Bullish Thoughts: Of scaffold dancing Zoey, X-rated tapes & Entrepreneurship

Bullish Thoughts is Proudly Zimbabwean despite all the negative stories and sanctions upon him. He loves Zimbabwe’s climate. Right now some are melting in the Kariba, Chiredzi & Victoria Falls heat while others are freezing in Nyanga & Vumba yet others are with moderate temperatures in the mining town of Bindura.

Bullish Thoughts is surely grateful to be a Zimbabwean. He loves the generally peaceful environment and doesn't fear terrorists so long he remains in these borders.

Imagine you are busy drooling at Zoey attempting to scaffold dance (it would have been pole dancing if they did use proper poles) at some supposedly private lounge in a downtown joint and some crazy person just comes in and starts spraying everyone with bullets from machine guns. Just like that!

Or you are busy evaluating if there is a business case and or legal space to establish online business in Zimbabwe hosting lying down tape (some call them sex tapes) from Zim celebrities which are X-rated and someone just drops some nerve gas and kills all of you. Just like that!

Or you are picketing at a mine which you work at because you want the mining house to give you an increment and police which also wants a pay rise spray you with bullets from automatic guns and life goes on.

Or you are in a church on a busy and booming Sunday preaching or 

implementing gospelneurship (or is it gospreneurship) at some start-up spiritual calibration venture and clients…oops…congregants are outside the church buying some $1 bricks each which you bought for 10c each and some disillusioned militant comes and sprays the congregants with bullets. Bad for business and one wishes the pastors could do a "Kinjikitile Ngwale"!

Bullish Thoughts hopes you have now gotten the drift that whilst things are getting tougher by the day (evidenced by the increased shirts & shoes boot sales reminiscent of 2008) there could actually be worse things happening which are not.

Eating at the speed of light…

The weird and ghastly eating habits at dinner have come back for many men and certainly selected women of valour! Many spouses by this week have probably started having the conversation with phrases like “…are you being chased…”, “…why are you eating like a homeless man…”, “…chew your food…”, etc. Well, with the way power has been going lately, a lot have started eating at the speed of light! When a plate or nosh is placed in front of you would you rather risk eating on dark or you would prefer gobbling your food?

LPGeeing your way into entrepreneurship…

Bullish Thoughts is tempted to think somebody recently ventured into the LPG gas business and needs to make a killing before the next Cabinet reshuffle judging by the queue Bullish Thoughts sees everyday at his local LPG retailer (under a tree of course…). Bullish Thoughts thinks there is good money to be made from this LPG gas business and is willing to give it a shot. He will be doing some margins evaluation to see if he can break the 20% net margin barrier especially with way things have been going with some listed corporates earnings and share prices and the ZESA opportunity created by both load shedding & prepaid meters.

He has already set his eyes on a yet unoccupied tree as a target location with a nice catchment area. Yeah, Bullish Thoughts will be number crunching the gas business. He already knows someone with two 50kg tanks that don’t need a pump to use and can just be turned upside down and let gravity do the rest.

Bullish Thoughts is however debating on the name…will it be called Bullish Gas (which has a hazard of not being bought with consumers thinking of biogas, yes that biogas from the primary science project!).

Or he will just paint some metal signpost that reads GAS HERE! Who cares about a brand so long there is no power especially with the rainy season upon us!

Irresponsible accounting & auditing woodwinking investors…

Did you ever think established players like would start booking some weird millions of dollars as profit realised from debt forgiveness through above the line on the Statement of (Un)Comprehensive Income? Seriously, which supplier would forgive the debt of a highly rated borrowers like the tobacco players? And its not only tobacco players doing that. Look at most of the released financial for the reporting period that will end 30 September and you see how many extraordinary items came through above the line and carried the day?

Why don’t company management just own up like the likes of NMB have done that things are not so rosy and earnings are coming off?

Creative accounting is surely here to stay and shareholders be warned. Very soon we definitely will be seeing revaluations (biological assets & properties) coming back.

Cabinet brief: To be or not to be publicly whacked…

There was so much hype and hullabaloo from purported analysts on the local market that there was a gap created by the delay in announcing a Cabinet…something along the lines that there was significant uncertainty hence the market was falling. Bears were in charge!

The Cabinet came and there were no surprises. It was practically the same old fellas and some old new faces! Then the stock market went up some 5% or so and is still on an upward trend albeit amidst thin trades and some analysts are attempting to attribute the thin rally to the presence of a Cabinet!

Bullish Thoughts doesn’t have much to say except to ask what is bullish about saying that we will attempt to mortgage the minerals (again) in a falling market for commodity price?

Maybe it’s the perceived moderation in Indigenisation even though the President did attempt to be hawkish about the policy not the custodian of the ministry.

Well, it’s quite one thing to be smacked in public view and quite another to be whacked quietly! The previous incumbent would smack you in public and make you whimper in full view of everyone denting your confidence whilst the current indigenisation custodian is likely going to whack you in private and still get your investing ego tail between your legs. The only difference is you will have your public ego and confidence and hope for the best. No confidence lost but same end result! This way we could possibly say the Cabinet appointments were somewhat bullish!

Invest Wisely!

Bullish Thoughts
bulls@bulls.co.zw
+263 4 292 7658, +263 77 344 1674

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.

Bullish Thoughts: Cabinet(ing) the way to the bear market

How does one manage to maintain an optimist outlook in the face of such stock market aberrations? Is the decline in the stock prices a reflection of the political risk emanating from the liberation struggle party win or it’s a correction that was overdue?

Is it uncertainty emanating from a delay in the Cabinet appointments? Bullish Thoughts is having difficulties appreciating what effect an ideal Cabinet structure would achieve for the market.

There are two key components at stake here: Willpower & money.

Would the best Cabinet turn around the economy based on willpower alone or it will all eventually boil down to capital access (money)?

Bullish Thoughts thinks everything will eventually boil down to ability of the government to access external capital markets…itself a tall order given the country’s external debt position at more than $10.7bn.

The Indigenisation capital raise framework in the manifesto of the ruling party also require that someone should have the cash to buy the assets or capitalise the businesses to sweat the resources.

With the global commodity prices rout and rising costs of production, are foreign investors going to be very keen for JVs worse still with a heighted country risk premium?

What is the ZSE pricing....

Bullish Thoughts wonders what the ZSE bearish trend is pricing. The equities market capitalisation came off 22% in August though it is still 17% up on a YTD basis. Industrials lost 22%, heavy caps Delta, Econet and Innscor also lost ground retreating 27%, 28% and 22% respectively in the month of August.

Second tier stocks were not spared either with Dairibord declining 30%, OK Zimbabwe down 30% and BAT down 30%.

Many analysts were pointing to the fact that the market was overheating ahead of the harmonised elections and was overdue for a correction.

The prices are falling but it seems no one is pointing towards a correction perhaps due to the “resounding loss” that has been witnessed in the month of August alone.

Yes, we are all agreed that the almost record turnover of $54m witnessed on the ZSE is largely attributed to foreigners exiting the local stock market but again were the same foreigners not overly exuberant in the beginning?

Bullish Thoughts feels sorry for those Greater Fools who bought Delta at 157c, OK Zim at 31c, Innscor at 118c and BAT at 1402c.

Elections or no elections, one wonders what drives such investment decisions.

Furthermore, the interim results for half year to June 2013 have started coming to the market and what a mess they are!

Negative growth if not outright losses are the order of the day. Only banks appear profitable largely on the back of non-funded income simply because you can’t default on this one.

But the NPLs continue to be the sector’s Achilles Heel and for the banking sector at least the market was not too overconfident perhaps due to instability at a number of local banks.

The operating performance for the companies is not so good, bank deposits are declining, inflation is falling on the back of low disposable incomes and everything “that can smoothly go wrong is proceeding to do so”.

Bullish Thoughts is thus thinking that whilst the market decline may have been worsened by foreign selling, it is probably largely reflecting weak corporate performance and a subdued economic outlook and the current fundamentals do not seem to be supporting a platform for a bullish ZSE in 2013 good Cabinet or no good Cabinet!

But then they are just thoughts.

The Human Aspect at ZSE Listed companies…

While still looking at listed companies, Bullish Thoughts felt it is necessary to just look at how quality of management affects the performance of companies.

When trying to select shares to buy, it is easy to overlook the human aspect. But it is people who give life to the numbers, business models and product offerings of an organisation. It is people who make the decisions and take action. And it is people who craft strategy and allocate capital.

Ultimately it is the people in a business who determine its success or failure. Thus as investors, it is imperative to understand and have confidence in the people managing the companies we are investing in.

It is executive management who exercise the most profound influence over a company’s fortunes, as they have the power to direct its human and financial resources.

In order to find out whether management does indeed possess the desirable traits, you’ll need to study the business histories of each member of executive management. Important questions need to be asked such as: Who are they and how did they get to where they are? How have they fared in good and bad times? What impact have they had in other roles or businesses?

How a company performs serves as a marker as to the attitude and competence of its leaders.

Management competence is one of the critical traits. Many talk of Joe Mtizwa, the former CEO of Delta Corporation as a person who had exceptional competence.

Bullish Thoughts reckons its early days to judge the competence of Washington Matsaire, the current CEO of TSL and past CEO of Standard Chartered Zimbabwe and formerly acting Chairman of Standard Chartered Botswana.

The competence requirement essentially asks whether management possesses the skills, knowledge and understanding to run the business effectively. Before investing in a company, carefully examine management’s experience and track record in making strategic, operational and financial decisions.

A competent management team displays a deep understanding of the company’s products, customers and financial attributes. Look for evidence of this in company presentations and management statements. The chief executive especially must display a thorough understanding of all areas of the business.

Bullish Thoughts like many others always find it slightly uncomfortable when a CEO refers basic financial questions to the financial director during results presentations. The CEO should have a firm handle on all numbers in his business, be they financial, key performance indicators or market shares. How else is he/she able to make informed decisions?

Two areas of competence especially important is management’s track record in allocating capital, and how they have behaved during challenging times. It is critical that management is rational in its allocation of capital – that is, it spends the company’s resources on projects and assets that generate suitable returns.

Most management teams are able to do well in boom times. It is the lean times however, that reveal true skill and ability. A number of managers have failed to steer the ship in post dollarized Zimbabwe.

The Zimbabwe corporate history books are already filling up with balked operations and Judicial Management alerts for both listed and unlisted companies.

Challenging conditions reveal who has had the foresight to implement robust and resilient operating and strategic models. Competent leaders prepare for both good and bad times.

Unfortunately for most in Zimbabwe, the bad times are just proving to be too bad!

Invest Wisely!

Bulls n Bears Invest Wisely!
bulls@bulls.co.zw
www.bulls.co.zw