoughts thinks he was in Form 2 around this time. Do not ask him where he got this from suffice to say he couldn’t help but smile. Never mind the reason for the smiling!

Diamonds & Dogs: Of pork skins with Mukuyu Wines

Diamond: Delta Beverages

Delta Beverages numbers now come to the market after parent company SABMiller would already have provided some insight into the volume numbers.

An analyst’s job would be simply to do the backward number crunching. That volumes rose a muted 9% y-o-y was not a surprise even though the stunted growth was due to an 8% fall in “masese” following an upward review in prices.

Delta became the first billion dollar market cap company on the ZSE even though the original trades taking it into the 10 digit zone were for posterity.

Now post financials release it seems to have established a support level probably around 95c though Diamonds & Dogs is sure that the range for support could pull back to 90c.

Whilst the share price has not moved phenomenally upwards the past week to warrant a diamond spot on basis of %ages, it’s the result of significant capex into modern technology that Diamonds & Dogs wishes to highlight.

There are many other companies that form great turnaround stories if only they can invest in new PPE. The figure 42,000 beer pints per hour was unbelievable when Delta commissioned the first installment of its bottling lines months back.

It went on to add more lines on both sparkling beverages, beer and even had the luxury of premium priced products.

The efficiencies from new lines are compensating for would be additional costs in switching to “dumpies” or disposable bottles and all.

The margins are also improving even though they are about to hit the short term optimal levels.

The cash is flowing with a 33% dividend payout though shareholders will definitely prefer a payout in excess of 50%.

After all, most of the capex is done and after FY2013, all the money just has to go back to shareholders.

Plus…there will be more drinking during election time!!!

Dog: Cairns Foods

Diamonds & Dogs feels for Cairns management and its entire workforce. Just what exactly is it that they wake and go to work to do?

The product line from Cairns has literally disappeared from the shelves in supermarkets and the space is full of imports and repackaged products.

No Willard Corn Flakes, no Willards Bran Flakes, no Willard Peanut Butter, no Sun Jam, no Mukuyu Wines, No Cashel Valley beans, no Brono Gravy, no Tomango!!

Unless the RBZ finds a taker soon, the company is just likely to fold under the burden of debt and it doesn’t have the financial position to refinance the same debt cheaper.

Diamonds & Dogs hopes, there will be no creditor intend of attaching the company’s assets.

Juxtapose Cairns Foods’ performance to reduction in capacity utilization in the manufacturing sector and you really get the picture.

The cost of production in Zimbabwe is so high that it just makes less economic sense to dump higher priced local products on the market.

Diamonds & Dogs made his decision long back when Cashel Valley was still in the shops at $1.12 against Tiger Brands’ Koos beans at $0.85.  The premium pricing could not prevail in Zimbabwe given the disposable income levels and moreso being above that of a relatively fair quality product.

The same goes for Chompkins “Chips”. Diamonds & Dogs did see some packets squashed in a corner at OK Zim Greencroft and priced at $2.00 for the big packet and again more expensive than Lays and Simba chips which are of great quality anyway.

What is the management strategy? Recover the punitively high costs through higher prices which materially reduce stock turnover ratio and worsen the cash position for the company.

Cairns Foods is in need of plant overhaul to introduce efficiencies, better throughput and ching ching to shareholders.

Unfortunately, unless a deep pocketed investor bails the company out soon, Cairns Foods might just be destined for the history books. The Zimbabwean consumer is not too picky on quality otherwise pork skins would not be flying off the shelves right now!

DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other Indices quoted herein are for guideline purposes only and sourced from third parties.