Diamonds & Dogs: A dog called NicozDiamond

Diamond: Lifestyle (US1.50c, WTD: +36.36%, YTD: -40.00%, Mkt Cap $ 11,430,546)

Diamonds & Dogs will not comment much about the Lifestyle numbers given that they came through TN Holdings numbers and the demerger is fairly too recent.

He is however worried about the outlet strategy on those malls especially the Angwa Street& First Street ones.

Firstly, whilst the traffic is dense in that area, one would have thought outlet concentration would make sense in food and beverages not furniture.

Why is it that there is only one Mohammed Mussa in Harare and “everyone” goes to South Avenue for shopping? Because convenience is not necessarily the edge on consumer durable goods.

Diamonds & Dogs is certain that anyone who goes in the TN Bank Mall on First Street will be extremely worried about the sales per sqm given the swathes of empty space.

To make it worse, Innscor Fast Foods has been cutting down the prices and one wonders what will happen to the Grill outlet 10 metres away from Nandos, Steers, Chicken Inn, Bakers Inn, Pizza Inn, Creamy Inn. Some fights are not worth fighting in a closed ring.

The Slice guys knew that well and created their own space away from predatory Innscor fast foods and its paying off.

Diamonds & Dogs hopes TN Grill won’t be grilled by Zed Koudounaris and eaten as a takeaway.

Furthermore, Diamonds & Dogs thinks that the South African route will bleed the furniture business. SA furniture retailers know the price competition game and are willing to protect their turf.

To make it worse, SA is a credit market and there is no prize for guessing the extent to which credit cards have been maxed out.

Lifestyle is a low end furniture producer and exports may not bring the necessary revenues given the volumes required on low end goods.

High end exports (the Adam Bede type) would probably have allowed for niche market creation and hence command higher margins.

The Zim market is obviously saturated because a bed or sofa doesn’t have a repeat sale unless after 3 to 4 years. Liquidity crunch is biting and even with zero deposits, very few can afford the monthly installment.

The various corporate earnings are showing that disposable incomes are now wafer thin if not negative.

Perhaps its high time Lifestyle and Pelhams were merged to cut on costs and exploit any synergies.

Lifestyle’s Weekly Trading Statistics

	Attribute	27-Aug	28-Aug	29-Aug	30-Aug	31-Aug
Lifestyle	Price	1c/1.6c	1c Bid	1.5c	1c/1.6c	1.6c Offer
	Volume	-	-	13,000	-	-
	Value	-	-	$195.00	-	-

Dog: NicozDiamond (US1.1c, WTD: -45%, YTD: -0.63%, Market Cap $6,224,447)

General insurer,NicozDiamond, released its 1Hy2012 results to June 2012 and witnessed a 45% price decline in the aftermath.

Could the two events be related?

 NicozDiamond is undoubtedly one of the most regarded general insurers on the market. The company that has been under the stewardship of Grace Muradzikwa aka“Sister G” for quite sometime now has substantial brand equity backed by a credit rating on claims settlement.

Grace Muradzikwa, with over 24 years’ experience in the insurance sector has received numerous personal awards as well as on behalf of Nicoz Diamond. The awards were for first black female to list and head a publicly traded company in Zimbabwe, 1996 Insurance Personality of the Year, 2004 Zimbabwe Manager of the Year runner up, 2005 quoted companies Best Insurance Counter and Zimbabwe National Chamber of Commerce 2005 Businesswoman of The Year.

Muradzikwa is recognised as the first female managing director to win two IoDZ director of the year awards since their inception in 2004.

Diamonds & Dogs knows that you are now wondering if this is still about NicozDiamond or not. That depends on how you answer the following question:-

“Where will NicozDiamond be after the departure of Sister G sometime in the future?”

Back to insurance...general insurance has been suffering from an underperforming engineering and motor sector largely on the back of rate undercutting.

The rate undercutting particularly has been the undoing for the sector and saw IPEC threatening to intervene on the market in 2011. Unfortunately, the rate are only recommended and not enforced so insurers are left at the mercy of brokers who always threaten to take the account to the next insurer for a better price.

To make matters worse, the money and capital markets performance is not helping either.

Equities, which form a huge portion of general insurers’ investment portfolio are in free fall with Industrials down 9% YTD and Minings down 12% while money market rates are coming off on the back of moral suasion while stable banks are also quoting even lower interest rates.

That places, general insurers between a rock and hard place.

1HY2012 Results Summary

NicozDiamond

§ +20% growth in GPW to $14 million for the six months to June 2012 whilst reinsurance ceded increased by 58% to $6 million.

§ NPW grew by 9% to $8 million, the lower growth being the effect of the big jump in reinsurance ceded.

§ NPE fell by 7% to $6.8 million as the unearned premium reserve grew by $1.2 million in the first half compared to $556,587 during the same period in 2011.

§ Claims fell to $3.7 million from $4.5 million and contributed to the decline in combined expenses from $7.2 million to $6.7 million. Profit for the period was up $17% at $654,119.

§ Zimbabwean operations contributed 96% of the underwriting profit whilst FICO (Uganda) contributed the balance.

§ Going forward, NicozDiamond is pursuing the recapitalization of FICO.

NicozDiamond Weekly Trading Statistics

	Attribute	27-Aug	28-Aug	29-Aug	30-Aug	31-Aug
NicozDiamond	Price	1.3c/2c	2c	1.3c/2c	1.2c/2c	1.1c
	Volume	-	3,829	-	-	55,573
	Value	-	$76.58	-	-	$ 611.30

ZSE Round Up

Market Performance:

§ Total market capitalisation rose 0.54% to close the week at $3.73bn. YTD -6.09%.

§ The industrial index closed the week 0.75% higher at 132.27 points. The mining index closed the week unchanged at 89.04 points.

§ Heavyweights Delta, Econet and Innscor recorded overall gains for the week of 4.11%, 0.72% and 1.11% respectively.

§ LifeStyle Holdings, Interfresh and Afdis were the top gainers of the week, up 36.36%, 20.00% and 15.38% respectively.

§ PG Industries, NicozDiamond and African Sun recorded the most significant losses, down 50.00%, 45.00% and 23.47% respectively.

Flows for the week:

§ Volumes traded and turnover totalled 30.4mn shares and $2.8mn respectively.

§ Share volumes averaged 6.1mn shares per day.

§ Average daily value traded was $567k for the week. Trades were dominated by Delta, Econet and Barclays which made up 26%, 19% and 8% of turnover respectively.

Invest Wisely!

Notes

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

** Statistical information was sourced from ZSE, IH Securities, EFE Securities& Bulls n Bears (www.bulls.co.zw)