Diamonds & Dogs: Are stock market analysts scared of making wrong recommendations?

 

Diamond: Meikles Africa (US20c, WTD: +17.60%, YTD:  23.50%, Mkt Cap $49,074,958)

Diamonds & Dogs gotta say that if wishes were horses, he would have preferred the Meikles Africa of pre-demerger period with Kingdom Financial Holdings.

Those days, Tanganda was separately listed and therefore had more financial disclosure when it reported its financials.

Essentially, the information was fairly easy to understand. Now Tanganda is reported on just like TM & the departmental stores implying more difficulty/ less financial info availability.

Back to the parent company: Meikles Africa used to be a blue chip stock, the kind where a fund manager of stockbroker would just paste a buy or recommendation without doing any analysis at all.

It was deemed a defensive stock, the TM Supermarkets taking care of the ever consumptive economy, departmental stores catering for the credit market while the hotel business was the icing on the cake given the Leading Hotels of the World affiliated Meikles has been the best hotel in Zimbabwe even post dollarization. So the assumption was that cash would flow to the business.

The stock even traded at 82c on 29 & 30 June 2009 (note that the entire market was close to an all-time high). The stock fell and seemed to have a support level at 55c, then 32c then 18c before trading as low as 12c.

The movement from an all-time high of 82c post dollarization to a low of 12c represented a capital loss of 85%. Currently the price is around 20c which is still 75% lower for the greater fool which bought at 82c and 64% lower if bought at 55c.

Whilst price is moving up, there has been no resolution to the c$60m debt that the group is saddled with.

That amount of debt is every investor’s worry. Won’t Meikles Africa do another RioZim…Lose shareholder value further while investors suck up the price trend reversal?

Diamonds & Dogs will be watching the space especially on the fundraising issue given that a sum of $200m has already been thrown around.

It is envisaged that the funds will be raised through largely debt and also offshore. It would be interesting to see if Meikles Africa can attain the funders’ confidence the extend of Econet Wireless (Zimbabwe & Global) that has seen it raising a $300m syndicated facility locally and offshore over and above series of finance facilities from regional finance institutions.

Finally, have you noticed that fewer and fewer stockbrokers, fund managers and analysts are rating Meikles Africa?

Should be all scared of making a wrong call especially in the wake of having gotten it wrong on Starafrica, TA, RioZim and Bindura Nickel!

Or may be the majority of stock market research peddlers are sell side analysts? Just wondering aloud! But whatever the reason, the ZSE generally is crying for quality research reports and sound analysis whether buy or sell side.

Meikles’ Weekly Trading Statistics

	Attribute	08-Oct	09-Oct	10-Oct	11-Oct	12-Oct
Meikles	Price	17.02c	17.5c	20c	20c	20c/21c
	Volume	7,181	3,092	3,127	35,380	-
	Value	$1,222.21	$541.10	$625.40	$7,076.00	-

Dog: Afre Corporation (5c, WTD: -33.33%, YTD:  +66.67%, Market Cap $10,856,195)

Diamonds & Dogs will not deliberate much on the capital loss registered by Afre Corporation in the past week given that the volumes and value of trades are just over $800 for the whole week.

Instead he takes a look at the now public rights offer document. Afre Corporation recently published a cautionary/ circular with the details of the rights offer that had been pending for a long time. The rights offer will be deliberated on 26 October at an EGM, the same meeting which will deliberate the outstanding directorship changes as recommended by IPEC.

Approximately US$8,630,675 is expected to be raised by way of offering approximately 162,842,928 Rights Offer ordinary shares of nominal value of US$0.001 at a price of US$0.053 per share to holders of Afre Corporation shares on the basis of three (3) new ordinary shares for four (4) ordinary share already held.

The Rights Offer shares are payable in full upon acceptance and within the Rights Offer period, and will rank pari passu with all existing Afre Corporation ordinary shares including the right to receive all dividends and other distributions thereafter declared, made or paid on the issued ordinary share capital of Afre Corporation with effect from date of issue.

The Board indicated that the Rights Offer is being undertaken to address minimum capital and solvency requirements of Afre Corporation's insurance businesses, namely TristarInsurance, FMRE Life & Health, FMRE Property & Casualty Zimbabwe and FMRE Property & Casualty Botswana.

It is interesting to note that the second biggest life insurer and health funder, First Mutual Life is not part of the capitalization drive.

A scan at the 1HY2012 financial numbers from First Mutual Life shows stable business growth which obviously has had an impact on the balance sheet growth of the same business

First Mutual Life Gross Premium Income Analysis
	June-12	June-11	Growth
	$’000	$’000	%
Life assurance	4,825	4,065	19%
Medical Savings Fund	17,634	14,712	20%
Employee Benefits	5,406	8,278	-35%
Total	27,865	27,055	3%

The business has stabilized significantly post dollarization with the fairly new Medical Savings Entity now accounting for a big chunk of Afre Corp revenues whilst still seated at a health claims ratio of 67% well below regional averages of 90%. Whilst Employee Benefits did witness a downward swing in premiums largely emanating from the loss of investor and policyholder confidence during the tumultuous 2010/2011 period, the unit is still profitable and is certainly going to build upon the leadership renewal that has happened at the holding company.

First Mutual Life Claims Analysis
	30-Jun-12	30-Jun-11	Growth
	$’000	$’000	%
Life assurance	1,575	1,649	-4.5%
Medical Savings Fund	11,732	11,176	5.0%
Employee Benefits	1,613	2,928	-44.9%
Total	14,920	15,753	-5.3%

The Rights offer proceeds are expected to be utilized as follows:-

	Amount
	US$
Recapitalisation of FMRE Life & Health	$1.5m
Recapitalisation of FMRE Property & Casualty (Zimbabwe)	$1.6m
Recapitalisation of FMRE Property & Casualty (Botswana)	$2m
Recapitalisation of TristarInsurance	$1.65m
Settlement of Amounts owed to policyholders	$1.33m
Expenses of the rights offer	$0.55m
Total	$8.63m

The rights offer is being underwritten by NSSA which is the current major shareholder.

The Afre Corp Board of Directors has since recommended that shareholders follow their rights under the proposed rights offer as they believe that the transaction is in the best interests of both the company and its shareholders. Afre Corp’s balance sheet size will be materially enhanced enabling the  insurance businesses to underwrite more business, retire internal debt and purchase investments that meet liquidity and solvency requirements.

Afre Corporation Weekly Trading Statistics

	Attribute	08-Oct	09-Oct	10-Oct	11-Oct	12-Oct
Afre Corporation	Price	5c/7c	5c	5c	5c	5.2c/7.5c
	Volume	-	2,065	13,714	528	-
	Value	-	$103.25	$685.70	$26.40	-

One question on Diamonds & Dogs’ mind is: “What is the intrinsic value of Afre Corporation?” In as much as the market dictates the value through demand and supply, can anyone convinced that Afre Corp should be valued at $10.8m do the maths for us.

Is there a conglomerate discount at play here? A scan of various shareholder registers on the market will reveal that the equity investments alone of the Group exceed $10.8m. Despite the pending rights offer, is this kind of discount warranted?

At least Econet Wireless, another perennially undervalued stock, has recently rallied to $4.80 is now about 40% away from the market consensus price of $6.70.

If Diamonds & Dogs takes the plunge on Afre Corp, wont he be a mini Warren Buffet 5 years down the line?

The Weekly Bulls n Bears

Bulls	Bears

ZSE Round Up

Market Performance:

·   Total market capitalisation rose 1.65% to close the week at $4.5bn. YTD +12.17%.

·   The industrial index closed the week 1.86% higher at 151.8. The mining index closed the week 0.21% higher at 87.3.

·   All heavyweights recorded gains this week, with Innscor, Delta and Econet rising 5.56%, 4.79% and 1.05% respectively.

·   Meikles, TA Holdings and Dairibord were the top gainers of the week, up 17.65%, 17.12% and 17.07% respectively.

·    Afre, ZB Financial Holdings and Phoenix recorded the most significant losses, down 33.33%, 30.43% and 25.00% respectively.

Flows for the week:

·    Volumes traded and turnover totalled 55.1mn shares and $7.4mn respectively.

·    Share volumes averaged 11.0mn shares per day.

·    Average daily value traded was $1.4mn for the week. Trades were dominated by CBZ, Econet and Delta which made up 30%, 18% and 17% of turnover respectively.

·    RioZim was the only mining stock receiving significant interest as it accumulated trades worth US$178 thousand in the week.

 

Week Turnover Contribution

Delta and Econet Contribution to Total Turnover

In a sign of continued liquidity challenges in the market, the turnover trend continues to be depressed. Average daily trades are under US$1 million and from the plot above Delta and Econet have dominated the trades. Econet and Delta have a combined market capitalization of US$1.9 billion which is 42% of the total market capitalization. It is therefore not surprising that these counters drive the Industrial Index.

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, BancABC Stockbrokers & Bulls n Bears (www.bulls.co.zw)

Bulls n Bears

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Bullish Thoughts: Leadership and the conferring of awards

Bullish Thoughts was taken aback when he came across an article to the effect that Kalamazoo Business Machines was going into Judicial Management.

This is a company whose principals would travel to the United States of America to receive awards for excellence in running the Highfield Road based business. Bullish Thoughts will not comment on whether the awards were earned given that he neither came across products from the enterprise nor ever understood how the business was changing Zimbabwe in the positive way.

He was also taken back to the newspaper supplements hailing the exploits of Bakers Association Of Zimbabwe Chairman & long serving CEO of Lobels Bakery. Burombo Mudumo was fired from Lobels in 2010 alongside Nesbert Gufu (Financial Director) and Tonderai Chipere (Treasurer) on allegations of misappropriating more than US$10 million which brought the bakery to its knees.

These thoughts in Bullish Thoughts’ mere mortal grey matter were triggered by a wave of company “bosses” that have been getting so many accolades in recent days.

There was an award for Fidelity Chief Simon Chapereka, AfrAsia Kingdom Chief Lynn Mukonoweshuro (at least this was for customer service excellence) amongst many other bosses being congratulated for a host of things.

Bullish Thoughts just prays that these leaders are running their businesses in a sustainable manner for the market doesn’t wish to see celebrated leaders being fired or eventually presiding over failed corporates.

Bullish Thoughts will not talk about a host of other unreported corporate failures in town whose leaders are still clinging on despite the glaring failures of their businesses.

Just for clarification: It’s not always a bad thing to get an award. Sister G has received so many accolades and is still walking with her head held high in the Insurance sector.

It’s just that when these awards become too many in a short space and accompanied by a lot of congratulatory suppliemnts in newspapers…it’s more like kana kangoma koririsa kava kuda kuparuka!

Lastly on the leadership topic, Bullish Thoughts is hoping other leaders will take a leaf from the renewal that has happened at the helm of Delta Beverages, Starafrica, Standard Chartered and recently Old Mutual.

Cancer Awareness Month… Wear Pink this October

October is the National Breast Cancer Awareness Month across the whole world. With Zimbabwe recording more and more cases of cancer in its various forms but notably cervical & breast types for women and kapos sarcoma in men, it is necessary that we all fight this new killer disease. It is in the spirit of this fight that Bullish Thoughts is encouraging all men and women to fight this scourge.

How to examine your breasts...

Women should be aware of how their breasts normally look and feel and report any new breast changes to a health professional as soon as they are found. Finding a breast change does not necessarily mean there is a cancer.

A woman can notice changes by knowing how her breasts normally look and feel and feeling her breasts for changes (breast awareness), or by choosing to use a step-by-step approach and using a specific schedule to examine her breasts.

 Lie down on your back and place your right arm behind your head. The exam is done while lying down, not standing up. This is because when lying down the breast tissue spreads evenly over the chest wall and is as thin as possible, making it much easier to feel all the breast tissue.

Use the finger pads of the 3 middle fingers on your left hand to feel for lumps in the right breast. Use overlapping dime-sized circular motions of the finger pads to feel the breast tissue.

Use 3 different levels of pressure to feel all the breast tissue. Light pressure is needed to feel the tissue closest to the skin; medium pressure to feel a little deeper; and firm pressure to feel the tissue closest to the chest and ribs. It is normal to feel a firm ridge in the lower curve of each breast, but you should tell your doctor if you feel anything else out of the ordinary. If you're not sure how hard to press, talk with your doctor or nurse. Use each pressure level to feel the breast tissue before moving on to the next spot.

 

Move around the breast in an up and down pattern starting at an imaginary line drawn straight down your side from the underarm and moving across the breast to the middle of the chest bone (sternum or breastbone). Be sure to check the entire breast area going down until you feel only ribs and up to the neck or collar bone (clavicle).

There is some evidence to suggest that the up-and-down pattern (sometimes called the vertical pattern) is the most effective pattern for covering the entire breast without missing any breast tissue.

Repeat the exam on your left breast, putting your left arm behind your head and using the finger pads of your right hand to do the exam.

While standing in front of a mirror with your hands pressing firmly down on your hips, look at your breasts for any changes of size, shape, contour, or dimpling, or redness or scaliness of the nipple or breast skin. (The pressing down on the hips position contracts the chest wall muscles and enhances any breast changes.)

Examine each underarm while sitting up or standing and with your arm only slightly raised so you can easily feel in this area. Raising your arm straight up tightens the tissue in this area and makes it harder to examine.

This procedure for doing breast self-exam is different from previous recommendations. These changes represent an extensive review of the medical literature and input from an expert advisory group. There is evidence that this position (lying down), the area felt, pattern of coverage of the breast, and use of different amounts of pressure increase a woman's ability to find abnormal areas.

Ode to Bald

Dear breast cancer:

Once again it is October and your name is one everyone’s lips.  The world has turned to a sea of pink and large and small corporations and companies look to make money based on your infamy and the fear that lurks in the hearts and souls of women the world over.  So many women, who buy this, support that, donate to this fundraiser, walk for 2 days, run for 5 kilometres and all the while, hoping and praying that you and they never come face to face.   They can run from you but sadly too many cannot hide.

You are a sneaky, insidious devil aren’t you breast cancer.  You hide where you can and then when someone least expects you, out you come ready to wreak havoc on the life of the woman (or man) you have claimed as “your own”, their family and their friends.  You think you rule with the upper hand but remember this breast cancer...we know so much more about you now and we are prepared to do battle with you and show you that we are not to be trifled with.

It’s true that some of the people you visit are not aware of your presence and you manage to get a firm grip into their lives and for that I say shame on you.  But remember this...we are educated now about early detection and having yearly mammograms and doing breast self exams and we are well informed about how you operate.  Oh yes we are.

After seven years, I still refer to you as breast cancer in small letters because even though you claimed a large part of my time and my energy and my life, you are still just this small, insignificant, bothersome little runt.  You do not deserve to be spoken to with respect.  You need to remember that whatever else you have brought into my life and the lives of so many others, what you gave me was the biggest gift of all.

You made me remember how much life is to be savoured and appreciated.  You reminded me of all the small and large things to be grateful for in my life, every single day.  You gave me freedom and you taught me how to deal with fear.  You gave me the gift of every day – that this day; the one I am in is the one that matters.   Not yesterday, not tomorrow but simply today.

When my hair started to fall out, I had my hair dresser shave it off and I loved being bald.  True, I wore a wig when I went outdoors and I lived in bandanas the rest of the time, but the minute I hit the front door, you know that wig went flying onto the bench in the hall.  And how many times did I open the front door to guests bald as a billiard ball?  And how comfortable were people with me...with the real me, the open, honest, bare to the bones this is who I am me?  But most importantly breast cancer, you taught me to love myself and to see myself right down to my soul.

You arrived thinking you were going to be my final nemesis.  You left knowing that I had the gumption, the spirit, the courage and the strength to say “not just yet”.

With fists up,

 

Sincere Apologies…

Bullish Thoughts apologises unreservedly to various subscribers and others who found the article on the premier in bad taste.

Bullish Thoughts would thus like to reaffirm that it respects the subscribers views and feelings.

In as much as this is an opinion column, future articles will not require PGA.

Bullish Thoughts thanks all those subscribers who took time to give us feedback on the matter.

Invest Wisely!

Bullish Thoughts: SPAR, a thorn in the Innscor backside?

Well, Bullish Thoughts can now say he is a SOCIALITE... Why, you may be wondering. Bullish Thoughts was a nominee at the just ended inaugural ZB Oscars Awards!

It was all glamour...you know red carpet and all. The ladies were looking drop dead gorgeous donning 29 inch stilettos and some outfits that Bullish Thoughts had only seen on Tinker Bell. It was lovely to say the least.

The event started off with a display by the capable ladies and girls from the National Ballet Centre...if only we could make their outfits the National Dress Code.

Bullish Thoughts loves ballet…and or ballroom dancing! It teaches you to be at peace with yourself, it gives vision…it makes you feel you can be anything you want!

Only if all men could handle every woman the way a ballroom dancer does…with dignity!

Anywhere, enough about ballet…That’s for Miss Little Bullish Thoughts  during holidays at Reps Theatre

Ballet…Spiritual dance it is

Bullish Thoughts was taken aback by the level of talent that local and upcoming musicians have and the development that they have undergone.

Many will probably remember Prudence  Mbofana of the BP Yangu Yakwira fame...what a long way she has come and boy, didn't she bring the house down with contemporary jazz (if there is something like that). Talented young lady she is.

We shall not talk about the affable Tuku "Oliver Mtukudzi". World class performance is what he always delvers and he did just that.

Bullish Thoughts was left wondering if he could engineer some corporate finance deal that would result in the merger of Tuku & Prudence’s bands and list it potentially on Tyson’s Indigenisation Exchange… Bullish Thoughts is quite sure Josh Hozheri of Jazz 105 would appreciate such a deal instead of penny stock Jah Prayzah that he is crying over.

Live music is where money is at currently and is worthwhile becoming musicpreneur!

While Bullish Thoughts did not get to take Oscar home, he presents to you some snapshots of the Oscar Awards for you appreciation.

Bullish Thoughts (left) with World Bank Zimbabwe Country Manager Nginya Mungai Lenneiye at the Oscar Awards

Oscar at the Oscars Awards

Customer is the King!

Oscars aside, Bullish Thoughts got taken aback by this ZB event. For a very long time Bullish Thoughts has been complaining by the quality of service that customers (who are holding the $s) have been getting from many of the service and product providers around.

While Bullish Thoughts is not a banker at ZB, he was pleasantly surprised by the treat that was given to ZB's loyal customers. At least someone out there does really care about the customers who have stuck to the bank through the various transformations.

However, Bullish Thoughts wishes the bank would be like the former self (Zimbank) that had much more brand equity.

Perhaps it's time for leadership renewal at the Group level.

30 years is a hell long time at the top especially in corporate world unless it's a family run business!

Tuku… the musician at the Oscars

 Minimum Capital up in the insurance sector

The Commissioner of Insurance, Madam Mpofu has now released the proposed new capital requirements which should in a way bring sanity to a sector where many insurance companies were in practice brokers.

IPEC is proposing the levels in the tables below:

Class of Business	Current ($)	Proposed ($)
Life assurance company	500 000	3 million
Non-life insurance company	300 000	2 million
Composite insurance company	800 000	5 million
Non Life reinsurance company	400 000	3 million
Life reinsurance company	400 000	3 million
Funeral  assurance company	400 000	2.5 million

For broking companies, the following levels will apply:

	Current		Proposed
Class of Business	PS ($)	PI ($)	PS ($)	PI ($)
Insurance Broker	100 000	100 000	100 000	200 000
Reinsurance Broker	100 000	100 000	100 000	250 000

(PS) Minimum Prescribed Securities and Professional Indemnity (PI)

All Pension Fund Administrators are required to raise capital of US$250 000. In addition, fund administrators will be required to possess professional indemnity cover of US$100 000 and to be incorporated as companies.

All institutions are required to have complied with 50% of the capital requirements by 31^st December 2012. Full compliance is expected by 31^st December 2013.

Bullish Thoughts however doesn’t foresee any failure to comply by the players in the sector given that most of them already had capital levels way above the required minimums.

He however felt the regulator should have done something about the rate undercutting which is the main threat to stability of the sector.

In Botswana, if laid down rules are violated by particularly insurance brokers, there is immediate action…loss of licence and a deterrent fine.

Perhaps in the fullness of time, it will come to pass.

SPAR…a cancer eating away shareholder cash for dividends

By the way, can someone tell Bullish Thoughts why Innscor just doesn’t get rid of SPAR business…it’s a cancer eating away money that could have gone towards rewarding shareholders but is instead just going down the abyss!

The SPAR blight has been around too long on the Innscor numbers starting with Zambian operations. SPAR has also since fallen behind TM & OK Zim in the retail space perking order as well and some franchises are evidently struggling as well.

Bullish Thoughts is just wondering who this SPAR baby is...with such losses by now such an operation would probably have been sold off.

It is no secret that performance-wise Zimbabwe SPAR is worse off than South African SPAR!

Don't get Bullish Thoughts wrong...he loves SPAR brand and the merchandise range and The Bridge, Athienitis & Montagu are his favourite outlets.

It's just that as a potential Innscor shareholder, ching-ching is more preferable!