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

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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!