Zimbabwe Stock Exchange Overview- May 2012 - Imara

EXECUTIVE SUMMARY
Recent results released by leading hoteliers point towards
improving occupancies, RevPARs and ADRS locally. We
expect this positive earnings outlook to continue, given the
positive outlook for the tourism sector. Our range of
scenarios for RevPAR growth is xx, given the limited supply
growth until 2013.
With occupancies recovering towards peak levels we could
see room supply coming at a premium. Prospects for
discount business with corporate transient customers.
Tight supply environment an important tailwind for African
Sun
An increase in local salaries should boost local consumer
spent while investment interest in the country should boost
foreign business visitors
An improvement in the global economy will also support the
tourism industry.
Better earnings visibility for Cresta Hospitality and Meikles,
because of their simpler more defensive business model.
Business travel and tourism is less fickle than leisure travel
so the group’s profits are likely to show defensive qualities.
We also like African Sun because it has already expanded
regionally, and is more diversified.
Operating cost inflation, and subdued consumer and
corporate profits.The lack of incremental costs on new
management contracts should buoy results for African Sun
Not cash generative because of capex projects.
Prospects for hotels have strong longer term drivers,
Economic growth and varied and unique tourist offering.
Zimbabwe Stock Exchange Overview- May 2012
Fortune favours the brave....
Analysts
Addmore Chakurira Batanai Matsika Nontando Zunga
+263 772 265 454 +263 772 889 556 +263 772 772 755
addmore.chakurira@imara.co batanai.matsika@imara.co nontando.zunga@imara.co

CONTENTS SECTOR PAGE
EXECUTIVE SUMMARY 4
ZIMBABWE IN FIGURES: MACROECONOMIC INDICATORS 5
ZIMBABWE – MACRO-ECONOMIC OVERVIEW 6
THE ZIMBABWE STOCK EXCHANGE OVERVIEW 10
Companies In Detail
AICO AFRICA LI MITED Agriculture 15
BARCLAYS BANK ZIMBABWE LIMITED Financial 18
BAT ZIMBABWE LIMITED Tobacco 21
CBZ HOLDINGS LIMITED Financial 24
DAIRIBORD HOLDINGS LIMITED Food 27
DELTA CORPORATION LIMITED Beverages 30
ECONET WIRELESS LIMITED Telecoms 33
HIPPO VALLEY ESTATES Agriculture 36
INNSCOR AFRICA LIMITED Conglomerate 39
MASAWARA Investment Holding 42
MASHONALAND HOLDINGS LIMITED Property 44
MEIKLES Conglomerate 47
OK ZIMBABWE LIMITED Retail 50
NEW DAWN MINING Mining 53
PADENGA HOLDINGS LIMITED Agriculture 56
PEARL PROPERTIES LIMITED Property 59
SEED CO Agriculture 62
TA HOLDINGS LIMITED Conglomerate 65
ZIMPLATS LIMITED Mining 68

Appendix to Abbreviations:
ADR: Average daily rate
AfDB: African Development Bank
ARPU: Average Revenue Per User
CB:
Central Bank
CIMCG: China International Mining Group Corporation
FAO: Food and Agricultural Organisation
FDI:
Foreign direct investment
FMCG: Fast Moving Consumer Goods
Forex: Foreign Exchange
GDP: Gross Domestic Product
GNU: Government of National Unity
HIPC: Heavily Indebted Poor Countries
IES:
Imara Edwards Securities (Pvt.) Ltd Zimbabwe
IAS:
Imara Africa Securities Limited
IFSC: International Financial Services Centre
MDRI: Multi-lateral Debt Relief Initiative
NIEEF: National Indigenisation and Economic Empowerment
NII:
Net Interest Income
NIM:
Net Interest Margin
NPL:
Non Performing Loan
NPV: Net Present Value
NSAS: National Sugar Adaptation Strategy
OMIR: Old Mutual Implied Rate
Pp:
per person
RBZ:
Reserve Bank of Zimbabwe
REVPAR: Revenue per available room
SADC: Southern African Development Community
S.O.P: Sum of parts
SSA:
Sub-Saharan Africa
US$:
United States Dollar
W.H.O: World Health Organisation
ZIMRA: Zimbabwe Revenue Authority
ZSE:
Zimbabwe Stock Exchange
Z$:
Zimbabwe Dollar
3

EXECUTIVE SUMMARY
Recovery on course although beleaguered somewhat by unfavourable atmosphere..
Four years on in a dollarised economic environment and the economy is still on a growth path, beleaguered
somewhat by an unfavourable financial and political atmosphere. The global economy is expected to grow by
2.5% in 2012 and 3.1% in 2013 according to the World Bank. High income growth countries are expected to post
a 1.4% growth in 2012 and 2.0% in 2013. Developing countries are forecast to grow by 5.4%. These estimates
have been revised downwards from initial estimates made in June 2011 and the Bank insists that even achieving
these outturns is very uncertain. The downturn in Europe and weaker growth in developing countries raises the
risk of the two developments reinforcing each other. Despite the global economic crisis, Sub Sahara Africa is set
to growth by more than 5%, while the Zimbabwean economy is expected to grow by 9.4%.
Agriculture/mining sectors, the biggest talking point
Major propellers of local economic growth have been the mining and agricultural sectors. The Ministry of
Finance estimates that the mining sector (projected to grow by 15.9% in 2012) will remain the major driving
force behind overall economic growth. The sector is expected to benefit from firming international commodity
prices, strategies to lower electricity supply interruptions and additional private capital injections. The
agricultural sector is expected to grow by 11.6% in 2012 on the back of increased funding initiatives. The
country’s annual inflation is also expected to end the year at 5%. Several issues, however, threaten the stability
of the inflation rate including high utility charges, higher import duties on some basic goods and exchange rate
risk against the Rand as most of the basic goods are still being imported.
Pell-mell performance on the local bourse due to indigestible policies
For 2011 both the industrial and mining indices were down with the industrial index losing 3.58% whilst the
mining index lost 49.75%. Although the performance was in line with regional exchanges and some international
indices, the mining index was further weakened by the local policy issues. Year to date, the indices have
weakened further with the industrial index down 10.62% whilst the mining index is down 9.51%, this is in
contrast to the positive performance on the regional and international bourses, where the regional exchanges
are up on average by 7% whilst the main international indices have gained an average of 5%. The poor
performance on the local front could be attributed to inconsistency on policy pronouncements mainly relating
to indigenisation and elections. For 2012, we expect some improvement driven by improving company
performance. The market capitalisation to GDP ratio declined in 2011 to 36% from 45% in 2010, this however
still compares favorably with the SSA average of above 50%.
The other side of the coin
Post the hyperinflationary era, most companies are now afloat, after an almost precarious position. A number of
corporate earnings statements have been positive in support of an improving economy. The indigenisation issue
however remains contentious, with the end document not having been clarified. Investor sentiment has been
rattled with minimal foreign direct participation. Consoling, however, is the fact that in October 2011
government released a Gazette revising the indigenisation regulations to state that foreign owned firms could
now indigenise their 51% equity over 4 years; with 26% to be localised in the first year, 10% in the second year,
10% in the third year and 5% in the fourth year. Despite talks of elections, we see them as unlikely to occur in
2012, as the liquidity strain continues to bite. The constitution making process is yet to be finalised, then the
referendum has to follow before we can have elections. We forecast that at the earliest, we could have the
elections late 2013, however, the noose is still ominously around the neck as politicians continue to issue
divergence statements.
Jump onto the bandwagon..
Despite top line growth ahead of inflation, heavy interest costs continue to negate positive performance in
many listed companies. A classic case is that of PG Industries, whose gearing stands at a high of 136%. Several
other companies remain hugely undercapitalised hampering earnings growth and curtailing share price
performance. Rio Zim recently concluded a rights offer which should see its huge debt being paid, thus lowering
finance costs and possibly returning the group to viability. Several other companies are also carrying out
corporate activities, and although the prospects of deleveraging are attractive, other factors such as the
unclear indigenisation policy and likelihood of elections continue to draw back significant progress. The
economic recovery should however continue and is likely to accelerate if further reforms are enacted by the
authorities. It is our view that Zimbabwe offers great potential as a recovery play and we urge investors to take
positions in rapidly growing, dominant, well managed and strong cash generating companies such as BATZ,
Dairibord, Delta, Econet, Innscor, OK Zimbabwe, Padenga and SeedCo.
4

Zimbabwe in Figures: Macroeconomic indicators
THE 2009-2014 MACRO-ECONOMIC FRAMEWORK
2009 Act 2010 Est 2011 Proj 2012 Proj 2013 Proj 2014 Proj
Real sector and inflation (US$ m and %)
Nominal GDP level in US$ m 5,623.0 6,716.0 8,998.0 9,959.0 11,297.0 12,711.0
Real Gdp growth (%) 5.4 8.1 9.3 7.8 6.6 6.4
Annual Inflation (average %) -7.7 3.0 4.5 5.0 5.5 5.7
Central Government (US$m)
Total revenue and Budget Grants 974.4 2,339.1 2,744.9 3,400.0 3,841.0 4,321.0
Revenue(Tax and Non Tax) 933.1 2,339.1 2,744.9 3,400.0 3,841.0 4,321.0
Budget Grants 41.3 0.0 0.0 0.0 0.0 0.0
Off Budget Grants 93.0 500.0 500.0 500.0 0.0 0.0
Total expenditure Central Government 920.9 2,106.9 2,744.9 3,400.0 3,841.0 4,321.0
Current expenditure 804.0 1,603.0 2,140.2 2,495.5 2,734.7 2,975.2
OW: Employment costs 550.3 1,098.5 1,800.0 2,040.0 2,112.5 2,160.9
Other recurrent expenditures 182.0 504.8 340.2 340.2 455.5 622.2
Capital expenditure 45.2 415.3 550.0 850.0 1,056.3 1,296.5
External Sector(US$m)
Exports(fob) 1,613.3 3,380.1 4,143.7 4,604.1 5,164.4 5,684.6
Imports(fob) 3,213.1 5,161.8 5,599.6 5,731.5 6,015.5 6,355.0
Current Account Balance (1,140.3) (1,852.5) (1,565.0) (1,247.6) (1,034.3) (894.6)
Capital Account (656.5) 617.5 775.4 809.5 849.8 847.7
Overall Balance of Payments (1,867.0) (412.1) (789.7) (438.2) (184.5) (46.9)
Memorandum Items As a % of GDP
Revenues 16.60% 34.80% 30.50% 34% 34% 34%
Expenditure and Net Lending 16.40% 31.40% 30.50% 34.10% 34% 34%
Current expenditure 14.30% 23.90% 23.80% 25.10% 24.20% 23.40%
OW: Employment costs 9.80% 16.40% 20% 20.50% 18.70% 17%
Other recurrent expenditure 3.20% 7.50% 3.80% 3.40% 4% 4.90%
Capital expenditure 0.80% 6.20% 6.10% 8.50% 9.40% 10.20%
External Sector
Exports fob 28.70% 50.30% 46.10% 46.20% 45.70% 44.70%
Imports fob 57.10% 76.90% 62.20% 57.60% 53.20% 50%
As % of Total Expenditures
Current expenditure 87.30% 76.10% 78% 73.40% 71.20% 68.90%
OW: Employment costs 59.80% 52.10% 65.60% 60% 55% 50%
Other current expenditures 19.80% 24% 12.40% 10% 11.90% 14.40%
Capital expenditure 4.90% 19.70% 20% 25% 27.50% 30%
Source: Ministry of Finance, Reserve Bank of Zimbabwe
GDP Growth Rates
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2011 2012F
Source: Ministry of Finance
GDP Growth rate
%
12
8
4
0
-4 2008 2009 2010e 2011 2012f
-8
-12
-16
Source: IMF, Ministry of Finance
2011 Revenue Contribution
Corporate
10%
Other direct
taxes
7%
Personal
Income
20%
Non tax
revenue
8%
Source: Ministry of Finance
Other
1%
Customs Duty
12%
VAT
31%
Excise Duty
11%
5

ZIMBABWE – MACRO-ECONOMIC OVERVIEW
Economy expected to remain on a growth path
The gross domestic product has been on the rise, growing
by 5.4% in 2009, 8.1% in 2010, 9.3% in 2011 and is
projected to move up by 9.4% in 2012. Major propellers of
economic growth have been the mining and agricultural
sectors. The Ministry of Finance estimates that the mining
sector (projected to grow by 15.9%) will remain the major
driving force behind overall economic growth. The sector
is expected to benefit from firming international
commodity prices, strategies to lower electricity supply
interruptions and additional private capital injections.
The agricultural sector is expected to grow by 11.6% in
2012 on the back of increased funding initiatives.
...although the IMF expects the growth rate to
moderate
As we pointed out in our 2012 Outlook report, in its 2011
Article IV Consultation (May 2011), the IMF cited two
scenarios for the economy. Under an unchanged policies
scenario, the group forecast that the GDP growth rate
would decline to about 3.0% as investment remains
subdued as a result of:
• Significant structural impediments,
• The acceleration of indigenisation in mining
• Uncertainties about the ownership requirements in
the sector
Higher commodity prices and increased diamond exports
if achieved were however forecast to underpin higher
growth, higher budget revenues, and a faster reduction of
the current account deficit.
According to the IMF, additional downside risks for the
outlook include:
• Political disturbances
• Export price declines
• Higher-than-anticipated increases in import food
and fuel prices
• Unfavourable weather
• Reversals of capital inflows
• Banking system instability.
Under the alternative, recommended policies scenario,
the IMF assumed that the government would eliminate
expenditure overruns while leaving more fiscal space for
critical infrastructure and social spending in 2011 and
start rebuilding fiscal buffers in the medium term,
forcefully address financial sector vulnerabilities, and
strengthen the business climate.
According to its forecast, in 2011, the economy was to
have grown by 7.2% mainly because of higher capital
inflows providing for more working capital and higher
investment into the mining sector, as well as from higher
public investment in critical infrastructure. In the
medium term, the country could thus potentially boost
growth performance by about 3.0% relative to the
unchanged policies scenario, and increase international
reserves to about 1 month of imports by 2016.
Revenue Collections
Q1 2012 - (Zimbabwe Revenue Authority) Zimra total
gross collections stood at US$ 773.7m (against a target
US$ 715.4m). Net collections for the quarter amounted
to US$ 723.9m, 1.2% above budget. Value added tax was
the highest contributor at US$ 292.7m (38% of total),
individual tax 19% and excise duty US$ 88.9m.
According to the Minister of finance, diamonds and nontax
revenues for February 2012 amounted to US$ 5.0m
and US$ 7.4m against targets of US$ 41.5m and US$
10.5m, respectively. For January and February, actual
diamond collections totalled US$ 19.5m, against a target
of US$ 77.5m, (non-tax revenue US$ 18.5m against a
target of US$ 21.0m). In terms of the budget
performance, there is already a gap with total
expenditure of US$ 286.9m exceeding revenues of US$
227.7m.
The Revenue to GDP ratio is expected to grow from 30%
to 34%, from ongoing tax reforms focusing on ZIMRA
restructuring, compliance initiatives and increased
automation of tax collection systems. In total for FY
2012, government revenues are estimated at US$ 4.0bn,
with US$ 0.6bn expected from diamond revenues. Total
expenditure is expected to amount to US$ 3.4bn, with
US$ 2.0bn committed to employment costs (60% of total
expenditure) whilst the US$ 600.0m from diamond
receipts is targeted for capital projects. The MoF
targets to reduce the employment costs/total
expenditure ratio to 50% by 2014, whilst capital
expenditure is expected to improve to about 25% in
2012, against a desired target of 30% by 2014.
Inflation expected to remain stable
Inflation, stood at 4.3% for the first two months of 2012
down from 4.9% for December 2011, while for March
2012 the y-o-y rate was 3.98%. On a month-on-month
basis, inflation decreased from 0.49% in February 2012
to 0.43% in March 2012.
The country’s annual inflation is however expected to
end the year at 5%. Several issues threaten the stability
of the inflation rate including high utility charges,
higher import duties on some basic goods and exchange
rate risk against the Rand as most of the basic goods are
still being imported.
6

Zimbabwe Inflation Rates
8
6
4
2
0
-2
-4
-6
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Source: CSO
2010 2011 2012
Inflation rate (%) monthly
Inflation rate (%) Annual
The country still has a colossal trade deficit
For 2011, total export earnings amounted to US$ 4.1bn,
registering growth of 30.2%, whilst 11.1% growth is
forecast for 2012 which should bring export earnings to
US$ 4.6bn following firm international commodity prices
and increased throughput from agriculture, mining and
manufacturing. Imports for 2011 amounted to US$ 5.6bn,
and are expected to grow to US$ 5.7bn for 2012 leading
to a further expansion in the trade deficit and a widening
current account (CA) deficit as other contributors such as
services and investment income have not yet fully
recovered. Imported goods largely comprise fuel, food,
machinery and motor vehicles as the local manufacturing
sector is still characterised by undercapitalisation. The
current account deficit of US$ 1.5bn stands at 17% of the
country’s GDP.
Liquidity situation set to improve from PTA and
international banks support
PTA Bank has a keen interest in resuscitating the country
and has been working with banks and corporates in the
provision of affordable funding to alleviate the liquidity
challenges. The bank is looking at lending out US$ 0.5bn
in 2012 in the SSA region. The bank recently lent US$
4.0m to Dairibord, at an 11% all in cost for a period of 12
months. In an environment faced with high liquidity
strain, local banks have been charging a huge premium on
supply of funding with high interest rates averaging 20%
per annum. Cooperation from international banks,
charging affordable rates, will thus assist to alleviate the
liquidity crisis in the cash stripped economy.
Money market rates softer backed by improving money
supply
Proceeds from the tobacco selling season and repatriated
nostro account balances have somewhat led to a softening
in money market rates. From the banks, US$ 200.0m was
expected from the nostro accounts. As a result, money
market interest rates declined from 14% - 16% at the
beginning of the year to between 10% - 12%, whilst
lending rates now range between 15% - 18% from previous
highs of 18% - 22%. The measures are short term however,
thus the long term liquidity position still remains
unresolved meaning the lending rates are unlikely to
decline significantly in the near term.
Political Outlook
Zimbabwe recently celebrated 32 years of independence,
with four years in a dollarised economic environment;
most companies are now afloat, after an almost
precarious position. A number of corporate earnings
statements have been positive in support of an improving
economy. The indigenisation issue remains contentious,
with the end document not having been clarified.
Investor sentiment has been rattled with minimal foreign
direct participation. Consoling, however, is the fact that
in October 2011 government released a Gazette revising
the indigenisation regulations to state that foreign owned
firms could now indigenise their 51% equity over 4 years;
with 26% to be localised in the first year, 10% in the
second year, 10% in the third year and 5% in the fourth
year.
Despite talks of elections, we see them as unlikely to
occur in 2012, as the liquidity strain continues to bite.
The constitution making process is yet to be finalised,
then the referendum has to follow before we can have
elections. We forecast that at the earliest, we could have
the elections late 2013, however, the noose is still
ominously around the neck as politicians continue to issue
divergence statements.
SECTOR OVERVIEWS
Annual mineral production for precious commodities has
been on the rise as shown below.
Annual Mineral Production
2011 Budget
2011 Revised
2010 Actual Forecast Forecast 2012 Proj
Gold/kg 9,620 13,000 13,000 15,000
Nickel/t 6,133 7,680 7,700 8,800
Coal/t 2,668,183 3,000,000 3,000,000 3,500,000
Chrome/t 516,776 700,000 700,000 750,000
Platinum/kg 8,639 12,000 10,500 12,000
Paladium/kg 6,916 9,600 8,400 9,600
Black Granite/t 169,318 168,000 168,000 170,811
Source: IES; Ministry of Mines, Chamber of Mines
For Q1 2012, gold deliveries grew by 5.8%, to register a
total of 3,126kgs, the average growth rate for small-scale
and primary producers stood at -3.2% and 8.3%
respectively. Y-o-y growth was 21.64% for cumulative
gold deliveries, 19.2% and 22.3% for small-scale producers
and primary producers respectively. The growth rates
have been attributed to firming gold prices, as gold prices
have increased from just above US$ 1,300/oz in January
2011 to the current US$ 1,650/oz. The Minister of Finance
however pointed out that, despite the increase in the
international metal prices, the amount of royalties
collected from precious metals has remained low. For
2011 it totalled US$ 44.1m against sales of US$ 1.7bn.
7

IMF forecasts that commodity prices will remain largely
unchanged in 2012,
According to the IMF, global commodity prices lost some
of their luster in 2011, and although they remained high
in real terms the prices declined for most of the year,
with the exception of crude oil which was increasingly
driven by geopolitical supply risk towards the end of the
year. The commodity prices rebounded in Q1 2012,
although they are still below their end of 2010 levels. A
number of factors are at risk of affecting the broad
upside potential, including recent downgrades of
commodity assets from overweight to underweight and
doubts about the continued sustainability of the decade
long commodity markets boom. Uncertainty about the
near-term global economic prospects is still on the charts
while slowdown in the Chinese real estate market has
also renewed concerns.
Thus given the constrained global economic environment
expected for 2012-2013, commodity prices are projected
to remain largely unchanged, although cyclical
commodity prices may pick up if global growth is
stronger than currently expected. The pickup is however
expected to be moderate as the growth in 2012 is
unlikely to be stronger while the expected reduction in
potential growth in China and other emerging economies
would dampen cyclical upward pressure.
Source: IES; goldprice.org
Progress being made on indigenisation in the mining
sector
According to media reports, since the indigenisation bill
was gazetted in March 2011, the Youth Development,
Indigenisation and Economic Empowerment ministry has
received more than 200 indigenisation implementation
plans from mining businesses. Australian listed Zimplats
also agreed to cede 51% of its shareholding, with 10%
intended for the local community, 10% for employees and
31% for the NIEEF (National Indigenisation and Economic
Empowerment Fund). Full details relating to the
settlement are yet to be finalised. Although this affirms
a high compliance rate, concern on the implications of
the bill are still telling through depressed share prices of
affected listed companies both on the local bourse and
foreign exchanges for the dually listed companies.
However we see the mining sector as poised for a
massive revival...
RioZim was recently recapitalised, after Gem Raintree
investment underwrote a US$5.0m rights issue and a
private placement of US$45.0m, despite the threat of
indeginisation. Gem Raintree investments represents the
interests of Gem Group a US$3.4bn alternative investment
firm whose focus is on emerging markets and Raintree
Mining a Zimbabwean owned junior miner.
Bindura is also set to recapitalise, as Mwana Africa
Plc(52.9% shareholder) has sought to raise funding for the
entity. An update from Mwana Africa shows that a total of
140.6m new ordinary shares of 1 pence each in the
Company have been conditionally placed by Liberum
Capital Limited with investors at a price of 5.5 pence per
Placing Share. Further, China International Mining Group
Corporation ("CIMGC") had conditionally subscribed for
242.4m new ordinary shares at the placing price. The
group expected that this would assist them secure further
project funding for BNC and the Group's other projects
through CIMGC's banking and industry connections. Using
the placing price, the gross proceeds of the Placing and
the Subscription would be approximately US$33.5 million.
A report compiled by SRK Consulting of UK concluded that
Bindura Nickel requires US$26.0m to restart operations.
Agricultural sector to be boosted by increased funding
According to the MoF 2012 budget, the agricultural sector
was expected to grow by 11.6% in 2012 on the back of
increased funding initiatives. Maize production was
expected to reach 1.8m tonnes, up from 1.4m for 2011,
whilst tobacco production was forecast to reach 150.0m
kgs, up from 133.0m kgs in FY 2011. Sugar production,
which totalled 259,000 tonnes, was projected to go up to
400,000 tonnes for FY 2012. These targets are likely to be
missed due to the dry spell that was experienced in some
parts of the country.
The Minister of Agriculture estimates that the maize
harvest could fall by 26% to 1.0m tonnes after nearly half
of the crop was written off because of the prolonged dry
spell. The country however has 400,000 tonnes of maize in
reserves, which implies that an additional 400,000 tonnes
would have to be imported to make up for the deficit.
Further imports of wheat will be needed given an
expected wheat output of only 75,000 tonnes this year,
against annual requirement of 400,000 tonnes.According
to the Food and Agricultural Organisation (FAO), other
agricultural crops, such as millet,groundnuts, soy beans,
sunflower, sugar beans and sorghum are estimated to be
below the levels of 2011, on account of reduced plantings
and lower yields. Consequently, cereal production in 2012
is put at 1.17 million tonnes, or one third less than last
year’s output even after including a forecast increase in
the winter wheat crop to be planted in May following the
government’s decision to provide low-interest loans, to
help facilitate greater investment in wheat production.
8

Source: CSO
Zimbabwe Cereal Production
2007-2011
Average
2012
2011 Forecast
change
2012/11
000 tonnes percent
Maize 1135 1452 968 -33
Sorghum 107 95 65 -32
Wheat 59 41 60 46
Others 100 97 80 -18
Total 1401 1685 1173 -30
Source: FAO/GIEWS Country Cereal Balance Sheets
The organisation however notes that higher yields from
tobacco and a larger planted area for cotton contributed to a
marginal increase in production of about 2%.
Seasonal Tobacco Sales*
Total Auction Total Contract Total 2012 Total 2011 % Change
Mass sold (kg) 34,578,964 45,008,544 79,587,508 68,603,246 16
Value (US$) 127,427,605 173,245,821 300,673,426 189,808,834 58
Average Price US$/kg 3.69 3.85 3.78 2.77 36.55
*As at 4 May 2012-Source: Tobacco Industry Marketing Board
expected to reach a high of 95% in 2012. In some
subsectors such as clothing, textiles and printing, it
has however remained low, averaging around 25%,
while the textile and ginning industry capacity
utilisation is expected to decline further to 19.0% from
about 23.0% in 2010 mainly to due to
undercapitalisation leading to a failure to carry out
necessary capex projects.
100%
80%
60%
40%
20%
0%
Manufacturing sector capacity utilisation
2009A 2010Est 2011Proj
Source: IES; RBZ; Ministry of Finance
A total of 34.6m kg of tobacco have been sold through the
auction system whilst 45.0m have been sold through the
contract system. In total, the mass sold is 16% above that of
last year. The average price has also increased and averages
US$ 3.78/kg up from the previous season’s US$ 2.77/kg, a
36.6% increase.
Construction sector set to boom
The local construction sector is set to grow by an average of
8% per year between 2012 and 2016. The residential real
estate sector and office sector have been experiencing the
highest growth in demand on the back of an improving
economy and consumer wealth.
According to the ministry of finance, 80% of the country’s
88,100km road network is in need of rehabilitation and
44,671km of the road network has outlived its lifespan. There
are also several road dualisation projects meant to expand the
country’s road network. The African Development Bank
estimates that the rehabilitation of the network will cost
about US$ 2.7bn, while clearing the backlog of periodic
maintenance will cost about US$ 560.0m (both at 2009
constant prices). US$ 1.5bn is also needed by local authorities
for the resuscitation and rehabilitation of the country’s water
systems.
Manufacturing Sector
The manufacturing sector is expected to benefit from the spill
over effect from growth in the mining and agricultural sectors
and grow by 6% for 2012, with growth driven mainly by food
(6%), wood and furniture (8%), metals and metal products
(11%), and non-metal products (25%). The manufacturing
sector capacity utilisation has picked up in some subsets
including the consumer goods sector. For example, for
foodstuffs it increased from 38% in 2010 and is expected to
reach 57% in 2012, whilst for drinks, tobacco & beverages it is
Banking sector developments
A US$ 100.0m Fund funded by international financial
institutions and a regional financier was created early
in the year for the rejuvenation of the Central Bank;
this should assist the CB to resume its role as a
lender of last resort, which could also improve
interbank trading.
As at 30 Dec 2011, the banking deposit base was
estimated to be US$ 3.8bn. Lending to the productive
sectors grew to US$ 2.6bn in 2011, constituting 78.4%
of total deposits. Primary beneficiaries were the
agriculture sector (18.0%), manufacturing, (20.0%),
distribution (19.0%) and mining (6.0%).
Banking Sector Deposits, Loans and Advances
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
(500)
Jun
09
Sep
09
Dec
09
Deposits
Log. (Deposits)
Mar
10
Jun
10
Dec
10
Apr
11
Source: IES; RBZ; Ministry of Finance
Jun
11
Aug
11
2
Sep
11
9
Sep
11
16
Sep
11
23
Sep
11
Total loans and advances
Log. (Total loans and advances)
30
Sep
11
Banks’ asset quality is a major concern
Banking institutions in Zimbabwe have seen strong
deposit and credit growth ahead of GDP growth over
the last three years albeit off a very low base.
Nonetheless, overall undercapitalisation of most banks
9

emains a challenge especially when non-performing loans
are taken into account. In our view, most of the lending
decisions have been based on the size of the collateral
being offered and relationships rather than cashflow.
Good information is also scarce in the absence of a
national credit bureau. Furthermore the value of the
collateral, which is real estate in most cases, tend to be
overstated. This has allowed the official NPLs numbers to
be low. However the IMF estimated that NPLs were about
3.1% of outstanding loans. Banks are sitting on a
significant unknown quality of NPLs and these continue to
grow.
Interest rate outlook
The loan to deposit ratio remains high at 79.1%. The high
lending rates have led to high slippages coupled with
weak fundamentals of some local companies (high
leverage and low profitability and low risk management)
giving concern that credit quality can deteriorate.
According to the Reserve Bank, lending rates have been
ranging around 30% per annum against a low of between
2.5% and 5.0% paid on savings deposits. We do not expect
any changes in the short term due to the liquidity strain.
Telecomms sector bearing witness to the improving
economic situation
From the latest Econet results (FY 2012), we note that the
group continues to record significant growth in subscriber
numbers from 1.2m when Zimbabwe dollarised to the
current 6.4m (2011: 5.5m), on the back of stable
disposable incomes. ARPUs have been defended at over
US$ 9.00, (FY 2011: US$ 10.33) bearing testimony that the
economy is recovering. New customer acquisition rates
have also been good, with 1.2m new customers acquired
in March 2012 up from 1.0m acquired in February. The
company also contributes significantly to the fiscus, with
US$ 73.4m paid as income tax for FY 2012 while US$
414.0m has been paid in cumulative tax, levies and
licence fees since dollarisation.
Tourism sector
The tourism sector is expected to grow by 13.7% in 2012
with average room occupancy rates rising from 56% to
60%. However we expect RevPARs to remain largely
unchanged as the ADR’s may have to be compromised in
order to be competitive given the limited demand in a
cash stripped economy, and high competition from
regional destinations.
Room and Bed Occupancy
Indicator 2009 2010 2011 Est 2012 Proj
Average bed occupancy rate (%) 35 36 37 37
Average room occupancy rate
(%) 46 52 56 60
Overall sector growth (Tourism,
Hotels and Restaurants (%) 6.5 0.5 10.3 13.7
Source: Zimbabwe Tourism Authority & MoF
THE ZIMBABWE STOCK EXCHANGE OVERVIEW
History
The first stock exchange in Zimbabwe was opened in
Bulawayo in 1896, to raise money for gold mining
activities in the country and was closed after the South
African Anglo-Boer war of 1899-1902. Another exchange
was also opened in Umtali (Mutare) in 1896 and it was
closed in 1924 after it was realised that the local mining
deposits in the area were not extensive. Between 1900
and 1930 an exchange also operated in the town of Gwelo
(now Gweru). In 1946 a new exchange was opened in
Bulawayo and a second one was opened in Salisbury
(Harare) in 1951. The Zimbabwe Stock Exchange Act of
1974 consolidated the two Exchanges under a legal and
operational framework, based in Harare. The Act
governed the rights and obligations of members of the
stock exchange and the general investing public.
At eighth place, ranked by market capitalisation,
Zimbabwe is not one of the largest markets in sub-
Saharan Africa. However, with 81 listed companies, the
ZSE has more depth and diversity than some of the
region’s markets. The stocks on the exchange include
financial, insurance, retail, construction, transport,
pharmaceuticals, property, telecommunications,
manufacturing and agricultural-related stocks.
There are currently two indices on the Stock Exchange;
the Mining Index with four companies and the Industrial
Index comprising of 77 companies. The indices are
calculated using a 2009 base date and are weighted by
market capitalisation. The Industrial Index is dominated
by price movements in a few big cap stocks such as Delta
which represents 20% of the index, Econet (19%), Innscor
(8%), SeedCo (6%) and Hippo (5%).
Trading on the ZSE
Presently trading is by call over, using an open-cry floor
system on a matched bargain basis. This trading system is
paper based and settlement is on a T+7 basis against
physical delivery of scrip (seven day settlement for both
shares and payment).
Custodial options:
• Barclays Nominees
• Stanbic Nominees
• Standard Chartered Bank Zimbabwe Limited
• Three Anchor Investments T/A Old Mutual
custodial Services
• ZB Bank Limited
Share dealing is done through stockbrokers once a day,
from Monday to Friday. The call over session commences
at 10.00 hours. The financial instruments traded on the
ZSE are common stock, preference shares, corporate
debentures, warrants, government stocks and fixedinterest
securities. However, the bulk of trades and
listings on the exchange are for common stock.
10

Dealing costs
The set legislated transaction costs amount to 4.21% for a
buy and sell.
ZSE Transcation costs
Buying % Selling %
Brokerage fees 1.00 1.00
Stamp duty (buying) 0.25
Capital Gains Tax (selling) 1.00
Securities Commission Levy 0.18 0.18
Investor Protection Levy 0.05 0.05
VAT at 15% on Brokerage 0.15 0.15
Total costs 1.73 2.48
Total costs for both buying and selling 4.21%
Basic Charge US$2 US$2
Source: ZSE
Foreign Participation and Regulation
Foreign participation in stock market trading was
introduced in mid-1993, following the partial lifting of
exchange control regulations. Foreign investors may hold
up to 10% of any listed company without recourse to
Exchange Control. Collectively foreign ownership in a
listed company may not exceed 40% of the issued capital
of that company. These rulings exclude holdings which
were acquired before June 1993.
Any violation of the above limits would not see
registration. It would be reported by the transfer
secretary to both the ZSE and RBZ resulting in a directive
from the RBZ to the investor to sell any excess holding.
Fungibility is permitted for some dually listed companies,
such as Old Mutual and PPC.
Patience is a virtue when trading emerging markets
In the last 12 months the ZSE turned over US$ 0.4bn in
value or 10% of total market capitalisation. Given the size
of the market, patience is generally required to build a
position, equally so when fund managers want to sell.
The market is characterised by high levels of local
institutional investors who are relatively inactive,
compounding the liquidity problem.
Key ZSE Statistics
1995 1996 1997 2008* 2009 2010 2011
Market Cap US$b 2.1 3.9 5.7 4.2 3.9 4.2 4.0
Average daily turnover US$ '000 549 942 1,264 1,225 1,859 1,555 1,905.9
Annual turnover US$m 150 245 329 311 437 392 477.4
Number of listed companies 64 64 65 81 81 81 81.0
Market cap as % of GDP 21 58 66 86 75 67 44.9
*based on OMIR
Source: IES, ZSE
For 2011, total value traded amounted to US$ 477.4m
on 4.7bn shares; up from 2010’s US$ 392.0m on 6.2m
shares (implying higher value shares were mainly traded
in 2011). Net foreign activity amounted to US$ 77.2m
(16% of market activity) on 1.4bn shares with net buying
at US$ 190.7m whilst net selling totalled US$ 152.1m.
The market cap was at US$ 3.8bn up from US$ 3.7bn.
Year to date, value traded amounts to US$ 159.0m on
1.4bn shares. The net foreign activity at US$ 38.0m
constitutes 24% of total value traded, on 513.8m shares.
Monthly value traded US$m
Feb 09 - Apr 12
Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12
Source: IES, ZSE
Monthly net foreign dealing US$m
Aug 10 - Apr12
(1)
Aug-10 Dec-10 Apr-11 Aug-11 Dec-11
Source: IES, ZSE
For 2011 both the industrial and mining indices were
down with the industrial index losing 3.58% whilst the
mining index lost 49.75%. Although the performance was
in line with regional exchanges and some international
indices due to the tight liquidity caused by the Euro
zone crisis, the mining index was further weakened by
the local policy issues. Year to date, the indices have
weakened further with the industrial index down 10.62%
whilst the mining index is down 9.51%, this is in contrast
to the positive performance on the regional and
international bourses, where the regional exchanges are
up on average by 7% whilst the main international
indices have gained an average of 5%.
60
40
20
-
9
Millions of US$
29
19
Millions of US$
11

The poor performance on the local front could be attributed
to inconsistency on policy pronouncements mainly relating to
indigenisation and elections. For 2012, we expect some
improvement driven by improving company performance.
The market capitalisation to GDP ratio declined in 2011 to
36% from 45% in 2010.
ZSE Industrial and Mining Indices
350
300
250
200
150
100
50
0
2/19/2009 2/19/2010 2/19/2011 2/19/2012
Source: IES
Industrial
Mining
Local institutions remain overweight in equities
Presently, local institutions are overweight in equities, a
result of the hyperinflation era. We believe this will change
with the re-introduction of prescribed asset ratios. Local
fund managers have to redesign their portfolios, building up
their cash positions and diversifying away from an over
exposure to equities and fixed assets. We expect this to
improve liquidity as local fund managers sell off their
holdings.
Recapitalisation remains key
Despite top line growth ahead of inflation, heavy interest
costs continue to negate positive performance in many listed
companies. A classic case is that of PG Industries whose
gearing stands at a high of 136%. Several other companies
remain hugely undercapitalised hampering earnings growth
and curtailing share price performance. Rio Zim recently
concluded a rights offer which should see its huge debt being
paid, thus lowering finance costs and possibly returning the
group to viability.
Several other companies are also carrying out corporate
activities, and although the prospects of deleveraging are
attractive, other factors such as the unclear indigenisation
policy and likelihood of elections continue to draw back
significant progress. The economic recovery should continue
and is likely to accelerate if further reforms are enacted by
the authorities. It is our view that Zimbabwe offers great
potential as a recovery play and we urge investors to take
positions in rapidly growing, dominant, well managed and
strong cash generating companies such as BATZ, Dairibord,
Delta, Econet, Innscor, OK Zimbabwe, Padenga and
SeedCo.
ZSE 2011 Volume Traded
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
Source:IES
ZSE 2011 Value Traded US$
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Source:IES
ZSE US$ Market Cap
5.00
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
Source:IES
12

ZSE Listed Companies
Companies Analyst Year Shares Price Mkt cap Eps (USc) P/E (x) PBV (x) EV/EBITDA (x) OPM* (%) Recommendation
end in issue (USc) (US$m) hist +1 +2 hist +1 +2 hist +1 +2 hist +1 +2 hist +1 +2 ST LT
Agricultural na 3,368.3 470.9 20.5 8.5 6.5 0.6
Ariston NSZ Sept 1,378.4 1.1 15.2 (0.5) 0.1 0.4 na 9.5 3.5 0.6 0.6 0.5 (5.3) 7.2 2.4 (13.0) 4.9 10.6 Sell Sell
Border Timbers NSZ June 42.9 10.0 4.3 11.7 8.9 9.0 0.9 1.2 1.2 0.0 0.0 0.0 (3.7) 20.1 5.3 (14.5) 2.4 7.4 Hold Hold
AICO NSZ Mar 531.7 12.0 63.8 1.7 1.8 2.0 11.6 11.0 9.9 1.3 1.2 1.1 5.4 4.9 4.1 15.8 12.2 13.5 Buy Buy
Hippo Valley Estates NSZ Mar 193.0 100.0 193.0 4.6 9.7 15.2 18.7 8.8 5.6 0.9 0.8 0.7 16.6 8.8 5.7 12.0 14.0 18.0 Buy Buy
Interfresh NSZ Dec 487.6 0.2 0.7 (0.3) (0.5) (0.8) na na na 0.1 0.1 0.1 (3.8) (3.1) (2.6) (19.0) (24.9) (22.4) Sell Sell
Padenga Holdings NSZ June 541.6 5.5 29.8 0.7 1.3 1.5 8.2 4.2 3.7 1.0 0.9 0.7 5.2 2.8 2.4 26.2 47.1 48.6 Buy Buy
Seed Company NSZ Mar 193.0 85.0 164.1 9.0 9.5 11.8 12.4 11.7 9.5 3.1 2.6 2.2 9.7 7.8 6.3 22.3 21.5 22.3 Buy Buy
Building and Allied na 3,114.3 146.2 0.1 0.0 0.0
Lafarge NSZ Dec 80.0 55.0 44.0 3.4 4.5 5.1 20.9 15.6 13.8 2.8 2.3 2.0 13.9 9.5 8.9 9.7 13.0 12.0 Buy Buy
M & R NSZ Jun 214.3 6.0 12.9 0.5 1.4 1.6 24.7 9.5 8.2 1.6 1.4 1.2 10.3 5.1 4.5 4.2 5.7 6.2 Buy Buy
PGI NSZ Mar 478.3 2.0 9.6 (1.4) (0.6) (0.0) na na na 0.7 0.7 0.9 (2.1) (2.6) (27.6) (29.1) (17.5) (1.1) Sell Sell
Turnall NSZ Dec 493.0 7.0 34.5 0.7 0.9 1.0 13.0 10.4 8.7 1.7 1.6 1.4 7.4 6.2 5.3 14.3 13.8 13.9 Buy Buy
PPC NSZ Sept 15.2 260.0 39.6 7.1 7.8 9.0 29.6 26.8 23.3 24.3 24.3 25.1 13.5 13.5 13.5 34.0 37.6 39.8 Hold Buy
Radar NSZ Jun 55.4 7.0 3.9 (0.5) 0.5 0.8 na 66.4 39.6 0.3 0.3 0.3 6.2 8.0 14.9 12.4 8.0 3.6 Hold Hold
Willdale NSZ Sept 1,778.0 0.1 1.8 (0.1) (0.0) (0.0) na na na 0.3 0.4 0.4 (3.7) (6.8) 17.8 (101.5) (41.2) (7.0) Sell Sell
Beverages, Hotels and Leisure na 4,305.9 1,167.3 14.2 9.8 7.4
Afdis ATC Jun 95.2 10.0 9.5 (1.0) 1.9 2.9 na 6.7 4.5 3.2 2.2 1.5 (37.9) 5.8 3.2 (3.8) 9.5 12.7 Buy Buy
Delta ATC Mar 1,192.1 70.0 834.5 6.2 7.9 10.0 11.3 8.9 7.0 3.2 2.4 2.0 7.2 5.7 4.5 17.7 18.4 19.2 Buy Buy
Innscor ATC Jun 541.6 53.0 287.0 4.8 7.1 9.6 11.0 7.4 5.5 2.5 2.8 2.2 9.8 6.5 4.0 5.6 7.5 10.3 Buy Buy
RTG ATC Dec 1,645.5 1.8 29.6 (0.1) (0.1) (0.1) na na na 1.7 1.8 2.0 (37.0) (144.3) (290.4) (7.1) (1.5) (0.7) Sell Sell
Afrisun ATC Sept 831.5 0.8 6.7 (0.6) (0.3) (0.3) na na na 0.4 0.3 0.3 (2.6) 29.3 43.0 (16.8) (3.7) (3.7) Sell Hold
Engineering na 2,270.6 33.5 -5.2 -4.6 -4.0
CAFCA NSZ Dec 8.2 50.0 4.1 15.7 17.9 24.0 4.4 3.9 2.9 0.8 0.7 0.5 2.9 2.3 1.5 10.8 10.9 12.7 Hold Buy
Gulliver NSZ Sept 554.9 0.0 0.2 (0.5) (0.8) (1.1) na na na 0.0 0.0 0.0 (0.9) (1.0) (0.8) (90.4) (88.3) (85.7) Sell Sell
Powerspeed NSZ Sept 379.2 1.4 5.3 0.1 0.1 0.1 0.2 0.1 0.1 0.0 0.0 0.0 3.0 3.0 2.9 3.0 3.0 3.0 Spec Buy Spec Buy
Steelnet NSZ Dec 538.0 0.0 0.0 - - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Susp Susp
ZECO NSZ Jan 463.3 0.2 0.9 (0.4) (0.5) (0.5) na na na 0.0 0.0 0.0 (0.2) (0.2) (0.1) (130.1) (138.4) (110.6) Avoid Sell
Zimplow NSZ Dec 327.1 7.0 22.9 0.8 1.0 1.1 9.0 7.8 6.9 1.7 1.5 1.3 5.9 5.4 4.7 22.3 19.9 20.3 Buy Buy
Financial na 6,975 240.8 3.5 2.4 1.6
ABC ATC Dec 64.4 54.0 34.8 18.9 30.9 36.9 2.9 1.7 1.5 0.4 0.4 0.3 84.7 82.8 81.5 Accumulate Hold
Barbican ATC Dec 119.0 0.0 0.0 - - - 0.0 0.0 0.0 0.0 0.0 0.0 na na na Susp Susp
Barclays Bank ATC Dec 2,152.6 3.7 79.6 0.1 0.2 0.4 56.7 16.0 8.7 2.4 2.1 1.7 93.5 81.8 73.3 Hold Accumulate
CBZ ATC Dec 684.1 7.0 47.9 4.4 5.4 7.1 1.6 1.3 1.0 0.4 0.3 0.3 56.5 49.8 44.9 Spec Buy Spec Buy
Interfin ATC Dec 20.6 1.7 0.4 0.0 (0.2) (0.2) na na na 3.7 6.3 33.4 Sell Avoid
ZBF Holdings ATC Dec 175.2 11.5 20.1 3.3 4.7 9.2 3.5 2.4 1.2 0.5 0.4 0.3 91.3 78.0 67.3 Spec Hold
FBC Holdings ATC Dec 591.9 6.0 35.5 1.6 2.3 2.9 3.7 2.6 2.1 0.6 0.5 0.5 65.9 60.8 60.3 Spec Hold
NMB Bank ATC Dec 2,807.1 0.7 19.6 0.2 0.3 0.4 4.3 2.8 1.9 0.8 0.6 0.5 67.0 66.3 65.8 Spec Buy Buy
Trust Holdings ATC Dec 359.7 0.8 2.9 (0.3) (1.3) (1.2) na na na 0.0 0.0 0.0 Sell Sell
Insurance 1,394.5 122.6 -0.2 -0.3 -0.6
Fidelity NSZ Dec 108.9 16.0 17.4 1.8 3.2 4.6 8.8 5.0 3.5 0.7 0.7 0.9 Hold Hold
AFRE NSZ Dec 217.1 6.0 13.0 (2.3) (0.3) 0.4 na na 16.8 0.2 0.2 0.2 Sell Sell
Nicoz Diamond NSZ Dec 559.5 3.0 16.8 0.3 0.3 0.5 10.3 8.6 5.9 1.4 1.2 1.0 Hold Hold
Old Mutual NSZ Dec 67.6 144.0 97.3 (9.4) (8.0) (4.0) na na na 0.5 0.6 0.6 Buy Buy
Zimre NSZ Dec 767.4 1.1 8.4 0.3 0.4 0.5 0.0 0.0 0.0 0.0 0.0 0.0 Spec Accumulate
OPM* - for finanial companies its cost to income ratio
13

ZSE Listed companies cont’d
Companies Analyst Year Shares Price Mkt cap Eps (USc) P/E (x) PBV (x) EV/EBITDA (x) OPM (%)
Recommendation
end in issue (USc) (US$m) hist +1 +2 hist +1 +2 hist +1 +2 hist +1 +2 hist +1 +2 ST LT
Food na 1,269.6 168.4 -28.4 47.3 13.3
Cairns NSZ Aug 167.7 0.3 0.5 (4.9) (3.6) (3.8) na na na 0.7 0.2 0.1 (3.9) (3.9) (2.0) (19.9) (29.6) (30.1) Sell Sell
Colcom NSZ Jun 159.0 28.0 44.5 3.1 3.0 3.7 10.6 10.9 8.9 2.3 2.1 1.8 7.6 7.4 6.1 12.2 10.8 11.9 Buy Buy
Dairibord NSZ Dec 356.0 16.5 58.7 2.0 2.7 3.6 9.4 7.0 5.1 1.6 1.4 1.3 5.2 4.2 3.1 11.3 11.7 13.3 Buy Buy
National Foods NSZ Jun 68.4 90.0 61.6 7.3 7.3 11.1 16.1 16.1 10.6 1.9 1.4 1.1 8.9 6.5 5.1 3.5 4.2 4.8 Buy Buy
Starafrica NSZ Mar 518.5 0.6 3.1 (2.9) (2.4) (1.8) na na na 0.5 1.1 0.6 (5.0) (2.7) (2.6) (16.0) (23.0) (19.3) Sell Sell
Industrial Holding na 2,868.8 116.0 28.2 17.8 7.1
Apex ATC Oct 503.7 0.1 0.3 (0.2) 0.0 0.0 na 6.7 5.5 0.0 0.0 0.0 (1.1) 0.7 0.6 (14.6) 1.4 1.2 Sell Sell
Astra ATC Aug 139.6 3.3 4.5 0.3 0.9 1.2 5.1 1.7 1.3 0.1 0.1 0.1 1.5 1.1 1.0 5.2 6.3 6.7 Spec Spec
CFI ATC Sep 105.5 5.5 5.8 (0.7) (2.7) (0.4) na na na 0.1 0.1 0.1 (8.5) (9.4) (40.8) (2.9) (2.3) (0.4) Hold Hold
General Beltings ATC Dec 530.2 0.2 1.0 (0.4) (0.3) (0.2) na na na 0.0 0.0 0.0 0.0 (2.7) (2.9) (33.0) (16.0) (9.0) Sell Sell
Meikles ATC Mar 240.8 14.0 33.7 2.4 (0.5) 0.6 6.6 na 29.2 0.3 0.3 0.3 (134.2) 6.7 5.1 (1.8) 1.8 2.1 Spec Spec
Phoenix ATC Oct 87.5 1.0 0.9 0.1 0.1 0.1 33.6 33.3 25.9 0.4 0.4 0.4 5.2 3.8 3.1 1.0 1.4 1.4 Reduce Hold
T A ATC Dec 164.8 12.0 19.8 (3.8) (2.9) (2.1) na na na 0.4 0.4 0.4 15.8 8.8 5.5 0.6 0.6 0.6 Spec Buy Sell
TN Holdings ATC Dec 750.8 3.9 29.3 (0.1) 0.1 0.2 na 30.1 26.3 7.1 5.7 4.7 0.0 0.0 0.0 0.0 0.0 0.0 Sell Sell
T S L ATC Oct 345.9 6.0 20.8 0.3 0.5 0.6 28.7 17.7 15.6 1.5 1.4 1.4 19.9 14.7 13.1 6.1 6.9 7.1 Spec Spec
Mining na 443.4 79.9 -4.8 -4.2 -3.0
Bindura Nickel ATC Dec 126.0 3.5 4.4 (13.1) (15.1) (16.3) na na na (1.8) (0.9) (0.2) (0.3) (0.2) (0.2) (372.6) (626.0) (610.4) Sell Hold
Falgold ATC Sept 111.2 10.0 11.1 1.1 13.7 82.2 6.9 5.2 3.7 0.0 0.0 0.0 0.0 0.0 0.0 4.9 10.6 12.4 Hold Hold
Hwange ATC Dec 166.2 26.0 43.2 3.7 5.0 7.0 na na 14.3 0.0 0.0 0.0 0.0 0.0 0.0 (6.9) (63.0) 6.9 Buy Buy
RioZim ATC Dec 40.0 53.0 21.2 (5.6) (31.4) 3.7 na na na 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Hold Hold
Paper and Packaging na 1,363.0 31.1 -13.8 12.2 7.3
Amalgamated Regional Trading ATC Sep 467.3 0.3 1.4 (0.6) (0.0) 0.2 na na 1.8 0.1 0.1 0.1 5.4 4.2 2.3 0.5 2.0 3.7 Sell Sell
Hunyani Holdings ATC Oct 319.7 7.5 24.0 0.0 0.6 0.8 172.3 10.7 7.9 1.0 0.8 0.7 (54.9) 14.5 8.2 (4.6) 0.1 1.6 Hold Buy
Zimbabwe Newspapers ATC Dec 576.0 1.0 5.8 0.1 0.1 0.2 7.7 4.9 3.8 0.4 0.4 0.3 6.0 (3.4) (1.9) (0.8) 1.0 1.3 Spec Spec
Pharmaceuticals and Chemicals na 2,814.9 2.9 -2.1 -2.3 54.2
Chemco ATC Oct 15 0.5 0.1 (5.7) (7.3) 1.3 na na 3.9 0.2 0.2 0.2 0.6 (0.2) (1.0) (5.1) (13.6) 3.3 Sell Sell
Medtech ATC Dec 2,800 0.1 2.8 (0.1) (0.0) (0.0) na na na 16.3 51.7 (49.5) 123.9 80.7 61.0 (1.5) (1.0) (0.9) Sell Sell
Retail stores na 5,417.8 148.0 26.3 10.0 5.2
Celsys NS June 1,599.6 0.1 1.3 (0.1) (0.1) (0.1) na na na (0.4) (0.2) (0.1) (2.3) (4.0) (5.1) (64.2) (26.3) (17.9) Sell Sell
Edgars Stores NS Jan 282.7 7.3 20.5 0.8 1.3 1.9 11.7 6.9 4.7 6.1 3.2 1.9 9.7 5.4 4.0 11.9 15.1 15.7 Add Buy
OK Zimbabwe NS Mar 1,020.9 10.0 102.1 0.4 0.8 1.3 25.7 12.3 7.6 2.6 2.2 1.7 11.7 6.5 3.6 2.1 3.4 4.8 Buy Buy
Pelhams NS Mar 995.6 0.6 5.5 0.0 0.0 0.3 69.5 30.0 2.5 3.0 2.6 1.2 13.9 11.5 2.5 8.5 9.4 35.0 Sell Sell
Redstar NS Mar 1,145.3 0.0 0.0 - - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Susp Susp
Truworths NS Jun 373.6 5.0 18.7 0.5 1.0 1.3 19.7 9.8 7.1 9.7 5.7 3.7 14.9 11.2 7.7 10.1 12.2 13.4 Hold Buy
Tobacco na 17.4 37.4 7.7 4.3 4.1
BAT Zimbabwe ATC Dec 17.4 215.0 37.4 28.1 41.8 43.4 6.4 4.3 4.1 3.7 3.5 3.3 4.9 3.6 3.5 16.0 16.0 13.3 Buy Buy
Technology na 171.6 694.8 4.2 3.5 3.1
Econet ATC June 171.6 405.0 694.8 97.8 115.8 132.9 4.1 3.5 3.0 1.8 1.3 1.0 2.8 2.6 2.1 40.0 40.2 40.1 Buy Buy
Transport na 463.5 23.5 -535.9 8.3 5.7
Pioneer ATC Dec 55.0 2.5 1.4 (2.8) 0.8 1.0 na 8.7 6.9 0.9 0.8 0.7 (21.5) (19.6) (18.1) (1.6) (1.6) (1.6) Sell Sell
NTS ATC Dec 253.8 2.0 5.1 0.1 0.3 0.5 23.6 11.8 6.9 2.2 1.9 1.5 (54.3) 12.3 6.3 (2.7) 6.6 10.7 Hold Buy
TPH ATC Aug 154.7 11.0 17.0 0.8 1.2 1.6 11.2 7.6 5.5 1.0 0.9 0.8 0.0 0.0 0.0 3.9 4.7 5.4 Hold Buy
Property na 7,271.1 105.8 2 3 4
Dawn Properties NS Mar 2,457.2 0.7 16.0 0.5 0.0 0.0 1.3 23.0 13.9 0.2 0.2 0.2 713.1 15.4 10.1 0.4 15.9 19.9 Hold Hold
Mashonaland Holdings NS Sep 1,859.1 2.0 37.2 1.3 0.3 0.3 1.5 7.5 6.0 0.4 0.4 0.4 0.6 0.9 1.3 61.0 63.9 66.9 Buy Buy
Pearl Properties NS Dec 1,238.2 2.8 34.7 1.3 1.5 0.5 2.1 1.8 5.4 0.4 0.3 0.3 6.2 6.5 7.2 56.5 53.0 50.2 Buy Buy
Zimre Properties Investments NS Dec 1,716.7 1.1 18.0 0.3 0.4 0.5 2.9 2.8 2.2 0.4 0.3 0.3 (0.2) 0.2 0.4 39.1 48.8 57.0 Buy Buy
14

EQUITY RESEARCH
ZIMBABWE
AGRICULTURE/FMCG
Beneath complexity lies hidden value
The AICO share price has remained weak as the deadlock of
arrangements for a possible capital injection slackened
interest in the counter. Consequently, concerns over the
group’s high borrowings and net finance costs have
resurfaced. The company is likely to benefit from the firm
commodity prices, although the cancerous finance costs
will continue to garner a large portion of the gain. The
group however still has its invaluable business portfolio and
through the cash-cow SeedCo, upcoming Cottco and debt
restructuring we expect an improved performance as the
debt issue is addressed.
• Increasing sales volumes
Group sales volumes for H1 2012 increased 19% y-o-y as
seed business sales volumes grew 63%, cotton business
sales volumes increased 15% and FMCG volumes
declined 19%. The FMCG business was negatively
impacted by working capital constraints and capacity
utilisation remained low averaging between 25% and
30%.
• Steady market share despite decline in national
output
The national cotton crop declined by 10% to 242,000
tonnes and AICO’s intake declined by 7% to 103,224
tonnes although market share improved to 43% from
41%.
• Attractive valuation
Using a S.O.P valuation approach, we derived a value
of US 36c, implying 140% upside potential to the
current price of US 15c. AICO remains undervalued on
a sum of parts (S.O.P). BUY.
BLOOMBERG: AICO:ZH
BUY
Current price (USc) 15.0
Target price (USc) 36.0
Upside/Downside (%) 140.0
Liquidity
Market Cap (US$m) 79.7
Shares (m) 531.7
Free float (%) 37.7
Ave. daily vol ('000) 309.2
Share price performance
6 Months (%) (31.8)
Relative change (%)* (19.7)
12 Months (%) (16.7)
Relative change (%)* (2.0)
*Relative to ZSE Industrial Index
Financials (US$m) - FY 31 Mar 2011 2012F 2013F
Turnover 210.6 278.0 296.1
EBITDA 41.1 41.9 42.7
Net finance income (17.2) (15.3) (14.2)
Attributable earnings 8.9 9.4 10.4
EPS (USc) 1.7 1.8 2.0
DPS (USc) 0.0 0.0 0.0
NAV/share (USc) 15.2 16.3 17.1
Valuation Ratios
PBV (x) 1.0 0.9 0.9
PER (x) 8.9 8.5 7.7
EV/EBITDA (x) 3.1 3.0 3.0
EBITDA margin (%) 12.3 19.4 15.3
Dividend Yield (%) na na na
Earnings Yield (%) 11.2 11.8 13.1
Gearing (%) 39.4 85.4 71.2
RoaA (%) (2.0) 0.5 1.8
RoaE (%) (5.2) 1.2 3.8
AICO Africa: Price vs Volume
35
30
25
20
15
10
5
0
Feb-09 Oct-09 Jun-10 Feb-11 Oct-11
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
STRENGTHS
WEAKNESSES
Diversified business
Input scheme recoveries
Dominant market share
Strategic Partneships
Strong management team
OPPORTUNITIES
THREATS
Continued regional expansion Competition from new entrants
New products for FMCG business i.e. the Chinese
Improving disposable incomes Volatile international lint prices
SI 142 ensures favorable recoveries Drought
Middle Price USc LHS
Total Volume (m) RHS
Source: IES
15

Nature of business
AICO Africa Limited is an integrated agro-industrial conglomerate. The
group wholly owns Cottco, which with nine ginneries, constitutes the
ginning operations of the group. AICO also holds a 51% stake in SeedCo
Limited, which in turn holds a 100% interest in Quton Seed Company, a
cotton planting seed production house. The group also has a 49% stake
in Olivine Holdings and a 75% interest in Scottco.
Overview of H1 2012 results
AICO posted improved financials driven by a strong performance from
the Cotton business which benefited from the firm lint prices. The
Cotton business contributed 65% to group revenue from 45%, seed
business 25% from 36% and FMCG 8% from 13%. The medium term
target for revenue contribution is 33% from each division.
AICO Shareholding - 30/12/11
Shareholder
# of Shares (m) % of Total
1 NSSA 101.9 19.1%
2 Old Mutual Life Assurance Co. Zim Ltd 72.2 13.5%
3 Burket Associates Limited NNR 40.3 7.5%
4 Barclays Zimbabwe Nominees (Pvt) Ltd 35.9 6.7%
5 Caperal Limited NNR 27.1 5.1%
6 Barclays Zimbabwe Nominees (Pvt) Ltd 26.5 5.0%
7 NSSA (W.C.I.F) 16.1 3.0%
8 Stanbic Nominees (Pvt) Ltd 12.8 2.4%
9 Old Mutual Zimbabwe Limited 10.2 1.9%
10 Fed Nominees (Pvt) Ltd 10.2 1.9%
EBITDA margins recovering
EBITDA margins recovered to 13.8% as the cotton business recorded
EBITDA of US$ 16.5m, seed business US$ 2.4m, FMCG US$ 0.2m and
spinning, a loss of US$ 0.9m. Group operating profit of US$ 8.5m was
negatively impacted by impairments of US$ 5.2m of which US $3.0m
relates to investment in subsidiaries (mainly Scottco) and US$ 1.4m
cotton business inventories.
Finance charges increased with approximately US$ 10.0m in the
cotton business as the producer price doubled. The cotton business
however contributed US$ 4.6m to group PAT from a loss of US$ 5.6m,
the seed business a loss of US$ 1.4m, FMCG a loss of US$ 3.4m versus
US$ 1.3m and spinning a US$ 1.6m loss from a loss of US$ 0.6m.
Cash flows were strained due to increased working capital
Short-term borrowings increased to US$ 162.0m from US$ 119.0m and
the average cost was approximately 10.8%. The borrowings are
expected to wind down to approximately US$ 50.0m by FY 2012 with
about US$ 30.0m in the cotton business.
Outlook
Management anticipates a marginal increase in group sales volumes for
FY 2012 mainly impacted by the FMCG business. Nonetheless, the
cotton and seed businesses are expected to post significant earnings
growth. Recoveries in the cotton business for the out grower scheme
have recovered to average above 90%. The FMCG business is expected
to turn to profit in FY 2013. The disposal of Exhort is nearing
completion while Scottco’s disposal has remained problematic and is
likely to be closed.
Valuation and Recommendation
AICO remains undervalued by the market on a sum of parts (S.O.P)
basis. AICO’s 51% stake in SeedCo is currently valued at US$ 88.6m.
This value is in actual fact greater than AICO’s current market
capitalisation of US$ 79.7m. The market has somewhat missed the cue
as it also means that the value of the other businesses (Cottco, Olivine
and Scottco) are not being factored in.
Using a S.O.P valuation approach, we derived a value of US 36c,
implying a 140% upside potential to the current price of US 15c. BUY.
AICO H1 2012 results
Income Statement (US$ '000) H1 2011 H1 2012 % change
Turnover 53,082.0 115,021.0 116.7
EBITDA (500.0) 15,900.0
PBIT (4,173.0) 8,591.0
Net finance income (8,170.0) (13,337.0) 63.2
PBT (11,706.0) (4,086.0) (65.1)
Attributable earnings (10,060.0) (4,105.0) (59.2)
EPS (USc) (1.82) (0.74) (59.3)
Balance Sheet (US$ '000) FY 2011
Total Assets 251,735.0 350,263.0 39.1
NAV 80,595.0 83,808.0 4.0
Current Assets 146,620.0 238,186.0 62.5
Current Liabilities 101,716.0 200,236.0 96.9
Current ratio 1.4 1.2 (17.5)
Cash flow (US$ '000) H1 2011
Operating activities (63,337.0) (76,406.0) 20.6
Investing activities (6,599.0) (9,006.0) 36.5
Financing activities 44,515.0 57,718.0 29.7
16

AICO- 5 YEAR CGR COMPARISON
31 MAR (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 16.3 5.4 82.6 85.7 82.5 80.6 86.7 91.0
Minority interests 4.2 3.5 17.9 29.6 32.1 36.0 43.9 44.8
Total shareholders' funds 21.3 10.3 136.9 154.9 114.6 135.3 144.2 149.4
Interest Bearing Debt 33.5 7.2 15.4 40.7 57.3 115.6 102.7 95.6
Trade creditors 8.0 1.0 5.6 9.3 40.1 0.0 0.0 0.0
Current Liabilities 44.9 2.7 7.5 17.4 52.8 0.8 2.0 1.7
Total Liabilities and equity 67.2 20.2 159.8 212.9 224.7 251.7 248.8 246.7
Fixed Assets 4.7 6.8 126.1 132.8 116.8 104.2 105.2 110.5
Investments 0.0 0.0 0.8 2.0 0.7 0.4 0.8 0.2
Stock - Trade net 11.2 5.7 10.1 29.6 37.4 0.0 0.0 0.0
Debtors 13.7 5.6 18.9 30.8 29.9 0.0 0.0 0.0
Cash at bank 31.4 1.4 1.5 5.7 12.2 0.0 0.0 0.0
Current Assets 62.5 13.4 32.9 78.2 107.1 147.2 142.8 136.0
Total Assets 67.2 20.2 159.8 212.9 224.7 251.7 248.8 246.7
Income Statement
Turnover 67.5 47.4 145.0 120.7 162.9 210.6 278.0 296.1
Gross profit 2.8 31.0 94.6 83.4 57.7 86.4 80.6 91.8
EBITDA 33.5 34.8 40.0 41.3 40.8 41.1 41.9 42.7
Net finance income 0.0 8.0 (6.7) (9.0) (10.8) (17.2) (15.3) (14.2)
Profit before Tax 22.5 27.4 61.6 16.8 4.9 20.0 18.7 25.7
Taxation 0.0 7.5 13.2 2.9 0.3 1.5 1.4 6.4
Profit after Tax 22.5 19.9 46.0 15.3 4.5 18.6 17.4 19.3
Minorities 0.0 1.8 10.7 7.6 6.7 8.5 8.0 8.9
Attributable Income 31.1 19.8 35.3 7.8 -4.3 8.9 9.4 10.4
Weighted shares 531.7 531.7 531.7 531.7
EPS (USc) 5.8 3.7 6.6 1.5 (0.8) 1.7 1.8 2.0
Cash EPS (USc) 5.8 3.7 6.6 1.5 (0.8) 1.7 1.8 2.0
DPS (USc) 1.2 0.0 5.1 0.0 0.0 0.0 0.0 0.0
NAV per share (USc) 3.1 1.0 15.5 16.1 15.5 15.2 16.3 17.1
Growth Ratios
Sales growth (%) (58.81) (29.73) 205.68 (16.75) 34.97 29.32 32.00 6.50
Pre-interest profit growth (%) (32.94) (13.64) 251.83 (60.59) (52.45) 160.07 2.31 17.43
Earnings growth (%) (5,697.84) (36.18) 78.24 (78.00) (154.93) (309.51) 4.98 10.96
Margins
Gross margin (%) 4.1 65.4 65.2 69.1 35.5 41.0 29.0 31.0
EBITDA margin (%) 33.3 43.6 51.5 28.8 12.3 19.4 15.3 16.6
Pre-interest margin (%) 33.3 40.9 47.1 22.3 7.8 15.8 12.2 13.5
Interest cover (times) n/a n/a 10.2 3.0 1.2 1.9 2.2 2.8
Pre-tax profit margin (%) 33.3 57.7 42.5 14.0 3.0 9.5 6.7 8.7
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which
may not reflect a true account due to variability of exchange rates during that period.
17

EQUITY RESEARCH
ZIMBABWE
BANKING
Slowly but surely
Barclays Bank turned the corner to post a profit in FY 2011.
This was on the back of improved efficiencies following the
two restructuring exercises as well as growth in both funded
and non-funded income. We believe that Barclays is an
attractive play on the Zimbabwean economy.
• Operating in the black
The bank reported attributable earnings of US$ 1.4m as
funded income’s contribution increased to 21% of total
income.
• Superior asset quality
The quality of the advances book remained solid with
impairments less than 1% of the book. The coverage
ratio improved to 552% from 250%.
• Cost to income ratio to recede
Post the restructuring management believe that the
bank’s cost structures have been optimised and focus
will be on growing income. The bank’s long term target
cost to income ratio is 50%. The bank’s opex is covered
86.8% by the fee income, hence Barclays is well poised
for significant earnings growth once the advances book
starts to grow.
• Valuations are demanding
Current ratings are demanding versus the sector
average PBV of 0.8x and PER of 7.7x. Nonetheless,
valuations based on earnings are fraught with high risk
due to the significant uncertainties prevailing in the
local financial sector. Traditionally, Barclays trades at a
premium as it offers a perceived safe haven and due to
its conservative approach to business. We believe that
Barclays is an attractive play on the recovery of the
Zimbabwean economy. HOLD.
BLOOMBERG: BARC:ZH
Hold
Current price (USc) 3.7
Target price (USc) 5.5
Upside/Downside (%) 48.6
Liquidity
Market Cap (US$m) 79.6
Shares (m) 2,152.6
Free float (%) 20.7
Ave. daily vol ('000) 244.1
Share price performance
6 Months (%) (26.0)
Relative change (%)* (17.6)
12 Months (%) (20.0)
Relative change (%)* (17.6)
*Relative to ZSE Industrial Index
Financials (US$m) - 31 Dec 2011 2012F 2013F
Net Interest income 6.7 11.0 15.8
Profit before tax 2.1 6.6 12.2
Attributable earnings 1.4 5.0 9.1
EPS (USc) 0.1 0.2 0.4
DPS (USc) - - -
NAV/share (USc) 1.6 1.8 2.2
Ratios
RoaA % 0.6 1.8 2.8
RoaE % 4.4 13.8 21.2
PBV (x) 2.4 2.1 1.7
PER (x) 56.7 16.0 8.7
Cost/Income (%) 93.5 81.8 73.3
Advances/Deposits (%) 27.4 27.7 30.5
Earnings Yield (%) 1.8 6.2 11.5
Net Interest margin (%) 3.3 4.5 5.6
Cost of funds (%) 1.0 1.5 2.1
Barclays - volume vs price
9
5
4
6
3
3
2
1
-
0
May-11 Sep-11 Jan-12 May-12
STRENGTHS
Strong management team
Strong parent company
Access to lines of credit
Extensive network/clientele
Extensive skills pool
OPPORTUNITIES
Technology transfer
Recapitalisation of industry
and commerce
Huge credit appetite from pvt
sector
WEAKNESSES
High cost base
Breakdown in credit histories
No scope to expand regionally
Less flexible/agile
THREATS
New entrants into the market
High credit risk
Indegenisation
Systemic risk
Domestic disintermediation
Volume (m) RHS
Price (USc) LHS
Source: IES
18

Nature of business
Barclays is a world-class bank and one of the leading commercial
banks in Zimbabwe. The bank operates 43 ATMs from an installed
capacity of 76 and, 36 branches which are located in the large
commercial centres, with the other branches dotted around the
country. Barclays commands approximately 8% and 3% market
share, in terms of deposits and total lending respectively,
employing a total of 619 employees.
Overview of FY 2011 results
Operating in the black
Barclays Bank turned the corner to post attributable earnings of
US$ 1.4m from a loss of US$ 1.3m. This was on the back of
improved efficiencies following the two restructuring exercises as
well as growth in both funded and non-funded income. The total
cost of the restructuring amounted to approximately US$ 14.0m
and total savings are estimated at approximately US$ 3.3m per
year.
Strong improvement in margins
NII surged by a healthy 140.3%, albeit off a low base to US$ 6.7m
supported by a 36% increase in advances and expansion in net
interest margin to 3.5% from 1.7%, mainly triggered by the low
funding costs. We estimate that Barclays’ loan spreads hovered
around the 5%–15% region. The NII contribution to total income
improved to 21.0% from 10.9% in FY 2010.
Traction in multiple fee income streams
Adjusted non-funded income accelerated 11.3% to US$ 25.8m on
increased transactional volumes and comprised ledger fees of
33.3% (vs 26.8% in the prior period), cash withdrawal fees 30.0%
(31.3%), other fee & commission income 23.5% (26.6%) and forex
income 10.3% (13.0%). Transaction volumes increased to over
4.0m, from 3.3m in FY 2010 on the back of a 19.2% increase in
accounts to 155,000 as well as the launch of new products.
Barclays shareholding - 31 December 2011
Shareholder # of shares (m) %
1 Afcarme Zimbabwe Holdings 1,457.3 67.7%
2 Old Mutual Life Assurance A/ 173.3 8.0%
3 Stanbic Nominees P/L- NNR A 113.5 5.3%
4 Old Mutual Zimbabwe Ltd 76.0 3.5%
5 Barclays Zimbabwe Nominees 63.6 3.0%
6 Barclays Zimbabwe Nominees 52.9 2.5%
7 Fed Nominees (Pvt) Ltd 27.1 1.3%
8 Mining Industry Pension Fund 14.8 0.3%
9 Communication and Allied Pe 8.4 0.4%
10 Guramatunhu Family Trust 8.0 0.4%
Loan book
Transport & Distribution 9%
Personal loans 7%
Light & Heavy Industry 41%
Trade & services
16%
Agriculture 27%
Source: IES, Company
Cost to income ratio declined
The adjusted cost to income ratio improved to 92.9% from 105.7%.
Although the bank remained very conservative, adjusted opex was
covered 86.8% by non-funded income. Staff costs comprised 54%
of total opex. Post the restructuring the bank’s opex has been
optimised.
Superior asset quality maintained
The balance sheet increased 13.6% to US$ 260.0m on the back of a
35.6% and 16.7% growth in advances and deposits, respectively.
The quality of the advances book remained solid with impairments
less than 1% of the book. The coverage ratio improved 552% from
250%. The capital adequacy ratio was 19% against a regulatory
minimum of 10%. Liquidity was also high with a liquidity ratio of
69%. Return on shareholder funds was low at 4.0% reflecting the
bank’s reluctance to take on risk assets.
Outlook
Cost to income ratio to continue to improve
Post the restructuring, management believes that the bank’s cost
structures have been optimised and focus will be on growing
income. We estimate that the bank’s CIR will ease to
approximately 75% in FY 2012 before receding further to about
60% in FY 2013. The bank‘s long term target cost to income ratio
is 50%. The bank’s opex is 86.8% covered by fee income, hence
Barclays is well poised for significant earnings growth once the
advances book starts to grow.
19

Management is targeting a 14% growth in total income
in FY 2012. We believe that the income growth can be
accelerated once the bank moves from the
restructuring and rationalisation phase. The drive to
E-channel is expected to result in improved
efficiencies enabling the bank to ramp up income on
the launch of profitable products.
Valuation and Recommendation
Barclays remains expensive from a valuation point of
view despite the improved performance recorded in
2011 as it is trades at significant premiums to the
sector average PBV of 0.8x and PER of 7.7x.
Nonetheless, investors should note that
valuations based on earnings are fraught with
high risk due to the significant uncertainties
prevailing in the local financial sector. In our
view, the valuations can quickly unwind if the
operating environment changes substantially.
Key attractions for Barclays include the superior
asset quality, extensive low cost deposit base,
which will generate substantial funded revenue
streams in the years to come. We recommend a
HOLD for long-term investors.
BARCLAYS - 5 YEAR CGR COMPARISON
31 DECEMBER (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance Sheet
Shareholders' equity 13.8 4.6 26.2 32.2 30.9 33.5 38.5 47.6
Deposits and current accounts 52.4 20.9 116.8 122.3 183.2 213.7 253.2 287.4
Current and other liabilities 7.1 2.4 22.6 14.9 14.8 12.8 12.4 12.1
Total Liabilities 59.6 23.4 139.4 137.1 198.0 226.5 265.6 299.6
Liabilities and shareholders' funds 73.3 27.9 165.6 169.3 228.9 260.0 304.1 347.2
Fixed assets 7.7 5.0 18.4 21.2 21.9 21.1 22.8 25.1
Total cash and short term funds 37.5 16.2 67.3 46.5 61.0 78.2 98.2 103.5
Total advances and acceptances 9.7 6.4 2.8 20.3 43.1 58.5 70.2 87.8
Total operating assets 65.5 22.9 132.0 131.8 190.9 222.3 264.4 305.0
Total assets 73.3 27.9 165.6 169.3 228.9 260.0 304.1 347.2
Income Statement
Net interest income 44.5 22.1 0.4 1.2 2.8 6.7 11.0 15.8
Non funded income 6.2 1.6 5.1 16.4 29.7 33.5 29.5 33.2
Total operating income 50.7 23.8 5.5 17.5 32.5 40.2 40.5 49.0
Total Expenses 19.0 10.1 0.9 16.9 34.3 38.1 33.9 36.8
Operating profit 31.8 13.6 4.6 0.6 (1.9) 2.1 6.6 12.2
Associate income
Profit before Tax 31.8 13.6 19.6 0.6 (1.9) 2.1 6.6 12.2
Taxation 11.7 5.0 6.9 (0.9) (0.6) 0.7 1.7 3.0
Profit after Tax 20.2 8.6 12.7 1.5 (1.3) 1.4 5.0 9.1
Adj.Attributable Income 20.2 8.6 3.0 1.5 (1.9) 1.4 5.0 9.1
Weighted shares 2,152 2,152 2,152
Adj. EPS (USc) 0.9 0.4 0.1 0.1 (0.1) 0.1 0.2 0.4
DPS (USc) 0.2 0.0 - - - - - -
NAV/share (USc) 0.6 0.2 1.2 1.5 1.4 1.6 1.8 2.2
Growth Ratios
NII growth (%) (34.1) (50.3) (98.0) 164.3 143.1 140.3 64.1 43.4
Op exp growth (%) (34.0) (46.6) (90.7) 1,701.7 102.9 10.9 (10.9) 8.6
PBT growth (%) (42.2) (57.2) 43.7 (96.9) (403.0) (214.3) 212.5 84.0
Eps growth (%) (41.3) (57.3) 48.0 (88.5) (187.2) (210.1) 253.5 84.0
Deposit growth (%) (52.0) (60.1) 458.5 4.7 49.9 16.7 18.5 13.5
Advances growth (%) (56.9) (33.5) (56.8) 632.5 112.1 35.6 20.0 25.0
Net Asset Growth (%) (25.5) (66.7) 471.9 22.8 (3.9) 8.4 14.8 23.7
Profitability/Efficiency (%)
Adj. Non-interest income:total income 12.3 6.8 92.1 93.4 91.4 83.3 72.8 67.7
Net Interest Income/Assets 60.7 79.3 0.3 0.7 1.2 2.6 3.6 4.6
Return on ave Assets 18.7 17.0 13.2 0.9 (0.6) 0.6 1.8 2.8
Return on Equity 125.2 93.9 82.8 5.0 (4.0) 4.4 13.8 21.2
Costs/Income 35.7 39.9 16.8 98.4 104.7 93.5 81.8 73.3
Costs/Assets 16.8 18.7 1.0 10.3 17.1 15.4 11.8 11.0
Asset Management Measures (%)
Net Interest Margin 43.1 50.1 0.6 0.9 1.7 3.3 4.5 5.6
Cost of funds 35.5 17.5 0.0 0.9 1.0 1.0 1.5 2.1
Loan/Deposit ratio 18.4 30.7 2.4 16.6 23.6 27.4 27.7 30.5
Shareholder Equity:Advances 142.4 71.3 943.0 158.1 71.6 57.3 54.8 54.2
Equity/Assets 18.8 16.4 15.8 19.0 13.5 12.9 12.7 13.7
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true
account due to variability of exchange rates during that period.
20

EQUITY RESEARCH
ZIMBABWE
TOBACCO/FMCG
A strong puff of smoke
BATZ is the dominant cigarettes distributor in
Zimbabwe with a market share of 73% of the smoking
population in a market estimated to consume
approximately 2.5 billion sticks a year. The company’s
flagship brand, Madison, continues to record strong
growth. We believe that BATZ is well placed to benefit
from the steady increase in consumption expenditure
likely to emanate from a young population in a growing
economy.
• Dominant market share
BATZ holds a dominant market share estimated at
73% of the Zimbabwean market. This is largely due
to the prohibitive set-up costs of production,
marketing and distribution functions. Smokers are
notorious for their strong brand loyalties and new
players would incur significant advertising costs.
• Strong cash generation
Cash generation was strong with net operating cash
flow of US$ 5.1m, implying a cash interest cover of
12.5x. Net gearing significantly improved to 43%
from 90%.
• Strong distribution network
BATZ has a strong countrywide distribution network
operating out of five depots in Harare, Bulawayo,
Gweru, Mutare and Masvingo, with outlying areas
being serviced by third parties.
• Generous dividend policy
The company’s dividend policy of paying out 100% of
net earnings and a high dividend yield (c14% in FY
12) provides attractive returns to investment.
• Ratings are undemanding
Ratings are undemanding at a historic PER of 6.4x
and PBV of 3.7x. Return on shareholder funds (RoaE)
and asset utilization (RoaA) are impressive at 71%
and 15%, respectively. The company has a generous
dividend policy. BUY.
BAT - volume vs price
250
200
150
100
50
-
May-11 Sep-11 Jan-12 May-12
Volume RHS
Price (USc) LHS
125,000
100,000
75,000
50,000
25,000
-
Source: IES
BLOOMBERG: BATZL:ZH
BUY
Current price (USc) 215.0
Target price (USc) 250.0
Upside/Downside (%) 16.3
Liquidity
Market Cap (US$m) 37.4
Shares (m) 17.4
Free float (%) 17.4
Ave. daily vol ('000) 2.7
Share price performance
6 Months (%) 34.4
Relative change (%)* 49.6
12 Months (%) 19.4
Relative change (%)* 49.2
*Relative to ZSE Industrial Index
Financials (US$m) - FY 31 Dec 2011 2012F 2013F
Turnover 39.8 54.7 67.0
EBITDA 6.4 8.8 8.9
Net finance income (0.4) (0.5) (0.4)
Attributable earnings 4.9 7.3 7.5
EPS (USc) 28.1 41.8 43.4
NAV/share (USc) 48.8 51.9 55.1
DPS (USc) 26.0 38.7 40.2
Valuation Ratios
Volume (m) 1,650.0 1,450.0 1,595.0
PER (X) 7.7 5.1 5.0
PBV (X) 4.4 4.1 3.9
EV/EBITDA (x) 6.4 4.7 4.6
Earnings Yield (%) 13.1 19.4 20.2
Dividend Yield (%) 12.1 18.0 18.7
Gearing (%) 42.6 30.5 16.5
RoaA (%) 15.3 19.5 18.0
RoaE (%) 70.6 83.0 81.1
STRENGTHS
WEAKNESSES
Market leader
Low disposable incomes
Strong brand
Energy disruptions
Strong cash generation Commodities driven
Strong distribution network
Strong management
OPPORTUNITIES
THREATS
New products
Commodity price shocks
Economic recovery
Not a dominant manufacture locally
Well established competition
21

Nature of business
BAT processes tobacco products mainly for the domestic market with
exports being cut rag tobacco to Mozambique. The company
manufactures approximately 1.8bn cigarettes. BATZ’s main
competitor, Savvanna is the largest manufacturer of cigarettes
although the bulk of its production is exported. The company
markets both Global Drive Brands (e.g. Dunhill & Newbury) and local
brands like Madison, Everest, Kingsgate and Berkleley. Madison is the
flagship brand contributing about 67% of volumes.
Overview of FY 2011 results
A stellar performance
In FY 2011, BAT reported a stellar set of financials on the back of a
strong growth in volumes (+41% y-o-y to 1.7 billion sticks) and
improved margins. Sales volumes for the main stream brand, Madison
grew strongly at 61%.
BATZ Shareholding - Jan 2011
Shareholding No. shares %
1 B.A.T International Holdings (UK) Limited 9.9 57.0%
2 Old Mutual Life Assurance Co Zim Ltd 3.1 17.6%
3 FED Nominees (Private) Limited 1.1 6.6%
4 Barclays Zimbabwe Nominees (Pvt) NNR 0.4 2.5%
5 Barclays Zimbabwe Nominees (Pvt) Ltd NNR 0.3 1.5%
6 Old Mutual Zimbabwe Limited 0.3 1.5%
7 RM Insurance Company Limited 0.1 0.7%
8 Barclays Zimbabwe Nominees (Pvt) NNR 0.1 0.4%
9 Delta Beverages Pension Fund 0.1 0.4%
10 Stanbic Nominees (Pvt) Ltd 0.1 0.4%
Good margin business
Improved production efficiencies, cost management and the change
in the sales mix aided margins as GP margins surged to 46% from 31%
and operating margins widened to 18.5% from 0.8%, resulting in
operating profits increasing 40x. A generous final dividend of US$
0.16 was declared, implying a cover of 1.1x and dividend yield of
15.6%.
Solid balance sheet
Cash generation was strong with net operating cash flow of US$
5.1m, implying a cash interest cover of 12.5x. Net gearing
significantly improved to 43% from 90%. Trade debtors were
significantly down to US$ 4.9m from US$ 12.8m. In addition, stock
turnover reduced significantly from 90 days to only 20 days reflecting
an efficient inventory management system.
Outlook
While margins in the cigarette manufacturing business are relatively
high, the market is very price sensitive. Excise duties in Zimbabwe
are high for a developing country, and with the Government revenue
inflows remaining under pressure, are unlikely to be reduced in the
foreseeable future. For FY 2012 volumes are expected to decline by
approximately 12% due to the price increases effected in December
2011.
The increase in awareness of the health risks associated with
smoking has resulted in a decline in cigarette consumption in the
developed world while statistics from W.H.O have shown that the
opposite is true for most developing nations in Southern Africa. The
tolerant attitude of Zimbabweans in general towards smoking, brand
loyalty, considerable barriers to entry and the habit-forming nature
of cigarette smoking are all factors that help insulate the industry.
Input cost increases are a particular concern. Leaf tobacco makes up
40% of the non-excise cost of production. Worldwide shortages have
seen prices on the local auction floors rising strongly by xx%. The full
effects of this have not yet been felt by BATZ, as this leaf will only
come into production during FY 2013.
Valuation and Recommendation
Cigarette demand is closely linked to GDP levels, and BATZ’s long
term growth is therefore dependent on economic growth. BATZ has
strong brands and a solid distribution network. Margins are set to
expand on improved production efficiencies and effective
22

distribution.
Ratings are undemanding at a historic PER of 6.4x and
PBV of 3.7x. Return on shareholder funds (RoaE) and
asset utilisation (RoaA) are impressive at 71% and 15%,
respectively. The company has a generous dividend
policy.
BATZ is a well managed, strong cash generating
company operating in one of the most profitable
sectors in the economy. Its growth record and
strong balance sheet warrant above average
ratings. BUY.
BATZ - 5 YEAR CGR COMPARISON
28 FEBRUARY (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance Sheet
Shareholders' equity 2.1 0.1 53.0 6.2 5.4 8.5 9.0 9.6
Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total shareholders' equity 2.1 0.1 66.1 8.3 7.6 10.6 10.9 11.3
Interest Bearing Debt 0.0 0.0 0.0 3.9 5.9 5.9 5.3 4.5
Trade creditors 2.3 0.7 0.1 8.2 10.1 14.1 19.4 24.0
Current Liabilities 3.9 0.9 0.5 8.7 19.9 15.5 21.1 26.1
Total Liabilities and equity 6.0 0.9 66.6 20.9 33.4 31.9 37.3 41.8
Fixed Assets 0.2 0.0 0.0 9.3 8.8 9.6 9.6 9.6
Investments 0.8 0.3 65.3 0.3 0.2 0.6 0.6 0.6
Stock - Trade net 1.0 0.1 0.0 2.9 10.5 14.6 19.1 22.0
Debtors 3.7 0.4 0.0 8.0 12.8 4.9 5.5 6.8
Cash at bank 0.3 0.0 1.3 0.5 1.1 2.2 2.5 2.9
Current Assets 5.0 0.6 1.3 11.3 24.4 21.7 27.1 31.7
Total Assets 6.0 0.9 66.6 20.9 33.4 31.9 37.3 41.8
Income Statement
Turnover 14.7 4.3 0.0 15.1 22.9 39.8 54.7 67.0
PBIT 7.3 0.1 0.0 -0.5 -0.2 6.4 8.8 8.9
Other income 0.1 0.3 0.0 0.9 0.4 1.0 1.1 1.2
Profit before Tax 9.5 0.6 0.0 0.2 -0.3 6.9 9.4 9.7
Taxation 3.7 0.2 0.0 -0.1 0.2 2.1 2.1 2.2
Profit after Tax 5.8 0.4 0.0 0.3 -0.5 4.9 7.3 7.5
Minorities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Attributable Income 5.8 0.4 0.0 0.3 -0.5 4.9 7.3 7.5
Weighted shares - -
EPS (USc) 33.6 2.5 0.0 1.7 -2.9 28.1 41.8 43.4
Cash EPS (USc) 33.6 2.5 0.0 1.7 -2.9 28.1 41.8 43.4
DPS (USc) 31.6 2.4 0.0 0.0 0.0 26.0 38.7 40.2
NAV per share (USc) 12.1 0.4 305.1 35.4 30.8 48.8 51.9 55.1
Growth Ratios
Sales growth (%) (22.7) (71.1) (100.0) 50.9 74.1 37.5 22.5
Pre-interest profit growth (%) 22.7 (98.3) (100.0) (48.5) (2,822.2) 37.5 1.7
Earnings growth (%) (9.4) (92.5) (99.8) 40,592.8 (266.3) (1,078.6) 48.8 3.9
Margins
Gross margin (%) 95.8 94.2 100.0 53.7 30.6 46.2 46.2 43.5
Pre-interest margin (%) 49.4 2.9 47.1 -3.0 -1.0 16.0 16.0 13.3
Interest cover (times) n/a n/a n/a -1.8 -0.5 15.7 18.4 22.8
Pre-tax profit margin (%) 64.7 15.0 2,769.5 1.6 -1.3 17.4 17.1 14.5
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a tr
account due to variability of exchange rates during that period.
23

EQUITY RESEARCH
ZIMBABWE
FINANCIAL
Bruised, not broken - remains on even keel
In FY 2011, Zimbabwe’s banking behemoth, CBZH, posted
strong net profit growth of 61% to US$ 30.2m despite the
bank having faced tight liquidity constraints in the last
quarter. Strong performance of NII, and an improvement
in fee and commission income coupled with cost
containment were the major profit drivers. Despite a 25%
plus RoaE, the bank trades at significant discounts (10%-
30%) to its peers, mainly due to the poor perception of
its asset quality. In our view, CBZH, as the largest bank in
the country by all matrices should re-rate accordingly.
• Dominant position
The group has the largest depositor base in the
country at over US$ 830.0m and an advances book of
US$ 790.0m, controlling 22% of total system assets,
28% of deposits and 31% of advances. The group
operates 58 branches, 89 installed ATMs and 419 POS
machines.
• Group rationalisation to improve efficiencies
The future prospects of the group are highly
dependent on its ability to curb costs. The group is
targeting a cost to income ratio of approximately
50%.
• Fee income – a core focus area
CBZ Holdings is diversifying and improving its fee
income streams. CBZH views insurance products as
an area of significant future growth for the group
and the ability to cross-sell non-banking products to
its large customer base can aid future profitability.
• Remains undervalued
On a sum of the parts valuation we estimate a fair
value for CBZ Holdings of US 26c per share, implying
41% upside potential on the current price. In our
view, the discount is likely to narrow in the near
term. We believe that CBZH’s operations are in
better shape than the market has given it credit for.
BUY.
BLOOMBERG: CBZ:ZH
BUY
Current price (USc) 7.0
Target price (USc) 26.0
Upside/Downside (%) 271.4
Liquidity
Market Cap (US$m) 47.9
Shares (m) 684.1
Free float (%) 30.4
Ave. daily vol ('000) 245.1
Share price performance
6 Months (%) (46.2)
Relative change (%)* (40.0)
12 Months (%) (60.9)
Relative change (%)* (51.1)
*Relative to ZSE Industrial Index
Financials (US$m) - FY 31 Dec 2011 2012F 2013F
Net Interest income 75.1 90.2 107.6
Non-interest income 48.0 55.7 63.3
Profit before tax 38.2 58.0 76.1
Attributable earnings 30.2 37.1 48.8
EPS (USc) 4.4 5.4 7.1
DPS (USc) 0.3 1.1 2.0
NAV/share (USc) 17.4 21.7 26.8
Ratios
PBV (x) 0.4 0.3 0.3
PER (x) 1.6 1.3 1.0
RoaA % 3.5 3.1 3.4
RoaE % 29.4 27.8 29.4
Cost/income ratio % 57.0 49.8 44.9
Advances/Deposits % 95.2 74.6 77.8
Net Interest margin (%) 5.9 5.2 5.2
Cost of funds (%) 4.6 4.0 5.1
Earnings Yield (%) 63.1 77.5 101.8
Dividend Yield (%) 3.6 15.5 29.1
CBZ Holdings - volume vs price
20
6
15
4
10
2
5
-
0
May-11 Sep-11 Jan-12 May-12
Volume (m) RHS Price (USc) LHS
Source: IES
STRENGTHS
WEAKNESSES
Large depositor base
Exposure to government
banker to the government
High cost/income ratio hist.
Diversified income stream
Access to external credit lines
Well capitalised with large branch ntwk
OPPORTUNITIES
THREATS
Growth in local market on recap High cost platform
Established presence in Invest. Bnking Prolonged stretch to recapitalisation
Improving macro env. For Zimbabwe for the local economy
Recovery of public sector
Foreign lines of credit
24

Nature of business
CBZ Holdings is a diversified financial holding company with
operations spanning commercial banking, asset management, shortterm
insurance, life insurance and property. The banking and
principal subsidiary, CBZ Bank, is the country’s largest bank with 22%
of total system assets, 28% of deposits and 31% of advances. The
group operates 58 branches, 89 installed ATMs (39 are active) and
419 POS machines.
Overview of FY 2011 results
CBZ Holdings posted a strong set of numbers, showing attributable
earnings of US$ 30.2m, up 61% y-o-y for eps of 4.83 US cents a share.
The strong performance was driven by a strong NII performance from
the bank and cost containment on improved efficiencies. CBZH
reported an expansion in NIMs to 5.9% from 5.2% in the prior period
on reduced cost of funds. Total income increased 51% to US$ 123.1m
propelled by a 70% jump in funded income making a 61% contribution
to total income from 54%. The growth in non-interest income was
attributed to the increase in commission and fees up 17% to US$
20,6m and forex earnings +252% to US$ 6.3m. The CIR improved to
56% from 67% as opex grew 28%. The growth in opex was on the back
of a 41% increase in staff costs to US$ 38.0m to make a 55%
contribution to total opex versus 50% the prior period. A final
dividend of 0.13 cents was declared implying a dividend yield of 3.3%
and cover of 19x.
CBZH Shareholding - Dec 2011
Shareholder # of shares (m) %
1 Government of Zimbabwe 110.0 16.1%
2 Libyan Foreign Bank(NNR) 96.6 14.1%
3 Africa Investments Sub 2 Ltd 92.6 13.5%
4 National Social Security Authority 73.0 10.7%
5 CBZ Holdings Ltd 55.7 8.1%
6 Stanbic Nominees (Pvt) Ltd NNR 16.1 2.4%
7 Stanbic Nominees NNR 15.1 2.2%
8 Datvest Nominees (Pvt) Ltd 15.1 2.2%
9 Stanbic Nominees (Pvt) Ltd NNR 13.8 2.0%
10 Bethel Nominees No. 2 13.7 2.0%
CBZH Advances split
Communications 2%
Services 10%
Private 11%
Transport 3%
Construction 3%
Agriculture 26%
Manageable asset quality
The group’s balance sheet strengthened increasing 54% to US$ 1.1bn
as advances and deposits grew 78% and 35%, respectively. FuM grew
17% to US$ 88.2m. The liquidity ratio averaged 26% for the period.
NPLs grew 27.5 times in absolute terms to US$ 48.0m, representing
6% of advances up from 0.4%. Provisions to total advances worsened
to 2.3% from 1.2%. The group’s provisioning coverage ratio eased to
128% from 294% y-o-y. Management says it is comfortable with a loan
to deposit ratio of between 70% and 75%, in the current
environment. Only 3% of the loan book is to government and related
institutions. Return on shareholders funds improved to 25% from 22%,
while assets utilisation (RoaA) was flat at 3.6%. The bank’s capital
adequacy ratio was 11% with tier-1 capital at 7%.
Outlook
Loan growth to be curtailed
The bank managed to weather the liquidity crunch it faced in late
2011 and early 2012. The liquidity crisis can be attributed to the use
of “hot money” for long term advances.
Distribution 26%
CBZH Deposits
Customers 68%
Other 2%
Manufacturing 16%
Source: Company, IES
Banks 13%
Money market 19%
Source: Company, IES
Management guided for a 10% growth in total income for FY 2012 and
a CIR of 50%. The balance sheet is expected to grow by 32% driven by
a 48% and 5% growth in deposits and advances, respectively. The
increase in the lines of credit by an additional US$ 120.0m is
expected to propel deposits growth and improve liquidity. However,
the additional funds will be channelled towards restructuring existing
facilities. Ratings are undemanding and the bank appears to be in
better shape than the market has given it credit for. FuM are
forecast to increase by 40% with the insurance assets expected to
grow by 124%.
Group rationalisation to improve efficiencies
Management anticipates saving approximately 35% of combined group
operating expenditure, following the rationalisation of the bank and
building society. The group’s long term CIR is 50%.
PBT split
143%
93%
43%
‐8%
111%
Commercial
Banking
(4%)
Asset
Management
0.4%
Short term
Insurance
8% (7%)
Property
Other
Source: Company, IES
25

Valuation and Recommendation
Strong earnings growth is expected from CBZ Holdings. As
the largest bank in the country, CBZ has and is likely to
continue benefiting from its size. The group is
concentrating on consolidating its position through quality
and efficiency enhancements. Furthermore, CBZH
anticipates unlocking value entrenched in its property
portfolio.
discount to the ZSE. We believe CBZH will grow
earnings faster than the ZSE over the next four
years.
We believe that the share price can easily recover
to above 10 US cents. BUY.
CBZH is currently trading on a forward PER of 1.5x, a 76%
CBZ HOLDINGS - 5 YEAR CGR COMPARISON
31 DECEMBER (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance Sheet
Shareholders' equity 9.0 18.1 45.9 63.2 86.6 118.9 148.6 183.4
Deposits and current accounts 47.3 16.2 63.9 360.8 578.4 829.9 1,126.1 1,269.2
Current and other liabilities 11.9 4.2 2.1 24.2 17.7 103.5 76.0 87.8
Total Liabilities 59.2 20.4 65.9 385.0 596.1 933.3 1,202.1 1,357.1
Liabilities and shareholders' funds 68.6 44.1 115.1 452.5 686.8 1,055.7 1,353.0 1,542.3
Fixed assets 2.8 16.2 37.4 54.9 57.8 69.0 71.5 75.0
Total cash and short term funds 26.2 14.1 50.3 134.5 153.2 150.4 391.9 429.4
Total advances and acceptances 37.4 5.6 14.6 245.0 444.6 790.3 839.6 987.5
Total operating assets 63.6 19.7 64.9 379.5 597.8 940.8 1,231.5 1,416.9
Total assets 68.6 44.1 115.1 452.5 686.8 1,055.7 1,353.0 1,542.3
Income Statement
Net interest income 31.0 16.0 2.0 16.5 44.2 75.1 90.2 107.6
Non funded income 14.1 59.0 15.2 25.2 37.4 48.0 55.7 63.3
Total operating income 45.1 74.9 17.2 41.7 81.6 123.1 145.9 170.9
Total Expenses 13.3 12.8 0.4 29.6 56.0 84.0 87.9 94.8
Operating profit 31.8 62.2 16.8 12.2 25.6 39.1 58.0 76.1
Associate income 0.0 0.0 0.0 0.0 0.0 (0.9) 0.0 0.0
Profit before Tax 31.8 62.2 16.8 12.1 25.5 38.2 58.0 76.1
Taxation 11.6 15.7 4.8 4.0 6.8 7.9 20.7 27.2
Profit after Tax 20.2 46.6 12.0 8.1 18.8 30.3 37.3 49.0
Minorities 0.0 0.3 0.0 (0.1) 0.1 0.1 0.2 0.2
Adj. Attributable Income 17.4 7.6 2.0 3.4 18.7 30.2 37.1 48.8
Weighted shares
Adj. EPS (USc) 2.5 1.1 0.3 0.5 2.7 4.4 5.4 7.1
DPS (USc) 0.2 1.5 0.0 0.0 0.0 0.3 1.1 2.0
NAV/share (USc) 1.3 2.7 6.7 9.2 12.7 17.4 21.7 26.8
Growth Ratios
NII growth (%) (59.8) (48.4) (87.7) 738.7 167.3 69.9 20.2 19.3
Op exp growth (%) (49.2) (4.0) (96.9) 7,461.0 89.3 50.0 4.7 7.8
PBT growth (%) (55.7) 95.5 (73.0) (27.7) 110.4 49.6 51.7 31.3
Eps growth (%) (57.0) 128.7 (74.0) (31.9) 128.7 61.4 22.9 31.3
Deposit growth (%) (51.5) (65.8) 293.9 465.1 60.3 43.5 35.7 12.7
Advances growth (%) (35.9) (84.9) 158.3 1,581.6 81.5 77.8 6.2 17.6
Net Asset Growth (%) (48.4) 102.1 152.8 37.7 37.1 37.2 25.0 23.4
Profitability/Efficiency
Adj. Non-interest income:total income (%)
Net Interest Income/Assets (%) 45.2 36.3 1.7 3.7 6.4 7.1 6.7 7.0
Return on ave Assets (%) 17.9 82.2 15.1 2.9 3.3 3.5 3.1 3.4
Return on Equity (%) 153.3 341.2 37.5 15.0 25.0 29.4 27.8 29.4
Adj. Costs/Income (%) 29.9 54.2 8.5 69.7 68.6 57.0 49.8 44.9
Costs/Assets (%) 10.8 20.7 0.3 9.2 9.5 8.0 6.0 5.3
Asset Management Measures (%)
Net Interest Margin (%) 21.5 26.8 2.3 3.8 5.4 5.9 5.2 5.2
Cost of funds (%) 30.3 14.2 0.0 1.8 4.5 4.6 4.0 5.1
Loan/Deposit ratio (%) 79.0 34.8 22.8 67.9 76.9 95.2 74.6 77.8
Shareholder Equity:Advances (%) 24.0 321.8 315.0 25.8 19.5 15.0 17.7 18.6
Equity/Assets (%) 13.1 41.2 39.8 14.0 12.6 11.3 11.0 11.9
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which
may not reflect a true account due to variability of exchange rates during that period.
26

EQUITY RESEARCH
ZIMBABWE
FOOD
Staying ahead of the pack
In the face of increasing competition in the local market,
high operating costs, uncompetitive cost of capital and
inconsistencies in government policy pronouncements
relating to import duty and the Zim dollar, Dairibord has
managed to defend its position, with market share across
its product portfolio ranging above 50%. In Malawi, which
management emphasised is a strategic investment, the
company is successfully dealing with constraints including
forex shortages and strikes which are disrupting business.
• Lowest milk consumption in the region
Zimbabwe's consumption is still to recover to its peak
of 25 litres per capita with current consumption at 8
litres. It ranks at the bottom along with Malawi’s 5
litres per capita. Consumption in other regional
countries is much higher with Kenya at 100 litres,
Uganda at 50 litres, South Africa at 56 litres and
Zambia 10 litres.
• New products expected to make a significant
contribution
Nutriplus and Froot Scoop which were introduced on
the market towards the end of 2011 are expected to
increase their contribution in FY 2012. Targeted
output and revenue for Nutriplus amounts to 400,000
litres and US$ 460,000 per month respectively. Froot
Scoop volume target amounts 40,000 litres per month
against monthly revenues of US$ 116,000.
• Buy recommendation maintained
We remain long terms bulls on Dairibord, given its
substantial asset base, aggressive management and
the potentially compelling consumer story. We thus
maintain our BUY call.
BLOOMBERG: DZHL:ZH
BUY
Current price (USc) 17.0
Target price (USc) 35.2
Upside/Downside (%) 107.1
Liquidity
Market Cap (US$m) 60.5
Shares (m) 356.0
Free float (%) 57.7
Ave. daily vol ('000) 304.6
Share price performance
6 Months (%) 2,100.0
Relative change (%)* 0.0
12 Months (%) 2,100.0
Relative change (%)* 0.0
*Relative to ZSE Industrial Index
Financials (US$m) - FY 31 Dec 2011 2012F 2013F
Turnover 96.0 118.1 139.3
EBITDA 13.4 16.6 21.8
Net finance income (0.4) (0.5) (0.5)
Attributable earnings 7.1 9.5 13.0
EPS (USc) 2.0 2.7 3.6
DPS (USc) 0.4 0.6 0.8
NAV/share (USc) 7.5 8.2 10.4
Valuation Ratios
PBV (x) 2.3 2.1 1.6
PER (x) 8.6 6.3 4.7
EV/EBITDA (x) 4.8 3.8 2.9
EBITDA margin (%) 14.5 13.9 14.1
Dividend Yield (%) 2.6 3.6 4.8
Earnings Yield (%) 11.7 15.8 21.5
Gearing (%) 9.2 7.3 5.3
RoaA (%) 12.4 11.9 14.0
RoaE (%) 16.4 16.0 19.3
Dairibord-Price vs Volume
35
30
25
20
15
10
5
0
Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
-
STRENGTHS
WEAKNESSES
Quasi monopoly with strong brands Milk is a basic good and price sensitive
Value added products Capacity utilisation levels still low at 40%
Regional presence, Malawi
Strong management team
OPPORTUNITIES
THREATS
Continued regional expansion Cheap imports from SA
Recovery of domestic consumption Prolonged time to recovery
Growing domestic milk volumes Exchange rate risk in Malawi
Recovery of farming sector High stockfeed prices
Middle Price(US c)-LHS
Total Volume(m)-RHS
Source: IES
27

Nature of business
Dairibord Holdings specialises in the production of a range of products
including beverages, milk and milk products, cordials, condiments, canned
and processed foods, sauces, spreads and confectionery, which are marketed
to the domestic and foreign markets. At its peak, Dairibord produced in the
region of 80-100m litres of milk. Fully owned subsidiaries include a transport
company, NFB Logistics. In Malawi, it has a 60:40 JV in Dairibord Malawi
Limited which produces 4.5m litres of milk per annum.
Overview of FY 2011 results
Top line short of target but shows strong volume growth
Revenue went up 28% to US$ 96.0m, falling short of the anticipated 39%
growth on FY 2010. The top line was backed by a 20% growth in volumes to
65.2m litres while higher average prices were realised driven by an
improvement in the proportion of high value added products. Improved
efficiencies drove a one percentage point increase in the operating profit
margin to 11%, dispersing fears of a decline due to higher operating costs
(fuel, utilities, labour). A loss from the associate, Charhons, amounting to
US$ 512,000 was made as the unit continued to suffer from
undercapitalisation. Net finance costs were limited to US$ 367,000,
indicating a strong interest cover ratio of 29.6x up from 26.9x. PBT went up
22% to US$ 10.0m, although a higher tax charge led to a lower increase of
14% in the PAT to US$ 7.2m.
DZL Shareholding - 31/12/10
Shareholder # of Shares (m) %
1 Serrapin Investments P/L 59.4 17.1%
2 Old Mutual Life Assurance Co. Zim Ltd 52.1 15.0%
3 Remo Nominees P/L 20.3 5.9%
4 Scrimpton Investments P/L 15.0 4.3%
5 Fed Nominees P/L 11.9 3.4%
6 National Social Security Authority WICF 10.0 2.9%
7 Remo Nominees P/L NNR 10.0 2.9%
8 DZL Holdings Employee Share Trust 10.0 2.9%
9 Barclays Zimbabwe Nominees P/L-NNR 10.0 2.9%
10 Stanbic Nominees P/L 9.9 2.9%
Strong balance sheet
On the balance sheet, total assets increased by 19% to US$ 64.5m. The
gearing ratio was well contained, declining from 10% in the prior period to
8%. From US$ 5.4m for FY 2010, total borrowings increased to US$ 5.7m
comprising US$ 1.4m in long term loans and US$ 4.3m in short term loans.
The average all in cost of the loans is 10.6%. The group also accessed a US$
4.0m 5 year facility with the PTA at an all in cost of 11%. Net cash flows
generated from operations amounted to US$ 5.4m whilst the closing cash
flow position was US$ 2.3m.
High value added lines support outperformance of liquid milks and foods
division over the beverages division
In terms of divisional performance, the liquid milks registered 26% volume
growth compared to a 32% revenue growth due to an increase in sales
volumes of higher value added lines. The foods also registered a similar
performance as volumes went up by 19% against a 38% growth in revenue.
The late commissioning of the Cascade plant affected the performance of
the beverages, which registered the least volume and revenue growth of 15%
and 16% respectively. The logistics company registered a 31% volume growth
against a 30% growth in revenue although it only accounted for 1% of group
revenue.
Milk supply shortage continues unabated
Milk supply shortages remain a hurdle as current supply stands at 4.5m litres
against an estimated demand of 7.5m litres. 1,816 tonnes of milk powder
were imported for FY 2011 to supplement local supply, at landed prices of
US$ 3,963/tonne. 755 tonnes were used at DZPL whilst 420 tonnes were used
at Lyons, leaving a surplus of 641 tonnes. The group is carrying out several
strategies to try and boost milk supply including a heifer importation
scheme, resuscitation of dairy co-operatives and extension services to
farmers. Funding options for these initiatives are being considered. Since
1980 the group has helped to set up 10 dairy co-operatives which are
currently not in full production but the infrastructure is still in place. It is
hoped that the planned strategies will succeed in boosting milk supply.
Outlook
For FY 2012, the group is targeting volume growth of 20%, revenue growth of
at least 23% and a further growth in the operating profit margin to 12%.
Management also expects its raw milk intake to grow by 6% against the NADF
60%
50%
40%
30%
20%
10%
0%
Divisional Volume Contribution(%)
53%
50% 49%
36% 35%
31%
14% 16% 16%
Liquid Milks Foods Beverages
2009 2010 2011F
28

national forecast increase of 5%. The group will,
however, continue to import milk powders to
compliment local raw milk supply. US$ 10.0m is targeted
for capital expenditure for the current year in order to
increase production capacity for value added lines,
enhance distribution capacity and efficiencies, invest in
cold chain facilities and milk supply development.
Valuation and recommendation
In valuing the counter, we used a DCF valuation. Our
assumptions include an after tax cost of debt of
8%, risk free rate of 12%, risk premium of 19% and
beta of 0.9x. We arrive at an enterprise value of
US$ 127.4m and implied equity value of US$
123.9m, which translates to a US$ 0.35 share
price. We remain long term bulls on Dairibord,
given its substantial asset base, aggressive
management and the compelling consumer story.
BUY
DZHL- 5 YEAR CGR COMPARISON
31 DEC (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 3.6 30.6 25.4 34.5 40.4 47.8 51.1 55.5
Minority interests 0.1 0.6 1.2 1.1 1.2 0.9 0.9 0.9
Total shareholders' funds 3.6 30.6 25.4 34.5 40.4 47.8 51.1 55.5
Interest Bearing Debt 0.0 0.3 1.7 4.1 5.4 5.7 5.5 5.0
Trade creditors 3.9 2.1 5.0 6.6 8.1 9.8 11.9 14.0
Current Liabilities 4.6 2.5 5.5 6.6 8.5 11.0 15.4 18.5
Total Liabilities and equity 8.2 33.4 32.6 45.2 54.2 64.5 71.9 79.0
Fixed Assets 0.7 28.8 27.0 32.8 34.5 37.2 40.3 45.9
Investments 0.9 1.7 0.6 1.4 0.8 0.2 0.3 0.3
Stock - Trade net 2.8 1.5 3.0 5.6 9.9 11.9 14.6 17.2
Debtors 3.0 1.0 1.8 4.5 7.3 11.4 14.0 11.9
Cash at bank 0.8 0.4 0.2 1.0 1.7 2.3 2.7 3.7
Current Assets 6.6 2.9 5.0 11.1 18.9 25.5 31.3 32.8
Total Assets 8.2 33.4 32.6 45.2 54.2 64.5 71.9 79.0
Income Statement
Turnover 39.8 19.9 12.2 43.4 75.2 96.0 118.1 139.3
Gross profit 14.2 7.1 4.3 13.9 23.9 30.7 37.8 46.0
EBITDA 11.2 5.9 3.3 6.4 10.9 13.4 16.6 21.8
Net finance income 0.1 - 0.0 (0.4) (0.4) (0.4) (0.5) (0.5)
Profit before Tax 12.0 5.5 4.4 4.0 8.0 9.9 13.3 18.1
Taxation 3.8 2.1 2.0 0.9 1.9 2.8 3.8 5.1
Profit after Tax 8.1 3.4 2.4 3.1 6.1 7.1 9.5 13.0
Minorities 0.0 0.0 0.0 (0.0) - - - -
Attributable Income 8.1 3.4 2.4 3.1 6.1 7.1 9.5 13.0
Weighted shares 311.2 311.2 311.2 356.0 353.9 353.9 353.9 353.9
EPS (USc) 2.3 0.9 0.7 0.9 1.7 2.0 2.7 3.6
Cash EPS (USc) 2.4 1.1 0.7 1.4 2.4 2.7 3.5 4.6
DPS (USc) 0.4 0.0 - - - 0.4 0.6 0.8
NAV per share (USc) 0.8 0.2 0.2 3.4 5.5 7.5 8.2 10.4
Growth Ratios
Sales growth (%) (34.24) (49.93) (38.97) 257.00 73.14 27.66 23.00 18.00
Pre-interest profit growth (%) (33.40) (50.09) (38.97) 41.01 85.89 25.79 27.42 34.31
Earnings growth (%) (38.82) (58.54) (28.23) 29.07 96.81 15.18 34.98 35.98
Margins
Gross margin (%) 35.7 35.7 35.7 32.0 31.8 32.0 32.0 33.0
EBITDA margin (%) 28.2 29.6 27.0 14.7 14.5 13.9 14.1 15.6
Pre-interest margin (%) 27.1 27.0 27.0 10.7 11.5 11.3 11.7 13.3
Interest cover (times) n/a n/a n/a 10.6 21.3 29.6 26.7 39.2
Pre-tax profit margin (%) 30.1 27.7 35.9 9.2 10.7 10.3 11.3 13.0
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which
may not reflect a true account due to variability of exchange rates during that period.
29

EQUITY RESEARCH
ZIMBABWE
BREWERIES/BEVERAGES
Stronger growth emerging
Delta continues to post a strong operating performance
propelled by sturdy volume recovery across the group
and margin expansion. The volume growth is on the back
of strong economic growth underscoring the fundamental
macro-economic changes which have taken place. Delta
plans to disinvest from the remaining non-core
businesses namely Megapak (51%) and Food & Industrial
(49%) by end 2012.
• Dominant position
Delta enjoys a dominant position in Zimbabwe,
commanding approximately 96% of the beer market
and about 92% of the sparkling beverages market.
Management estimates that imported lagers
constitute approximately 5% of which Delta brings in
2%. The group aggressively markets its brands, and
in so doing stimulates volume growth. Marketing
costs are approximately 2% of revenues.
• Progressive margin expansion
Operational efficiencies have been enhanced with
investment in new equipment setting the scene for
sustained growth. Margins are expected to further
expand on improved efficiencies, reduced
maintenance costs, supply chain savings and an
enhanced product mix.
• Pristine balance sheet and strong cash generation
Delta generates excellent cash flow, with
approximately 60% of sales being for cash. As a
consequence, the balance sheet continues to
strengthen.
• Robust profit growth at low risk
The outlook for the group remains closely aligned
with that of the country at large. Our two valuation
methodologies, DCF and EV/Hl production point to a
fair value for the group of US$ 1.3bn. BUY.
Bloomberg: DELTA:ZH BUY
Current price (USc) 70.0
Target price (USc) 110.0
Upside (%) 57.2
Liquidity
Market Cap (US$m) 836.6
Shares (m) 1,195.1
Free float (%) 39.5
Ave. daily vol ('000) 554.1
Share price performance
6 Months (%) 2.2
Relative change (%)* 1.4
12 Months (%) 56.2
Relative change (%)* 22.9
*Relative to ZSE Industrial Index
Financials (US$m) - FY 31 Mar 2012 2013F 2014F
Turnover 554.8 676.3 813.8
EBITDA 118.7 150.0 186.8
Net finance income (2.0) (2.7) (2.9)
Attributable earnings 73.7 94.3 119.6
EPS (USc) 4.4 6.2 7.9
DPS (USc) 1.5 2.1 3.2
NAV/share (USc) 17.4 22.1 28.8
Valuation Ratios
PBV (x) 4.0 3.2 2.4
EV/EBITDA (x) 7.3 5.7 4.5
PER (x) 15.7 11.3 8.9
EV/Hl (US$) 124.8 109.0 95.8
RoaA (%) 17.6 20.4 20.8
RoaE (%) 28.9 34.9 34.2
EBITDA Margin (%) 21.4 22.2 23.0
Earnings Yield (%) 6.4 8.8 11.3
Dividend Yield (%) 2.1 3.0 4.5
Delta ‐ volume vs price
100
30
80
25
60
20
15
40
10
20
5
‐
0
May‐11 Aug‐11 Nov‐11 Feb‐12 May‐12
Volume (m) RHS Price (USc) LHS
Source: IES
STRENGTHS
WEAKNESSES
Dominant position
Low disposable incomes
No exchange risk
Weak macro economy
Resurging volumes
Frequent energy disruptions
Strong parent company
Leading brands, volumes up
OPPORTUNITIES
THREATS
Stabilising economy
Increase in excise taxes
Recovery in public finances Commodity price shocks
Aid inflows
Disruptions to utilities
Growth in local premium brands More aggressive competition
30

Nature of business
Delta is the largest manufacturer, distributor and marketer of beverages in
Zimbabwe. The operating divisions within the group are: beverages
(comprising Lager beer, sorghum (traditional) beer, sparkling beverages (SBs)
and a related transport operation), a maltings business and Megapak (a 51-49
venture with South Africa’s Nampak. The group also has a 30% shareholding in
Afdis (a manufacturer, importer, distributor and marketer of branded wines
and spirits), and a 49% holding in Schweppes Zimbabwe.
The lager business has two breweries (in Harare and Bulawayo), which have a
market share of 96%. Lion and Castle account for 65% to 70% of its
production, but it also has its own brands: Zambezi, Bohlinger’s and Pilsener.
The unit has an installed brewing capacity of 3.0m hl. Due to years of under
utilisation and limited maintenance, current available capacity is 2.0m hl pa.
Delta Shareholding - Dec 2011
Shareholder No. shares (m) %
1 SABMiller Zimbabwe B.V 234.0 18.1%
2 Rainier Incorporated 193.1 16.4%
3 Old Mutual Life Assurance 139.4 10.4%
4 Barclays Zimbabw Nomine 157.9 9.1%
5 Stanbic Nominees P/L NN 118.4 5.2%
6 Old Mutual Zimbabwe Lim 84.6 4.2%
7 Delta Employee Participat 27.5 2.4%
8 Browning Investments NV 22.2 1.9%
9 Fed Nominees P/L 17.4 1.8%
10 Stanbic Nominees P/L NN 15.9 1.6%
The traditional beer has 15 traditional sorghum breweries, which have a
combined available capacity of 5.0m hl. Capacity utilisation averaged
approximately 68% in FY 2012 and demand has remained strong.
Sparkling beverages (SBs) capacity utilisation averaged 75% on the available
capacity of 1.5m hl pa (total installed of 2.2m hl pa). The PET market is
estimated at 5% and is expected to grow as the economy recovers.
Delta revenue split
Sorghum 25%
SBs 28%
Overview of FY 2012 results
Delta posted a robust set of results showing attributable earnings of US$
73.7m, up 39% y-o-y for eps of US 6.03c. The strong performance was driven
by solid volume growth, margin expansion and a stronger performance by
associates. Overall beverage volume grew 19% to 6.9m hl, supported by
growth in lager (+23% to 2.0m hl), sparkling beverages (+26% to 1.5m hl),
sorghum (+15% to 3.4m hl) and maheu (+4%). Plastic tonnage increased by
24% to 7,196 tonnes anchored by the strong beverage volume growth. The
strong volume growth was supported by investments in machinery, brands
and capacity. Sales value grew ahead of volume growth at 36%. Operating
margins widened to 20.5% from 19.5% driving EBITDA growth of 45%. This was
on the back of improved efficiencies, competitive pricing, and improved
product mix and supply chain management. Nonetheless, margins were
dragged by the repairs and maintenance on re-commissioning of some
decommissioned machinery due to the strong volume growth. A final dividend
of US 1.25c a share was declared implying a dividend yield of 3.0% and cover
of 3x.
Cash generation remained strong with cash generated from operations of US$
121.4m. Net cash inflow of US$ 90.2m represented a cash interest cover of
34x. The balance sheet strengthened through this very strong operating
performance. Capital expenditure of US$ 74.0m (mainly for capacity
enhancement) resulted in a significantly expanded balance sheet, with
shareholders funds up 27%. Delta closed the period with debt of US$ 81.4m of
which US$ 60.0m was long term at an all in cost of approximately 7.4%. Net
gearing remained manageable at 9.8% (FY 2011: 9.1%).
Outlook
Strong fundamentals to sustain sturdy operating performance
Per capita consumption of circa 40 litres p.a. (including sorghum beer) is low
in Zimbabwe by developing world standards suggesting tremendous growth
potential off a low base. Stripping out sorghum based beers, the figure is
approximately 11 litres p.a. Management anticipates volumes to reach 7.3m
hl in FY 2013. As the group increases the total volume sold it further
increases its efficiencies allowing it to keep competitive pricing on its
products. The company states that for every 1% growth in GDP the company’s
volumes can grow by a factor of 2.5x. According to the Ministry of Finance
GDP is expected to grow at 9.4% in 2012.
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Vol '000
Hl
Lagers 47%
Source: Company, IES
2005 2007 2009 2011 2013F
Sorghum Lager Beer Soft Drinks
31

Margin expansion
We believe the company has solid opportunities to expand
the operating margin as a result of the combination of a
favorable mix shift to high end products, improved
efficiencies, competitive pricing, reduced maintenance
costs and supply chain savings.
Strong cash flow
Delta generates excellent cash flows. The strong cash flow
provides management flexibility, as cash can be used for
working capital, capital expenditure, cash dividends or
share-buy backs. Capex for FY 2013 is expected at US$
79.0m and capex/EBITDA is anticipated to recede to
between 30% and 50% in the medium to long term. In our
DELTA - 5 YEAR CGR COMPARISON
view, the declining capex will enable the company
to increase its dividend payout. The capex
programmes will not only increase capacity but
also improve production facilities and reduce costs.
Valuation and Recommendation
In our view, Delta has a compelling story with its
pristine balance sheet, strong cashflows, and solid
brands. There are high barriers to entry in this
industry and Delta enjoys a dominant position with
a solid distribution network. Ratings are
undemanding at PER+1 of 9.0x and EV/production
of US$ 124 versus PER of 20.0x and EV/production
of US$ 250 for our comparative sample. We
maintain our BUY rating.
31 MARCH (US$m) 2007 2008 2009 2010 2011 2012 2013F 2014F
Balance Sheet
Shareholders' equity 8.1 10.0 110.0 159.2 207.9 263.9 343.3 425.2
M inority interests 1.2 1.6 8.4 2.7 3.8 5.1 7.1 9.5
Total shareholders' equity 10.1 13.5 155.7 184.7 234.4 296.3 383.1 475.5
Interest Bearing Debt 0.2 0.0 0.5 15.0 24.2 81.4 79.1 75.9
Trade creditors 8.0 10.4 22.8 36.3 88.5 89.4 96.4 99.0
Current Liabilities 8.0 10.4 25.2 55.3 88.5 89.4 96.4 99.0
Total Liabilities and equity 18.3 24.0 181.3 255.0 347.1 467.1 558.6 650.4
Fixed Assets 1.3 0.1 130.7 162.4 227.0 268.5 333.5 398.5
Investments 0.6 0.6 11.5 11.0 20.7 28.1 29.5 32.1
Stock - Trade net 0.0 0.0 28.5 51.4 67.9 77.6 85.2 92.2
Debtors 14.5 18.5 4.6 14.3 26.4 37.3 50.1 63.3
Cash at bank 0.0 1.6 2.9 7.3 5.2 55.6 62.8 74.3
Current Assets 16.4 23.3 39.1 81.6 99.4 170.5 198.1 229.8
Total Assets 18.3 24.0 181.3 255.0 347.1 467.1 561.1 660.4
Income Statement
Turnover 120.0 121.9 104.2 281.3 408.0 554.8 676.3 813.8
EBITDA 46.5 62.1 41.3 49.1 81.7 118.7 150.0 186.8
Associate income 1.0 0.6 -0.1 -0.6 0.9 1.7 2.4 3.4
Profit before Tax 86.3 161.0 7.8 41.9 70.1 99.3 124.2 157.4
Taxation 25.8 49.0 2.4 2.2 15.9 24.1 27.9 35.4
Profit after Tax 60.6 112.0 5.4 39.7 54.1 75.2 96.2 122.0
Minorities 7.6 15.5 0.3 0.7 1.1 1.5 2.0 2.4
Attributable Income 53.0 96.5 5.1 39.0 53.0 73.7 94.3 119.6
W eighted shares
EPS (USc) 4.4 8.1 0.4 3.3 4.4 6.2 7.9 10.0
Cash EPS (USc) 4.8 10.6 2.9 3.4 5.6 7.9 10.0 12.6
DPS (USc) 0.4 0.4 0.0 0.0 1.5 2.1 3.2 4.8
NAV per share (USc) 0.7 0.8 9.2 13.4 17.4 22.1 28.8 35.7
Dividend yield (%) 0.5 0.6 0.0 0.0 2.1 3.0 4.5 6.8
Growth Ratios
Sales growth (%) (36.2) 1.6 (14.5) 169.9 45.0 36.0 21.9 20.3
Pre-interest profit growth (%) 4.8 33.8 (80.1) 214.8 75.8 44.0 26.8 25.6
Earnings growth (%) 59.4 82.1 (94.7) 665.4 36.1 39.1 27.8 26.9
Margins
Gross margin incl finance chgs ( 60.0 62.0 60.0 0.0 0.0 0.0 0.0 0.0
EBITDA margin (%) 38.7 50.9 39.6 17.5 20.0 21.4 22.2 23.0
Pre-interest margin (%) 38.7 50.9 11.8 13.8 16.7 17.7 18.4 19.2
Interest cover (times) n/a 8.6 2.7 49.5 34.4 37.1 43.6 61.5
Pre-tax profit margin (%) 72.0 132.0 7.5 14.9 17.2 17.9 18.4 19.3
*Note: Financial figures for 2007 to 2009 were derived using the Old Mutual Implied Rate (OMIR),
which may not reflect a true account due to variability of exchange rates during that period.
32

EQUITY RESEARCH
ZIMBABWE
TELECOMS
Virtually compelling
Econet is the dominant player in the domestic telecoms
market, commanding 70% of the mobile telecoms industry
with a subscriber base of 6.4m. Econet has a head start over
other players, in terms of penetration in data, which is
expected to be the next growth avenue. To us, this secures
high revenue visibility. In our view, the weak competition
provides excellent growth prospects for Econet.
• Strong cash generation
Cash generation was solid with EBITDA/OCF of 97%.
Given the high cash generation, Econet will fund most
of its capex requirements from internal resources and
increase dividend pay outs post peak capex funding.
• Margins and ARPUs remain healthy
Although EBITDA margins eased to 47% from 49%,
negatively impacted by the increased cost of the
network and fuel, they remain healthy and higher than
regional peers of approximately 45%. ARPUs increased
6% to US$ 10.33. Nonetheless, as the expansion unfolds
we expect EBITDA margins to ease as ARPU’s decrease
and costs increase. Furthermore, Econet has also
entered into the handset sale market.
• Solid infrastructure to support future growth
In our view, Econet has a robust transmission backbone
given its access to optic fibre. The company has
invested a total of approximately US$ 614.0m in capex
since 2009. The introduction of new products should
continue to attract revenues for the company as well as
increasing its subscriber base.
• Valuations remain compelling
We have valued Econet at US 664c a share and believe
that the market is ignoring the company’s dominant
market share and the tremendous potential in the
sector. We believe that the share has been oversold
and current levels provide a good entry point. Buy into
current weakness.
BLOOMBERG: ECWH:ZH
BUY
Current price (USc) 400.0
Target price (USc) 604.0
Upside/Downside (%) 51.0
Liquidity
Market Cap (US$m) 677.7
Shares (m) 169.4
Free float (%) 17.6
Ave. daily vol ('000) 105.8
Share price performance
6 Months (%) 2.1
Relative change (%)* (13.1)
12 Months (%) 0.2
Relative change (%)* (11.9)
*Relative to ZSE Industrial Index
Financials (US$m) - FY 28 Feb 2012 2013F 2014F
Turnover 611.1 693.6 780.3
EBITDA 290.9 328.3 366.2
Net finance income (4.4) (7.2) (8.1)
Attributable earnings 165.7 196.2 225.1
EPS (USc) 97.8 115.8 132.9
NAV/share (USc) 183.1 260.3 348.9
DPS (USc) 11.9 38.6 44.3
Valuation Ratios
Subscribers' 000 6,409.0 7,063.9 7,539.9
PER (X) 4.1 3.5 3.0
PBV (X) 2.2 1.5 1.1
EV/EBITDA (x) 2.8 2.5 2.2
ARPU (US$) 7.9 8.2 8.6
EV/Subscriber (US$) 128.6 116.6 109.3
EBITDA margin (%) 47.6 47.3 46.9
Earnings Yield (%) 24.5 28.9 33.2
Dividend Yield (%) 3.0 9.6 11.1
Gearing (%) 38.5 31.9 11.4
RoaA (%) 22.9 22.2 22.6
RoaE (%) 49.7 43.9 38.2
Econet - volume vs price
600
500
400
300
200
100
-
May-11 Sep-11 Jan-12 May-12
Volume (m) RHS
Price (USc) LHS
2
1
0
Source: m IES
STRENGTHS
Market leader
Strong brand locally and regionally
High tarriffs
Economies of scale
3G network in place
OPPORTUNITIES
New products/services
Weak competition: Telecel/NetOne
Mobile banking
Expansion of data services
Economic recovery
WEAKNESSES
Low disposable incomes
Energy disruptions
High gearing
THREATS
Entry of stronger players eg. MTN
Price wars
Resurgence of beer market
as a percent of wallet
33

Nature of business
Econet Wireless (Private) Limited is a communications and technology
company. It is the largest GSM mobile operator in Zimbabwe with a
market share of over 69% and more than 5.0m subscribers and 400 base
stations. Econet offers a unique blend of branded subscriber and pre-paid
mobile phone services. Econet also owns Data Control and Systems (51%)
trading as Ecoweb, one of the largest ISPs in Zimbabwe. This is supported
by Econet’s wireless infrastructure and earth station, which also provides
direct international dial access to more than 244 countries and territories
worldwide. The company also has a 51% stake in Transaction Processing
Systems (Pvt) Ltd, a provider of financial transaction switching, point of
sale and other value added services that look to exploit the convergence
of banking, IT and telecoms. Econet also owns 69% of Mutare Bottling
Company.
Overview of FY 2012 results
For FY 2012, Econet released a solid set of results which were broadly in
line with our expectations. The 24% revenue growth was supported by a
16% increase in subscribers to 6.4m and strong growth in voice and data.
ARPU increased 6% to US$ 10.33 on increased usage. Econet maintained
its dominant position commanding a market share of over 70%. Local
mobile penetration improved to 74%. Subscribers connected to broadband
were in excess of 2.0m while the new service EcoCash closed the period
with approximately 1.4m subscribers.
Econet Shareholding - Jan 2011
Shareholding No. shares %
1 Stanbic Nominees (Pvt) Ltd ( 9.0 10.7%
2 Austin ECO Holdings Limited 9.0 7.8%
3 Old Mutual Life Assurance Lif 8.5 5.3%
4 Econet Wireless Holdings, 7.2 4.7%
5 Barclays Zimbabwe Nominees 6.1 3.3%
6 Old Mutual Zimbabwe Ltd 3.6 3.1%
7 Barclays Zimbabwe Nominees 3.2 2.6%
8 Barclays Zimbabwe Nominees 2.4 2.4%
9 Northunderland Investments 2.2 2.4%
10 Barclays Zimbabwe Nominees 2.0 2.4%
* excluding class A shares
Interconnet &
Roaming 15%
Revenue contribution
Other 4%
Healthy margins maintained
EBITDA margins eased to 47.6% from 49.0% negatively impacted by the
increased network expenses. No final dividend was declared as the
company is in the final stages of concluding a syndicated US$ 307.0m loan
facility. The company bought back approximately 6.8m shares at US$
28.5m during the year.
Data & SMS 13%
Airtime & Supscriptions 68%
Non payment of interconnet fees negatively impacted cash flows
Cash generation remained strong with EBITDA/OCF of 115%. Capex was
US$ 184.0m and gearing improved to 65% from 86%. EBITDA interest
coverage was high at 35.9x, although finance charges increased 12% as the
company reached peak funding. Management state that future expansion
shall be funded mostly from internally generated cashflows. The nonpayment
of interconnect fees also negatively impacted Econet as
outstanding interconnect fees increased to approximately US$ 85.0m.
Included in the current liabilities is a short-term loan (vendor financing
facility, which we estimate to be approximately US$ 144.0m) that is due
to be restructured as part of the US$ 307.0m syndicated loan facility.
Outlook
Demand for voice remains strong and there is immense potential for data.
National penetration is expected to reach 100% by 2015 from the current
74%. Econet is well positioned given its dominant position and weak
competition. The focus for Econet will be on innovation, improving the
quality of service and cost containment. We anticipate increased dividend
payouts once the company is post its peak funding. Management state
that ARPUs and margins will be defended at U$ 10 and 49%, respectively.
Total Econet
subscribers'
9,000
000
7,500
6,000
4,500
3,000
1,500
0
Subscribers and penetration
2007 2008 2009 2010 2011 2012 2013F 2014F
Penetration
100%
80%
60%
40%
20%
0%
Valuation and Recommendation
Econet remains a great company and ratings are undemanding at
EV/Subscriber of US$ 123 against a regional peer average of
approximately US$ 214, EV/EBITDA 2.7x and PER+1 of 3.9x versus a
regional average of 10.7x. We maintain our BUY recommendation.
Econet Subscribers
Penetration
Source: IES, company reports
34

ECONET - 5 YEAR CGR COMPARISON
28 FEBRUARY (US$m) 2007 2008 2009 2010 2011 2012 2013F 2014F
Balance Sheet
Shareholders' equity 49.2 61.3 81.2 163.2 286.7 379.9 513.6 663.7
Minority interests 0.0 0.2 5.7 2.3 2.8 2.8 2.9 2.9
Total shareholders' equity 69.7 81.1 127.2 201.2 335.1 453.5 562.4 703.3
Interest Bearing Debt 0.6 0.0 9.1 138.7 240.9 247.0 291.5 240.9
Trade creditors 1.3 1.7 40.0 14.4 53.9 101.9 92.5 83.3
Current Liabilities 3.1 1.8 40.1 52.8 60.7 112.0 101.6 93.6
Total Liabilities and equity 73.4 82.9 176.4 392.7 636.6 812.4 955.4 1,037.9
Fixed Assets 54.2 38.5 134.4 267.5 498.9 561.7 601.7 641.7
Investments 15.7 42.8 13.3 0.0 31.1 9.0 9.4 10.4
Stock - Trade net 0.1 0.2 25.3 8.7 33.6 110.0 168.5 189.6
Debtors 1.2 1.2 0.1 30.5 0.5 0.8 0.9 1.3
Cash at bank 0.2 0.1 0.1 13.9 34.7 100.8 127.4 165.2
Current Assets 3.0 1.5 25.6 53.2 68.9 211.9 297.4 357.3
Total Assets 73.4 82.9 176.4 392.7 636.6 812.4 955.4 1,037.9
Income Statement
Turnover 34.6 21.4 87.9 362.8 493.5 611.1 693.6 780.3
EBITDA 16.1 6.1 26.6 179.3 242.7 290.9 328.3 366.2
Associate income 2.5 8.4 (1.1) 1.9 0.0 2.8 3.3 3.9
Profit before Tax 22.3 58.3 3.1 148.1 196.5 239.1 261.6 300.2
Taxation 5.9 11.7 5.1 34.9 55.5 73.4 65.4 75.0
Profit after Tax 16.4 46.6 (2.1) 113.2 141.0 165.7 196.2 225.1
Minorities 0.0 0.0 0.1 (1.4) 0.5 0.0 0.0 0.0
Attributable Income 16.4 46.6 (2.2) 114.6 140.4 165.7 196.2 225.1
Weighted shares 169.4 169.4 169.4
EPS (USc) 9.7 27.5 (1.3) 67.7 82.9 97.8 115.8 132.9
Cash EPS (USc) 10.2 27.8 9.6 78.3 105.9 125.3 145.2 164.2
DPS (USc) 3.2 0.8 0.0 22.6 12.0 11.9 38.6 44.3
NAV per share (USc) 1.0 3.0 (1.3) 73.9 126.1 183.1 260.3 348.9
Growth Ratios
Sales growth (%) 8.7 (38.1) 310.4 312.5 36.0 23.8 13.5 12.5
Pre-interest profit growth (%) (3.4) (63.1) 44.6 1,850.5 28.8 20.0 13.9 12.4
Earnings growth (%) 32.8 184.5 (104.7) (5,282.6) 22.5 18.0 18.4 14.7
Margins
Gross margin incl finance chgs (%) 76.6 84.0 78.6 80.0 80.0 80.8 80.8 80.8
EBITDA margin (%) 46.5 28.2 30.2 49.4 49.2 47.6 47.3 46.9
Pre-interest margin (%) 43.9 26.2 9.2 43.6 41.3 40.0 40.2 40.1
Interest cover (times) n/a 1.2 9.1 35.7 28.1 30.2 13.8 18.6
Pre-tax profit margin (%) 64.5 272.0 3.5 40.8 39.8 39.1 37.7 38.5
*Note: Financial figures for 2007 to 2009 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a
account due to variability of exchange rates during that period.
35

EQUITY RESEARCH
ZIMBABWE
AGRICULTURE
Adding on to its sweetness
The USDA estimates that Zimbabwe’s sugar output in
2012/13 will increase by 16% to 430,000mt from
372,000mt in the 2011/12 season on the back of an
expected 6% increase in the area harvested to
37,500ha, improvement in sugarcane yields and
enhanced efficiencies following significant
investments. Hippo Valley, a significant player in the
country’s sugar industry, is poised to contribute
significantly to this increase as it recently undertook
several initiatives to boost production.
• Still on positive growth trajectory
Hippo has undertaken projects including mill
refurbishment, to re-establish cane supply and
sugar milling capacity utilisation. We expect this
to significantly improve its total sugar output
and yield per hectare beyond 300,000 tonnes
and 110 tonnes/ha respectively.
• Recapitalisation of out growers a booster
We expect cane deliveries to the mill from out
growers to improve in the long term on the back
of the European Union National Sugar
Adaptation Strategy (NSAS). The increased
deliveries are likely to be coupled with
improved quality due to availability and early
application of all necessary fertilisers and
herbicides.
• Valuation
In valuing Hippo we used a relative comparison,
by taking an average of the P/NAV and P/Sales
ratios for regional sugar companies against FY
2012 forecasts for Hippo. We derive a target
price of US$ 1.23 and recommend investors.
HOLD.
Hippo - volume vs price
200
150
100
50
0
Mar-09 Mar-10 Mar-11 Mar-12
6.0
5.0
4.0
3.0
2.0
1.0
-
BLOOMBERG: HIPPO:ZH
HOLD
Current price (USc) 95.0
Target price (USc) 122.5
Upside/Downside (%) 29.0
Liquidity
Market Cap (US$m) 183.4
Shares (m) 193.0
Free float (%) 19.7
Ave. daily vol ('000) 29.6
Share price performance
6 Months (%) 33.3
Relative change (%)* 39.4
12 Months (%) (13.8)
Relative change (%)* 0.7
*Relative to ZSE Industrial Index
Financials (US$m) - FY 30 Mar 2011 2012F 2013F
Turnover 101.5 150.3 165.3
EBITDA 12.2 21.0 29.8
Net finance income 3.7 2.8 1.3
Attributable earnings 8.8 18.7 29.3
EPS (USc) 4.6 9.7 15.2
DPS (USc) 0.0 0.0 0.0
NAV/share (USc) 91.4 101.1 116.3
Valuation Ratios
PBV (x) 1.0 0.9 0.8
PER (x) 20.9 9.8 6.3
EV/EBITDA (x) 8.7 5.0 3.5
EBITDA margin (%) 28.3 12.0 14.0
Dividend Yield (%) na na na
Earnings Yield (%) 4.8 10.2 16.0
Gearing (%) 7.8 16.4 8.6
RoaA (%) 9.4 3.0 5.8
RoaE (%) 11.2 3.9 7.8
STRENGTHS
WEAKNESSES
European Union support of the local sugar
industry
Dependent on favourable weather
patterns
Susceptible to commodities price
High sugar recoveries
movement
Historically a low cost producer
Low quality sugar production
A return to pricing based on fundamentals Power disruptions
OPPORTUNITIES
THREATS
Successful relaunch of outgrower scheme
will boost prod
The land scenario still remains a
contentious issue
Improved quality of sugar to fetch higher
prices
Slow economic growth
Increase in sugar production
Low disposable incomes
Lack of adequate liquidity in the
Increased production of by-products market
Volume (m) RHS
Middle Price (US c)-LHS
Source: IES
36

Nature of business
Hippo Valley grows sugar cane on 12,300ha of arable land and has a
50% stake in the 442ha Mkwasine Sugar Estates, which engages in the
growing of sugar cane and other agricultural operations. Cane
production normally totals in the region of 1.4m tonnes per annum at
an average yield of 112t per hectare. Hippo also has a 33.3% stake in
Sugar Industries Ltd, the sole packer and distributor of refined sugar
in Botswana and a 49% stake in NCP Distillers, which is engaged in
the conversion of molasses into alcohol. The distillery uses up to
17,000 tonnes of the 70,000 tonnes of molasses produced annually by
the mill. Other interests include a 50% stake in Zimbabwe Sugar Sales
Ltd a sugar broking entity and Chiredzi Township Ltd that develops
and sells township stands.
Overview of H1 2012 results
An improved set of results
For H1 2012, Hippo Valley posted a solid set of results propelled by
improved margins and increased sugar production. Sugar production
increased 80% to 118,654 tonnes and sugar recoveries were 85.6% at
a cane-to-sugar ratio of 8.0x. We estimate that EBITDA margins
widened to approximately 37.7% from 18.4% on improved efficiencies
as a result of the extensive mill maintenance and refurbishment
programme undertaken over the last two off-crops. Cash flows were
strong as the company generated US$ 17.1m from operations. Net
gearing improved to 13.4% from 21.2% at year-end.
Sugar recoveries to go beyond 90%
Historically, cane production totalled in the region of 1.3m tonnes
per annum at an average yield of 112 tonnes per ha, whilst the
highest sugar production was 297,000 tonnes achieved in 1997.
Following the refurbishment, the mill is now crushing 400 tonnes of
cane per hour, which should see greater throughput and sugar
recoveries. We expect sugar recoveries to go beyond 90%.
Outlook
Sugar production expected to increase
The company continues to provide inputs and extension services to
third party cane growers so as to enhance cane production and
deliveries to the mill. Sugar production is expected to improve and
the company aims to restore production levels to the installed
capacity of 300,000 tonnes.
Hippo Shareholding - 30/12/11
Shareholder
# of Shares (m) of Total
1 Triangle Sugar Corporation Limited, 97.1 50.3%
2 Old Mutual Life Assurance Co. Zim Ltd 29.3 15.2%
3 Tate and Lyle Holland BV 19.3 10.0%
4 NSSA 5.0 2.6%
5 Old Mutual Zimbabwe Limited 4.1 2.1%
6 Stanbic Nominees (Pvt) Ltd 3.9 2.0%
7 Barclays Zimbabwe Nominees (Pvt) Ltd 3.5 1.8%
8 Datvest Nominees (Pvt) Ltd 1.7 0.9%
9 Barclays Zimbabwe Nominees (Pvt) Ltd 1.3 0.7%
10 Mining Industry Pension Fund 1.2 0.6%
Hippo Valley H1 2012 results
Income Statement (US$ '000) H1 2011 H1 2012 % change
Turnover 39,000.0 70,015.0 79.5
EBITDA 7,182.0 26,412.0 267.8
PBIT 8,847.0 21,152.0 139.1
Net finance income (1,812.0) (3,578.0) 97.5
Share of associate 615.0 843.0 37.1
PBT 7,650.0 18,417.0 140.7
Attributable earnings 7,690.0 13,712.0 78.3
EPS (USc) 4.00 7.10 77.5
Balance Sheet (US$ '000) FY 2011
Total Assets 310,295.0 350,143.0 12.8
NAV 176,431.0 189,849.0 7.6
Current Assets 83,108.0 121,135.0 45.8
Current Liabilities 69,230.0 91,629.0 32.4
Current ratio 1.2 1.3 10.1
Cash flow (US$ '000) H1 2011
Operating activities (2,151.0) 17,097.0 (894.8)
Investing activities (13,783.0) (5,043.0) (63.4)
Financing activities 32,751.0 5,867.0 (82.1)
For FY 2012, sugar production is expected to increase by 26% y-o-y to
165,000 tonnes. Longer-term, the completion of the Tokwe Mukosi
dam will result in increased production of sugarcane, raw & refined
sugar, and maximise beneficiation to by products.
Domestic consumption on the rise
Domestic demand is also increasing, the USDA estimates that total
local sugar consumption in 2011/12 season reached 280,000mt and is
forecast to remain firm at 285,000mt in the 2012/13 marketing
season. Per capita consumption is estimated at 24.6kg, with the
consumption pattern influenced by availability rather than price.
Valuation and recommendation
In valuing Hippo we used relative comparison, by taking an average
of the P/NAV and P/Sales ratios for regional sugar companies against
FY 2012 forecasts for Hippo. We derive a target price of US$ 1.23 and
recommend investors HOLD.
37

HIPPO - 5 YEAR CGR COMPARISON
31 MAR (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 114.9 36.8 143.1 143.8 167.5 176.4 195.2 224.5
Deffered tax 42.2 13.7 57.0 57.8 52.5 53.1 53.1 53.1
Total shareholders' funds 157.1 50.4 200.1 201.6 219.9 229.5 248.3 277.6
Interest Bearing Debt 1.5 0.6 2.8 3.5 19.7 44.9 34.2 12.6
Trade creditors 2.3 0.8 10.1 9.3 21.6 24.9 30.9 34.0
Current Liabilities 3.0 1.5 22.4 24.3 36.0 35.8 48.3 48.7
Total Liabilities and equity 161.6 52.5 225.3 229.5 275.6 310.3 330.8 338.9
Fixed Assets 150.7 48.1 189.6 193.1 183.2 194.4 196.9 199.4
Investments 2.6 - - 18.5 53.7 29.5 - -
Stock - Trade net 2.5 2.5 18.5 - - 37.3 63.4 69.7
Debtors 1.1 0.7 1.5 1.5 11.0 11.0 16.3 17.9
Cash at bank 0.5 0.2 3.7 3.7 2.4 7.4 12.9 7.2
Current Assets 8.1 4.2 34.1 15.6 36.2 83.5 131.0 136.6
Total Assets 161.6 52.5 225.3 229.5 275.6 310.3 330.8 338.9
Income Statement
Turnover 51.7 24.6 11.4 58.9 64.9 101.5 150.3 165.3
Gross profit (2.4) (1.3) (3.7) 39.9 18.4 41.3 65.6 76.3
EBITDA 17.7 17.0 9.2 24.9 18.4 12.2 21.0 29.8
Net finance income 1.8 0.4 0.1 0.5 0.8 3.7 2.8 1.3
Profit before Tax 15.7 16.0 9.5 17.2 18.8 9.6 20.1 30.8
Taxation 1.0 1.0 3.3 0.5 0.3 0.9 1.3 1.5
Profit after Tax 11.2 11.0 6.2 21.2 23.6 8.8 18.7 29.3
Minorities n/a n/a n/a n/a n/a n/a n/a n/a
Attributable Income 11.2 11.0 6.2 21.2 23.6 8.8 18.7 29.3
Weighted shares 192.9 193.0 193.0 193.0 193.0 193.0 193.0 193.0
EPS (USc) 5.8 5.7 3.2 11.0 12.3 4.6 9.7 15.2
Cash EPS (USc) 8.1 8.1 3.2 12.9 14.9 4.6 9.7 15.2
DPS (USc) - - - - - - - -
NAV per share (USc) 59.5 19.0 74.2 74.5 86.8 91.4 101.1 116.3
Growth Ratios
Sales growth (%) (51.68) (52.39) (53.84) 418.37 10.12 56.45 48.04 10.00
Pre-interest profit growth (%) (73.38) (1.70) (43.80) 243.07 11.59 (62.81) 113.17 56.25
Earnings growth (%) (73.38) (1.70) (43.80) 243.07 11.59 (62.81) 113.17 56.25
Margins
Gross margin (%) - 4.6 - 5.3 - 32.6 67.7 28.3 40.6 43.6 46.2
EBITDA margin (%) 34.2 68.8 81.0 42.2 28.3 12.0 14.0 18.0
Pre-interest margin (%) 30.3 64.8 83.3 29.2 29.0 9.5 13.4 18.6
Interest cover (times) 9.4 36.9 115.6 32.5 24.5 3.3 8.3 26.6
Pre-tax profit margin (%) 30.3 64.8 83.3 29.2 29.0 9.5 13.4 18.6
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which
may not reflect a true account due to variability of exchange rates during that period.
38

EQUITY RESEARCH
ZIMBABWE
FMCG/LEISURE
Full steam ahead
Due to its orientation towards FMCGs, Innscor’s business
is generally not very capital intensive. As a result, cash
generation is strong and return on assets and capital
employed high. Increased efficiencies and tight working
capital management continue to drive profitability. In our
view, the stable environment provides an opportunity for
the group to unbundle and unlock value to shareholders.
• Robust performance
Innscor reported an impressive set of interims
showing attributable earnings of US$ 22.5m (FY 2011
US$ 26.1m), up 59% y-o-y. The strong performance
was anchored by increased volumes and efficiencies
which resulted in enhanced margins.
• Strong cash generation
Innscor has unparalleled cash generation abilities in
fast foods and retail, which provide capacity for
growth, through organic expansion, acquisitions,
adding new brands and entering new markets.
• Earnings leverage from franchise system
Fast Foods and retail outlets operate as franchise
units, although the majority are owned by Innscor.
Earnings leveraged on a strong franchise system can
provide significant earnings momentum as franchise
income outstrips the fixed nature of the franchise
support system.
• Valuation attractive
In our view, Innscor’s valuation is attractive
considering its impressive growth prospects and the
defensive nature of its earnings. Innscor is dominant
in its businesses and we expect the earnings growth
rate to improve substantially with the improved
economic climate. Buy.
BLOOMBERG: INAF:ZH
BUY
Current price (USc) 58.0
Target price (USc) 92.4
Upside/Downside (%) 59.3
Liquidity
Market Cap (US$m) 314.0
Shares (m) 541.3
Free float (%) 34.4
Ave. daily vol ('000) 178.4
Share price performance
6 Months (%) (10.8)
Relative change (%)* 1.3
12 Months (%) (14.7)
Relative change (%)* 1.5
*Relative to ZSE Industrial Index
Financials (US$m) - FY 30 Jun 2011 2012F 2013F
Turnover 516.1 637.4 777.7
EBITDA 47.7 77.5 101.9
Attributable earnings 26.1 38.6 52.1
EPS (USc) 4.8 7.1 9.6
DPS (USc) 1.2 2.4 3.2
NAV/share (USc) 18.8 24.2 31.3
Valuation Ratios
PBV (x) 3.1 2.4 1.9
PER (x) 12.0 8.1 6.0
EV/EBITDA (x) 7.0 4.3 3.3
EBITDA margin (%) 9.2 12.2 13.1
Dividend Yield (%) 2.1 4.1 5.5
Earnings Yield (%) 8.3 12.3 16.6
Gearing (%) 21.5 19.3 11.3
RoaA (%) 12.2 14.8 16.8
RoaE (%) 25.7 31.6 38.4
Innscor - volume vs price
80
2.0
70
60
1.5
50
40
1.0
30
0.5
20
10
0.0
May-11 Sep-11 Jan-12 May-12
Volume (m) RHS Price (USc) LHS
STRENGTHS
Uncorrelated portfolio of
defensive businesses
Strong brands
Vertical integration
Geographical diversification
OPPORTUNITIES
continued regional growth
Franchise expansion
Growth in disposable incomes
Stronger retail presence with
Spar franchise
WEAKNESSES
Strong competitive environment
Conglomerate feel
THREATS
Cheap imports from SA
Prolonged time to recovery
Source: IES
39

Overview of H1 2012 results
Stellar results
Innscor reported a robust set of financials showing attributable earnings of US$
22.5m, up 59.3% y-o-y for eps of 4.2 US cents a share. The attributable earnings
were just shy of the FY 2011 reported earnings of US$ 26.1m. The strong
performance was anchored by strong volume growth, increased efficiencies and
tight working capital management. EBITDA margins expanded 181bps to 12.0%
resulting in EBITDA growing faster than turnover growth. PBT was enhanced by a
US$ 5.1m profit on the disposal of National Foods shares as Innscor reduced its
stake to 37.8% through a disposal to Tiger Brands.
Pristine balance sheet and solid cash generation
Cash generation remained strong with 70.5% of EBITDA converted into cash, despite
the significant growth of the debtors’ book at TV Sales & Home which grew by
approximately US$ 4.2m. The balance sheet remained in pristine condition and net
gearing improved to 8.5% from 21.5% at year-end. An interim dividend of 0.75 US
cents o a share was declared, implying a dividend cover of 5.5x and an annualised
yield of 2.2%.
BAKERIES & FAST FOODS
Volumes for Bakeries accelerated by 60% y-o-y on improved capacity and
efficiencies. Installed capacity increased to 400,000 loaves a day after the
commissioning of a 3 rd line in Harare and the upgrade of the Bulawayo plant.
Fast Foods customer counts for Zimbabwe increased by 8% y-o-y. An additional 11
new counters were opened in Zimbabwe. Regional customer counts grew by 13%.
DISTRIBUTION GROUP AFRICA
Volumes grew by 19% y-o-y for the Zimbabwe business. GP margins were squeezed
although costs were well contained resulting in improved profitability. The Snack
Food division returned to profitability. Volumes increased by 19% for the regional
business.
SPAR
The Zimbabwe Corporate Stores reported a 24% growth in revenue and a small
trading profit of US$ 0.3m. The unit posted a PBT loss of US$ 1.4m due to high
interest and depreciation charges. Further rationalisation of the store network to
focus on larger stores is likely.
SPAR Distribution Centre supported 40 SPAR member stores, 2 SPAR Express Stores,
10 SaveMor branded stores and 2 TOPS bottle stores.
Zambia Corporate stores recorded a 12% increase in revenue on a same store basis.
However, profitability declined on lower margins and new store reopening costs.
The unit operated six corporate stores and five franchised outlets.
PROTEIN
Colcom reported volume growth of 8% (underpinned by entry level products) and
modest growth in both revenue (+4%) and profitability (PAT, up 10%). EBITDA
margins expanded to 17.4% from 13.0% in the prior period. Cash generation
remained strong as US$ 2.9m was generated from operations. A number of capital
projects were completed with US$ 2.0m spent on capex.
Irvine’s posted volume growth of 32%, 21% and 10% for chicken, day old chicks and
table eggs, respectively. Focus is on improving production, factory and distribution
efficiencies.
NATIONAL FOODS
Volumes grew 18% y-o-y to 194,000 metric tonnes translating to a 24% growth in the
topline to US$ 116.1m. Realisations were maintained at US$ 598 per tonne.
Efficiencies improved on better procurement, line automation and enhanced
logistics. EBITDA margins were maintained at approximately 5.0%, despite an
Innscor Shareholding - 31 Jan 2011
Shareholding No. shares (m) %
1 ZMD Investments P/L 102.8 19.0%
2 H M Barbour P/L 100.0 18.5%
3 Old Mutual Group 36.8 6.8%
4 Sarcor Investments P/L 22.5 4.2%
5 Fed Nominees P/L 18.1 3.3%
6 Pharaoh Limited NNR 16.2 3.0%
7 Barclays Zimbabwe Nominees P/L-NNR 15.0 2.8%
8 Stanbic Nominees P/L 11.3 2.1%
9 Muzika Rubi Holdings (Pvt) Ltd 11.3 2.1%
10 Barclays Zimbabwe Nominees 11.0 2.0%
INNSCOR AFRICA LIMITED
Bakeries & Fast Foods
Distribution Group Africa
SPAR
Bakeries
230,000 loaves per day
Fast Foods
172 Fast food outlets
Distribution Group
Africa (Zimbabwe,
Zambia & Malawi)
Snacks (Zapsnaks, Iris Biscuits,
Herbies
Protein
Regional Fast Foods
200 counters spanning Kenya,
Ghana, Zambia, Senegal franchised
SPAR Corporate
11 Stores (Zimbabwe)
Xx stores (Zambia)
SPAR Distribution
40 SPAR, 14 Savemor
Colcom (listed)
80% , food processing
Irvine’s
49% chicken producer
NatFoods (listed)
38%
TV sales and Home
12 TV sales& home 2 SPAR good
living, 1 Your Space
Capri
Appliance manufacturerri (fridges),
Other ‐ Associates
Shearwater
Natpak
40

investment of US$ 1.1m in repairs and maintenance.
TV SALES & HOME
Exceptional results were reported as units sold increased
by 45% y-o-y. The debtors’ book increased to over US$
9.0m by 31 December 2011.
CAPRI
Volumes grew 64% y-o-y on improved manufacturing quality
and increased range of products and finishes. New lines
included microwaves, washing machines and driers.
OTHER ASSOCIATES
Shearwater contributed positively while Natpak posted a
small loss.
Outlook
The group continues to invest in its brands
Rationalisation, restructuring and upgrades of production
facilities are part of the group’s strategy to become a low
cost producer and to enhance competitiveness. For FY 2012
the group plans to spend US$ 42.0m (H1 2012 US$ 21.6m)
on capex. The capex will not only increase capacity, but
also improve production facilities and reduce costs.
Innscor management expects group revenues for FY 2012
to grow by between 20% and 25% and margins to
continue to expand boosting bottom-line growth which is
likely to exceed the FY 2011 growth rate. A PBT margin
of approximately 10% is anticipated.
Valuation and Recommendation
Our SOP valuation ascribes a value of US$ 500.0m i.e. US
92c per share. Innscor’s fundamental strength is that it
is the perfect blend of defensive and complementary
businesses. As well as being dominant in its sectors. In
our view, most of the sectors in which the group is
invested are currently exuding growth rates in excess of
that of the economy. Furthermore, the company
generates significant free cash flow, which creates
financial flexibility (for dividends, acquisitions, stock
repurchase, among other applications). We think that
the earnings per share growth rate can improve
substantially as the economic environment recovers,
making Innscor an excellent early economic recovery
cycle candidate. Buy.
INNSCOR - 5 YEAR CGR COMPARISON
30 JUNE (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 20.7 16.1 96.3 101.4 113.7 101.7 130.9 169.4
Minority interests 4.1 3.6 17.3 16.5 19.0 22.8 32.3 45.2
Total shareholders' funds 29.0 23.0 120.2 125.2 137.2 133.4 170.8 221.1
Interest Bearing Debt 1.0 4.9 3.3 13.9 15.2 39.6 46.9 42.1
Trade creditors 11.0 16.9 20.3 25.5 29.0 44.6 55.1 67.2
Current Liabilities 14.3 17.7 22.0 43.7 60.3 73.0 91.1 111.5
Total Liabilities and equity 44.3 45.6 145.4 182.8 212.6 246.1 308.8 374.8
Fixed Assets 9.2 7.4 54.4 57.4 53.0 84.4 114.4 142.4
Investments - - 31.2 33.5 36.4 50.2 59.5 70.5
Stock - Trade net 9.7 2.3 48.6 25.0 27.0 35.1 42.6 54.5
Debtors 7.2 8.2 - 30.6 38.2 49.2 59.6 71.5
Cash at bank 4.3 27.7 11.3 14.2 16.3 17.8 21.6 22.9
Current Assets 35.1 38.2 59.9 91.9 123.2 111.5 134.9 161.8
Total Assets 44.3 45.6 145.4 182.8 212.6 246.1 308.8 374.8
Income Statement
Turnover 166.4 166.5 228.3 254.8 403.5 516.1 637.4 777.7
Gross profit 69.8 89.1 138.6 87.6 138.0 184.6 228.0 278.2
EBIT 68.8 52.9 112.7 8.1 22.5 38.7 65.4 86.8
Profit before Tax 85.3 55.8 189.7 9.7 26.6 41.3 65.0 87.7
Taxation 23.2 38.3 37.0 (1.2) 5.0 8.6 16.6 22.4
Profit after Tax 62.2 17.4 152.7 10.9 21.6 32.7 48.4 65.4
Minorities 10.0 13.9 97.3 1.8 5.8 6.6 9.8 13.2
Attributable Income 52.1 3.6 55.4 9.1 15.8 26.1 38.6 52.1
Weighted shares 541.3 541.3 541.3 541.3
EPS (USc) 9.6 0.7 10.2 1.7 2.9 4.8 7.1 9.6
Cash EPS (USc) 9.8 0.8 10.5 1.6 3.9 6.5 9.4 12.4
DPS (USc) 1.1 1.8 - - 0.8 1.2 2.4 3.2
NAV per share (USc) 3.8 3.0 17.8 18.7 21.0 18.8 24.2 31.3
Growth Ratios
Sales growth (%) (21.17) 0.07 37.07 11.63 58.33 27.92 23.50 22.00
Pre-interest profit growth (%) 61.53 (23.08) 112.99 (92.80) 177.75 71.79 68.77 32.78
Earnings growth (%) 38.61 (93.17) 1,456.70 (83.58) 73.82 65.12 47.82 35.07
Margins
Gross margin (%) 41.9 53.5 60.7 34.4 34.2 35.8 35.8 35.8
EBITDA margin (%) 41.9 32.1 50.0 5.4 7.2 9.2 12.2 13.1
Pre-interest margin (%) 41.3 31.8 49.4 3.2 5.6 7.5 10.3 11.2
Interest cover (times) n/a 14.4 n/a 22.2 50.7 13.8 15.7 23.9
Pre-tax profit margin (%) 51.3 33.5 83.1 3.8 6.6 8.0 10.2 11.3
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which
may not reflect a true account due to variability of exchange rates during that period.
41

EQUITY RESEARCH
ZIMBABWE
INVESTMENT HOLDING
Banking on growth
Masawara listed on LSE’s AIM, is an investment company
focussed on acquiring interests in companies and projects
based in Zimbabwe and the southern Africa region. The
company targets investments that can generate a
minimum project IRR of 25%. The targeted investee
companies should be cash generative with clear growth
potential. Masawara invests in entities where it has the
ability to influence the business at board level. The
company proposes to invest in real estate assets, equity,
quasi-equity or debt instruments that may or may not
provide shareholding or management control.
Investments may be made directly, through special
purpose vehicles or trusts. It is envisaged that exits from
investments will primarily take the form of trade sales or
through listings on an appropriate exchange, although the
company will consider and evaluate other forms of exit.
• Robust portfolio
The portfolio includes an effective 57.3% in Joina
Centre, a 24 storey retail/office building in Harare.
The property has a total gross area of approximately
64,000m 2 and lettable space of approximately
26,851m 2 (15,415m 2 of lettable retail space and
11,436m 2 of lettable office space) and approximately
600 parking bays. Joina City is valued at US$ 49.4m
million, assuming full capacity and annual gross rents
of US$ 3.9m per annum. The office tower was 29%
occupied as at 31 December 2011, while the retail
section was 90% occupied (2010: 63%), leading to an
increase in the group’s share of revenue from US$
0.5m in 2010 to US$ 1.2m in 2011. However, the unit
recorded a loss of US$ 117,000 due to higher
operating costs and bad debts provisioning.
• Masawara also controls a 37.7% stake in TA Holdings,
a Zimbabwean investment company listed on the ZSE
with investments in sub-Saharan Africa focusing on
the insurance, agro-chemical and hospitality
industries.
• Masawara owns 100% of BP and Shell Marketing
Services (Private) Limited (BPSMS), which was
renamed Zuva Petroleum and was acquired for a
consideration of US$ 30.0m financed through a US$
8.2m cash and debt funding arrangements. The
equity investment will be diluted through a
combination of the following measures: i)
introduction of financial and technical partners ii)
the introduction of an employee share ownership
scheme iii). implementation of other economic
empowerment initiatives.
BLOOMBERG: MASA:LN
Current price (USc) 0.8
Liquidity
Market Cap (US$m) 99.0
Shares (m) 119.3
Share price performance
52 Wk High (USc) 1.0
52 Wk Low 0.8
Financials (US$m) - FY 31 Dec 2009 2010 2011
Turnover 0.0 0.5 1.2
Operating Profit (0.7) 1.8 (1.0)
Net finance income 0.1 3.0 10.1
Attributable earnings (2.9) (3.3) 6.7
EPS (USc) (96.4) (9.0) 6.0
DPS (USc) 0.0 0.0 0.0
NAV/share (USc) 379.3 0.0 0.0
Valuation Ratios
PBV (x) 0.0 na na
PER (x) na na 0.1
Earnings Yield (%) na na 723.0
Gearing (%) 294.7 (9.5) (1.3)
RoaA (%) (6.3) (5.7) 7.7
RoaE (%) (25.7) (9.3) 9.0
Nonetheless, Masawara will retain a minimum
51% stake in the company. BPSMS is a long
established importer and distributor of
petroleum products with the largest storage
capacity and widest distribution network
comprising, 70 retail sites. Performance in FY
2011 disappointed. Since acquisition, Zuva
incurred a loss after tax of US$ 1.6m
(Masawara Plc’s effective share of loss of Zuva
was US$ 0.8m)
• The company also acquired a 50% stake in
Telerix Communications (Private) Limited
(Telerix) in November 2010 for a consideration
of US$ 5.0m through a private placement and
invested a further US$ 2.0m in February 2011
through a subscription for preference shares.
The preference shares carry a coupon of 8%
per annum and mature on 30 November 2012.
Telerix is as an Internet Service Provider (ISP)
in Zimbabwe. The company can legally
construct, operate, develop and maintain a
public data internet access and Voice over IP
network in Zimbabwe as its subsidiary has an
Internet Access Provider Class A Licence.
Telerix has a 20 year Capacity Purchase
Agreement contract with a local long distance
dark fibre operator, to connect its network
operations centre to the SEACOM. The future
42

for Telerix is in;
- the wholesaling of international bandwidth
to corporate customers and other Internet
Service Providers in Zimbabwe
- the establishment of fixed, nomadic and
ultimately fully mobile broadband services
via fibre optic and WiMAX network
architecture
- the roll-out of a Fourth Generation
network to provide a "last mile" solution
for Internet customers
-
A loss of US$ 3.2m was incurred in FY 2011(group’s
share US$ 1.6m). The loss was attributable to the
costs being incurred and fixed operating expenses
relating to the ongoing development and testing of
the network, which, was yet to publicly launch the
WiMAX product.
During FY 2011 Masawara acquired a 15.03% interest
in iWayAfrica two months before year end and the
group’s share of iWayAfrica’s was a loss of US$ 8,373.
MASAWARA - 3 YEAR COMPARISON
31 MAR (US$m) 2009 2010 2011
Balance sheet
Shareholders' equity 11.3 59.9 88.6
Minority interests 0.1 1.1 1.4
Total shareholders' funds 11.4 61.0 90.0
Interest Bearing Debt 33.5 5.8 13.9
Trade creditors 0.1 1.2 0.5
Current Liabilities 0.1 1.6 8.9
Total Liabilities and equity 46.3 69.4 105.8
Fixed Assets 0.0 0.0 0.4
Investments 43.3 49.6 85.9
Deposits 0.0 8.0 0.0
Other receivables 0.0 0.3 4.5
Cash at bank 0.2 11.5 15.0
Current Assets 0.5 11.8 19.5
Total Assets 46.3 69.4 105.8
Income Statement
Turnover 0.0 0.5 1.2
Share of associates (0.7) 1.8 -1.0
Fair value gains 0.1 3.0 10.1
Operating profit -0.7 -0.3 7.2
Net finance income (3.0) (1.8) (0.2)
PBT (3.5) (2.1) 7.0
Taxation 0.0 -0.1 0.0
PAT -3.5 -2.2 7.0
Minorities (0.8) 1.1 0.2
Attributable Income -2.9 -3.3 6.7
Weighted shares 0.0 38.3
EPS (USc) -96.4 -9.0 6.0
Cash EPS (USc) 7.1
DPS (USc) - - -
NAV per share (USc) 379.3
43

EQUITY RESEARCH
ZIMBABWE
PROPERTY
Steady as she goes
As the gap between local average rentals and the
regional rentals per square metre is narrowing,
Mashonaland Holdings management have decided to
actively seek ways to diversify the group’s income
streams through the exploitation of new development
opportunities.
• Open market values remain lower than
replacement costs
A liquidity shortage in the economy is suppressing
the increase in the open market values of
properties. For Mash, the property portfolio is
currently valued at US$ 82.5m against a gross
replacement cost of US$ 139.0m. Management
sees room for further growth in real estate values
if fundamentals such as liquidity for mortgage
finance and interest rates improve.
• Tenant ability to pay rentals affected by sluggish
economic growth
Tenants are currently struggling to pay
competitive rents with high default risks being a
major threat.
• Rental reviews supported FY 2011 performance
whilst occupancy levels were also noted to have
improved
The vacancy rate at 9% is still manageable as the
company is working on renovation and
improvement of its property portfolio.
• Valuation indicates the counter is worth holding
Using EV/EBITDA and PBV valuation methods, we
derive a target price of US 2.9 cents, indicating
significant upside. BUY.
BLOOMBERG: MASH:ZH
BUY
Current price (USc) 1.9
Target price (USc) 4.1
Upside/Downside (%) 113.9
Liquidity
Market Cap (US$m) 34.6
Shares (m) 1,819.4
Free float (%) 19.9
Ave. daily vol ('000) 580.6
Share price performance
6 Months (%) -21%
Relative change (%)* -11%
12 Months (%) -5%
Relative change (%)* 16%
*Relative to ZSE Industrial Index
Financials - 31 DEC (US$m) 2011 2012F 2013F
Turnover 5.6 7.0 8.3
EBITDA 3.5 4.2 4.9
Net Finance Income 0.2 0.1 0.2
Adj Attributable earnings 2.8 3.0 3.5
Adj EPS 0.2 0.2 0.2
DPS (USc) 0.1 0.1 0.0
NAV/share (USc) 4.3 6.4 4.9
Valuation Ratios 2011 2012F 2013F
PBV (x) 0.4 0.3 0.4
PER (x) 12.5 11.5 9.9
EBITDA/EV (%) 11.0 12.8 15.0
EBITDA margin (%) 63.1 59.0 58.4
Dividend Yield (%) 5.8 7.6 1.5
Earnings Yield (%) 8.0 8.7 10.1
Gearing (%) 0.0 0.0 0.0
Adj RoaA (%) 3.2 2.7 2.5
Adj RoaE (%) 3.3 2.8 2.6
Mash Holdings-Price vs Volume
6.0
5.0
4.0
3.0
20.0
15.0
10.0
STRENGTHS
Well managed
Diversified property portfolio
Sizeable land bank
Internal property management skills
WEAKNESSES
Limited funding for capex projects
2.0
1.0
-
Feb-09 Oct-09 Jun-10 Feb-11 Oct-11
5.0
-
OPPORTUNITIES
Improving economic fundamentals
Operating costs stabilising
Increasing availability of funding
for new projects
THREATS
Protracted economic recovery
Political uncertainities
Middle Price (US c)-LHS
Total Volume (m)-RHS
Source: IES
44

Overview of FY 2011 results
Revenue up backed by rental reviews and occupancy levels
For FY 2011, revenue went up by 39% to US$ 5.6m supported by
successful rental reviews and increased occupancy levels. The average
rent per square increased to US$ 4.47 from US$ 3.20 in the prior period.
Fair value adjustment boosts the PBT
The office sector contributed approximately 80% to rental income.
Arrears improved to 8% of revenue from 9% in the corresponding period.
A fair value adjustment of US$ 20.2m boosted the PBT to US$ 24.0m.
Stripping out the fair value adjustment, we estimate an adjusted
attributable profit of US$ 2.8m, up 59% y-o-y, translating to an adj. eps
of US 0.15 cents. A final dividend of US 0.026 cents per share was
declared implying a dividend yield of 1.0%.
Mashonaland Shareholding - 30/12/11
Shareholder
# of Shares (m) % of Total
1 ZB Life Assurance Limited 505.0 27.2%
2 Africa Enterprise Network Trust 349.0 18.8%
3 Turner Roy 143.4 7.7%
4 Fed Nominees P/L 127.3 6.8%
5 Mashonaland Holdings Limited 125.1 6.7%
6 Datvest Nominees P/L 66.5 3.6%
7 Old Mutual Life Ass. Co. Zim Ltd 58.1 3.1%
8 ZB Life Staff Pension Fund 57.7 3.1%
9 L.E.S Nominees (Pvt) Ltd 29.5 1.6%
10 Barclays Zimbabwe Nominees P/L 27.5 1.5%
Average rentals remain firm although there is limited upside.
Despite the increase in the average rent per square metre the rental
yields for the year eased to 7.28% from 8.5% as the property values
increased. We see limited room for growth in the average rental per
square metre, as other operating costs such as utilities are also weighing
down on tenants.
Gross lettable space
Residential
3%
Retail
4%
The office sector is the group’s flagship
Occupancy levels improved to 92% from 90%. The office sector
contributed approximately 80% to rental income of US$ 5.6m (FY 2010:
US$ 4.1m).
Industrial
45%
Office/retail
46%
Outlook
Performing ahead of budget
Revenue for Q1 2012 amounted to US$ 2.3m averaging US$ 570,000 per
month, which was 15% ahead of budget and 26% up on the prior quarter.
Operating expenses stood at 34% of income and were in line with the
budget. The profit for the period was 29% ahead of budget and 27% up
for last year
Specialised
2%
Source: IES, company
Property development plans on the board
The group has plans for two property developments, an office park in
Avondale and a residential housing project in Westgate. The projects
will be funded from the company’s cashflow and from borrowings.
Valuation and Recommendation
Valuations indicate the counter is worth buying. Using EV/EBITDA and
PBV valuation methods, we derive a target price of US 2.9 cents,
indicating significant upside. We expect Mash’s quality property
portfolio and stable tenant base to continue driving rental income
growth and the group’s profitability. The property development projects
especially with the diversification to the residential sector are an
additional plus. Accordingly we maintain our BUY recommendation.
Portfolio by value
Industrial
14%
Specialised
2%
Residential
3%
Retail
6%
Development
land
5%
Office/retail
70%
Source: IES, company
45

MASH- 5 YR CGR COMPARISON
31 DEC (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 16.8 23.7 51.8 42.1 47.3 80.7 118.4 163.7
Deffered tax 7.4 10.5 23.1 9.0 15.4 4.1 (10.7) (28.8)
Total shareholders' funds 24.2 34.2 74.9 51.1 62.7 84.8 107.8 134.9
Interest Bearing Debt - - - - - - - -
Trade creditors 0.0 0.0 0.0 0.2 0.4 0.4 0.5 0.5
Current Liabilities 0.0 0.0 0.0 0.5 0.9 0.5 4.2 4.6
Total Liabilities and equity 24.3 34.3 74.9 51.6 63.7 85.4 112.0 139.6
Fixed Assets 0.0 34.2 0.0 0.3 0.5 0.5 0.5 0.5
Investments 23.9 - 74.9 50.5 61.7 82.0 105.9 129.2
Debtors 0.0 0.0 0.0 0.3 0.6 0.7 1.2 2.2
Cash at bank 0.1 - 0.0 0.4 0.9 2.2 4.0 7.2
Current Assets 0.4 0.0 0.0 0.8 1.5 2.9 5.6 9.9
Total Assets 24.3 34.3 74.9 51.6 63.7 85.4 112.0 139.6
Income Statement
Turnover 0.2 0.2 0.0 2.4 4.1 5.6 7.0 8.3
Gross profit 0.2 0.1 0.0 2.2 3.4 5.0 5.6 6.4
EBITDA 0.1 0.0 (0.5) 1.5 2.3 3.5 4.2 4.9
Net finance income 0.1 0.0 0.0 0.0 0.1 0.2 0.1 0.2
Adj Attributable Income (12.6) (64.3) (0.5) 1.1 1.7 2.8 3.0 3.5
Weighted shares 1,819.4 1,819.4 1,819.4 1,819.4 1,819.4 1,819.4 1,819.4 1,819.4
Adj EPS (0.7) (3.5) (0.0) 0.1 0.1 0.2 0.2 0.2
DPS (USc) 0.0 0.1 - - 0.0 0.1 0.1 0.0
NAV per share (USc) 0.9 1.3 2.8 2.3 2.5 4.3 6.4 4.9
Growth Ratios
Sales growth (%) (25.0) (81.9) 7,313.4 69.2 38.6 25.0 18.5
Pre-interest profit growth (%) (68.5) (98.4) (420.0) 45.9 54.7 17.5 24.1
Earnings growth (%) 408.7 (99.3) (325.2) 61.7 59.3 9.1 15.5
Margins
Gross margin (%) 78.3 83.6 81.5 92.9 83.4 88.8 89.3 89.9
EBITDA margin (%) 31.4 0.7 (1,468.0) 64.4 56.8 63.1 59.0 58.4
Pre-interest margin (%) 17,589.7 (1,467.4) (954.4) 326.1 426.1 492.2 71.8
Interest cover (times) n/a n/a n/a n/a n/a n/a n/a n/a
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true
account due to variability of exchange rates during that period.
46

EQUITY RESEARCH
ZIMBABWE
INDUSTRIAL HOLDING
Show me the money
Dogged by shareholder squabbles, Meikles’ share price
plummeted 76% to lows of US13c. In our view, execution
missteps have hurt the company, but we believe they can
be fixed and we are watching closely for signs of healing.
Investors also remain wary about the weak corporate
governance issues. We expect a lot of value unlocking in its
subsidiaries, namely supermarkets, departmental stores,
hotels and Tanganda in the long term. The group has
strong defensive characteristics, solid market positioning
and excellent growth potential.
• Margins remained under pressure
For H1 2012, Meikles posted a weak set of financials
showing an attributable loss of US$ 5.3m, negatively
impacted by the high finance charges and weak
performances by Tanganda and Head Office. Gross
margins eased to 20.4% from 22.6% in the prior period.
• Changed environment less appealing for
conglomerates
The unbundling of retail operations and the
agriculture concern, Tanganda can unlock value to
shareholders. We believe that any unbundling can be
accelerated as the group plans to introduce new
investors into the units to facilitate substantial
growth.
• Improving business visibility will gradually reduce
valuation discount
Our sum of parts valuation ascribes a fair value of 59.8
US cents a share, representing 232% upside potential.
As investors witness the scaling up of business and
profitability, we expect the market to reassess its
perception. Spec BUY.
BLOOMBERG: KMAL:ZH
SPEC BUY
Current price (USc) 14.0
Target price (USc) 59.8
Upside/Downside (%) 327.1
Liquidity
Market Cap (US$m) 33.7
Shares (m) 240.8
Free float (%) 37.0
Ave. daily vol ('000) 628.2
Share price performance
6 Months (%) (30.0)
Relative change (%)* (22.1)
12 Months (%) (66.7)
Relative change (%)* (58.4)
*Relative to ZSE Industrial Index
Financials (US$m) - FY 31 Mar 2011* 2012F 2013F
Turnover 330.4 396.5 485.7
EBITDA (0.7) 12.9 15.7
Net finance income (7.6) (6.2) (4.5)
Attributable earnings 6.7 (1.2) 1.3
EPS (USc) 2.8 -0.5 0.6
DPS (USc) 0.0 0.0 0.0
NAV/share (USc) 55.8 56.1 56.6
Valuation Ratios
PBV (x) 0.3 0.2 0.2
PER (x) 5.0 na 25.2
EV/EBITDA (x) na 6.5 5.3
EBITDA margin (%) (0.2) 3.2 3.2
Dividend Yield (%) na na na
Earnings Yield (%) 19.8 na 4.0
Gearing (%) 36.8 35.2 30.1
RoaA (%) 2.5 (0.5) 0.5
RoaE (%) 4.9 (0.9) 1.0
*15 Months
Meikles - volume vs price
80
150
100
40
50
-
0
May-11 Sep-11 Jan-12 May-12
Volume (m) RHS Price (USc) LHS
STRENGTHS
Diversified income streams
Domestic and regional presence
Strategic Partners (Pick n Pay; TN Bank)
Highly rated brands
Significant asset base (Properties)
OPPORTUNITIES
Regional expansion
Unlocking value through the floatation
of subsidiaries such as Tanganda and
TM Supermarkets
WEAKNESSES
High operating cost structure
Poor image in terms of corporate
governance failures
Weak IT Systems-Supermarkets and
Stores
THREATS
Intense local competition can exert
pressure on margins
Indigenisation laws can stall progress
on potential deals
Source:IES
47

Overview of H1 2012 results
High costs adversely impacted profitability
For H1 2012, Meikles posted a weak set of financials showing an
attributable loss of US$ 5.3m, negatively impacted by the high finance
charges and weak performances by Tanganda and Head Office. Gross
margins eased to 20.4% from 22.6% the prior period. Revenue growth was
mainly driven by Supermarkets which contributed 82.5% from 84.0%,
followed by Departmental Stores 7.4% vs 4.8%, Tanganda 5.5% vs 6.6% and
Hotels flat at 4.8%.
Cash generation improved as the net operating cash flow turned positive at
US$ 4.0m from a negative US$ 40.4m. Nonetheless, net gearing
deteriorated to 41.7% from 36.8% at year end. Total debt was
approximately US$ 57.4m at an average cost of 15% p.a. The Cape Grace
remains an asset for disposal by the Cape Grace Group to Mentor. The
disposal is expected to be concluded in the second half of the year. The
group is still owed approximately US$ 37.0m by the RBZ.
Supermarkets remained the crown jewel
Revenue grew 36.4% to US$ 136.6m and EBITDA margins improved to 2.5%
from 1.4%. The supermarkets largely operated from 48 branches during the
period and opened a 50 th store in September 2011.
High utility charges and reduced rains impacted on tea production
EBITDA losses deteriorated to US$ 2.3m from US$ 0.2m in the prior period
as bulk tea production eased by 3% to 2,415 tonnes. High power and labour
costs continue to impact returns on tea, hence the planned diversification
into coffee, macadamia and avocados. A total of 200ha of coffee, 600ha of
macadamia and 400ha of avocados are planned in the next 18 months.
Departmental stores turned the corner
Turnover grew 114.9% y-o-y as the number of credit customers increased to
37,000 from 27,500 at year end. Credit sales accounted for 76% of sales.
Gross margins eased to 32% from 33%. EBITDA was US$ 234,000 from a loss
of US$ 579,000.
Focus on business traveller
The local hotels clocked revenue growth of 25% to US$ 7.9m as tourist
arrivals into Zimbabwe grew 16%. Cape Grace revenues declined by 4% to
US$ 6.8m. EBITDA margins for local hotels jumped to 12.5% from 11.3%
whilst EBITDA margins for Cape Grace shrunk to 5.2% from 9.6%. Occupancy
levels improved to 56% from 44% for Victoria Falls, 63% from 59% for Cape
Grace and 52% from 38% for Meikles Hotel. RevPAR increased to US$ 154
from US$ 136 and US$ 62 from US$ 52 for the Victoria Falls and Meikles,
respectively. RevPAR for Cape Grace declined to ZAR 1,616 from ZAR 1,837.
Outlook
Pick n Pay acquisition of TM concluded
Pick ‘n Pay is investing US$ 13.0m into TM Supermarkets and will increase
its shareholding in TM Supermarkets from 25% to 49%. The investment
received all the regulatory requirements. The US$ 13.0m will be used to
update and refurbish existing stores. The TM brand will be retained as it is a
key brand in the market although some strategic stores will be rebranded
Pick ‘n Pay. TM Supermarkets is expected to benefit through stocking and
supplier arrangements, staff training and technology transfer.
The group’s core debt is largely in the form of short term borrowings.
Meikles is therefore looking into ways of replacing short term debt with a
long-term loan. The group plans to introduce new investors into the units to
facilitate substantial growth. Nonetheless, if there are prolonged delays in
the capital raising initiatives growth would wane.
Meikles Shareholding - 31/12/11
Shareholder # of Shares (m) %
1 JRTM Investments P/L 21.3 8.7%
2 Ash Investments P/L 21.1 8.6%
3 FPS Investments P/L 21.0 8.6%
4 ACM Investments P/L 21.0 8.5%
5 APWM Investments P/L 21.0 8.5%
6 Old Mutual Life Assurance Company Zi 16.4 6.7%
7 L.E.S Nominees (Pvt) Ltd 12.8 5.2%
8 Clayway Investments (Pvt) Ltd 12.6 5.1%
9 Datvest Nominees (Pvt) Ltd 5.8 2.4%
10 Stanbic Nominees P/L-NNR 5.3 2.2%
Meikles H1 2012 results
Income Statement (US$' 000) H1 2011 H1 2012 % change
Turnover 119,319.0 165,591.0 38.8%
EBITDA 1,147.0 (357.0)
Net finance income (2,889.0) (4,253.0) 47.2%
PBT (2,442.0) (7,040.0) 188.3%
Attributable earnings (694.0) (5,349.0) 670.7%
EPS (USc) (1.2) (2.4) 101.7%
Balance Sheet (US$' 000) FY 2011
Total Assets 249,480.0 249,455.0 0.0%
NAV 134,369.0 126,240.0 -6.0%
Current Assets 60,152.0 63,975.0 6.4%
Current Liabilities 79,523.0 92,603.0 16.4%
Current ratio 0.8 0.7 -8.7%
Cash flow (US$' 000) H1 2011
Operating activities (40,390.0) 4,070.0
Investing activities (5,783.0) (2,461.0) -57.4%
Financing activities 23,109.0 285.0 -98.8%
EBITDA contribution
780%
580%
380%
180%
‐20%
‐220%
549%
Supermarkets
Agriculture
156%
Hotels
(361%)
37%)
Stores
Corporate
(282%)
48

Valuation and Recommendation
Based on our sum of parts valuation for Meikles, we value
the group at US$ 0.60 per share. There is no doubt that
there is political and economic uncertainty hence
investors should be prepared to wait. Overall we believe
Meikles is a solid company with impressive market
positioning and excellent growth potential.
Therefore, we recommend investors begin
acquiring a core position at current levels. Spec
Buy
MEIKLES LIMITED - 5 YEAR CGR COMPARISON
31 MAR (US$m) 2006 2007 2008** 2009 2011* 2012F 2013F
Balance sheet
Shareholders' equity 43.0 60.5 123.7 140.3 134.4 135.1 136.4
Minority interests 1.6 0.4 1.7 1.3 0.8 3.5 6.8
Total shareholders' funds 3.9 5.1 20.5 15.3 16.0 16.0 16.0
Interest Bearing Debt 6.6 3.6 0.2 7.8 52.8 52.4 46.0
Trade creditors 25.7 9.0 0.8 22.9 30.0 38.9 47.6
Current Liabilities 25.7 22.1 35.3 111.9 45.6 39.3 48.4
Total Liabilities and equity 80.8 91.8 187.8 276.7 249.5 246.3 253.7
Fixed Assets 14.0 17.8 81.5 80.5 84.3 86.8 87.3
Investments 14.4 23.5 22.5 23.5 63.5 86.3 83.8
Stock - Trade net 19.4 6.9 29.8 17.1 40.7 48.9 53.9
Debtors 5.5 4.5 42.8 7.3 16.2 19.4 23.7
Cash at bank 27.6 39.2 10.9 2.5 3.3 4.8 4.9
Current Assets 52.5 50.5 83.5 172.4 101.6 73.0 82.5
Total Assets 80.8 91.8 187.8 276.7 249.5 246.3 253.7
Income Statement
Turnover 170.1 114.2 55.8 148.8 330.4 396.5 485.7
Gross profit 139.6 102.8 45.8 29.8 72.8 102.8 125.9
EBITDA 26.7 25.6 15.2 (6.0) (0.7) 12.9 15.7
Net finance income (1.5) 1.5 (1.1) 0.3 (7.6) (6.2) (4.5)
Profit before Tax 59.8 419.0 (134.7) (11.0) 2.9 2.0 6.0
Taxation 15.7 53.9 (7.1) (5.4) (0.8) 0.4 1.3
Profit after Tax 44.1 365.0 (127.7) (5.5) 3.7 1.5 4.6
Minorities 3.9 2.9 -0.2 (0.7) (0.6) 2.8 3.3
Attributable Income 40.2 365.0 (127.5) (4.8) 6.7 -1.2 1.3
Weighted shares 240.8 240.8 240.8
EPS (USc) 16.9 151.6 7.3 (2.0) 2.8 -0.5 0.6
Cash EPS (USc) 3.0 131.5 9.0 (2.1) (2.2) 1.5 2.7
DPS (USc) 3.0 3.5 - - - - -
NAV per share (USc) 17.9 25.1 51.4 58.3 55.8 56.1 56.6
Growth Ratios
Sales growth (%) (35.3) (32.9) (51.2) 166.9 122.0 20.0 22.5
Pre-interest profit growth (%) 10.9 (4.9) (59.8) (202.1) (42.1) (221.0) 37.9
Earnings growth (%) 97.5 808.5 (134.9) (96.2) (238.9) (118.2) (210.1)
Margins
Gross margin (%) 82.0 90.0 82.1 20.0 22.0 25.9 25.9
EBITDA margin (%) 36.0 66.9 (230.7) (4.6) (0.2) 3.2 3.2
Pre-interest margin (%) 15.7 22.3 18.3 (7.0) (1.8) 1.8 2.1
Interest cover (times) 18.2 n/a 9.3 n/a (0.8) 1.2 2.3
Pre-tax profit margin (%) 35.2 367.0 (241.6) (7.4) 0.9 0.5 1.2
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which
may not reflect a true account due to variability of exchange rates during that period.
*15 months
** 9 months
49

EQUITY RESEARCH
ZIMBABWE
RETAIL
Xxx
Galloping high on promotions heels!!!!!!!
A steadily improving macro-economic environment and a
stable inflationary environment have supported the growth
in OK Zim’s performance with revenue moving up by more
than the current GDP growth rate.
• Significant sales growth backed by adequate stock
All the company’s stores were adequately stocked
throughout H1 2012, which combined with effective
sales and marketing programmes generated significant
growth in sales. Recent refurbishments have also
resulted in noticeable increases in business activity.
• Shrinkage has been controlled
Shrinkage is the main setback for most retailers, and
OK has managed to reduce its shrinkage to 1% against
international standards of 1.5%.
• Improving economic fundamentals a plus
In 2012, Zimbabwe’s GDP is forecast to grow by 9.4%,
up from 9.3% in 2011 and 8.1% in 2010, whilst inflation
is expected to end the year at 4.8%. This positive
trend will obviously trickle through to the household
level, thus boosting disposable incomes.
• Valuation shows upside
Although current ratings are demanding, we expect
the counter to rerate favourably driven by the growth
in earnings. The new look stores, OK’s brand equity
and extensive branch network, should ensure volume
growth and retain the group’s position as the nation’s
top retailer. BUY.
BLOOMBERG:OKZIM:ZH
BUY
Current price (USc) 10.0
Target price (USc) 15.9
Upside/Downside (%) 59.1
Liquidity
Market Cap (US$m) 102.1
Shares (m) 1,020.9
Free float (%) 24.8
Ave. daily vol ('000) 556.8
Share price performance
6 Months (%) 10.5
Relative change (%)* 18.4
12 Months (%) 40.0
Relative change (%)* 57.3
*Relative to ZSE Industrial Index
Financials (US$m) - FY 30 Mar 2011 2012F 2013F
Turnover 257.4 370.2 436.8
EBITDA 8.1 18.4 22.7
Net finance income -0.1 -0.6 -0.6
Attributable earnings 4.3 11.9 14.8
EPS (USc) 0.4 1.0 1.2
DPS (USc) 0.2 0.2 0.3
NAV/share (USc) 3.8 4.8 5.9
Valuation Ratios
PBV (x) 2.6 2.1 1.7
PER (x) 25.7 9.9 8.5
EV/EBITDA (x) 11.7 5.2 4.2
EBITDA margin (%) 2.6 3.2 5.0
Dividend Yield (%) 2.1 2.3 2.9
Earnings Yield (%) 3.9 10.1 11.7
Gearing (%) -15.6 -4.8 -2.0
RoaA (%) 3.6 7.9 15.3
RoaE (%) 6.5 13.9 25.7
OK Zim-Price vs Volume
14.0
12.0
10.0
8.0
6.0
4.0
2.0
-
Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12
60.00
50.00
40.00
30.00
20.00
10.00
-
STRENGTHS
Defensive food/FMCG business
Expansive retail network
Key locations with high traffic
Strong cash generator
OPPORTUNITIES
Increasing disposable incomes
Resurgence of public sector spend
Recovery in local income
Franchising
WEAKNESSES
Weak consumer incomes
No credit available for white goods
Weak banking sector results in self
financing
THREATS
Competition from locals
Entry of regional players
Protracted economic recovery
Middle Price USc
Total Volume (m)
Source: IES
50

Nature of business
OK Zimbabwe is the country’s largest retailer with over 69 years’
experience in retailing. From the company’s first branch which
opened in Harare in 1942, the stores’ portfolio has increased to 51,
comprising 37 OK Stores, 6 Bon Marche, 6 OK Express and 2 OK Mart
stores. The latter were acquired recently after the group took over
Makro’s stores in Harare and Bulawayo. The Pax Cash and Carry was
discontinued in the last financial period and the shops were
converted to OK and OK Express respectively according to size.
Substantial lettable space
The group’s retail space amounts to 66,000m 2 with an additional
13,000m 2 from the recently acquired OK Mart stores. The
company’s offering borders three major categories, groceries, basic
clothing and textiles and house ware products. The target market
ranges from the low income earners (OK Express Stores), middle
income (OK Stores) and high income (Bon Marche). Aside from
offering local and imported goods, the company has developed its
own brands through the OK Pot 'O' Gold, OK Value and Bon Marche'
Premier Choice labels.
Overview of H1 2012 results
Impressive set of financials as both sales and revenue grew
ahead of budget.
The successful recapitalization enabled the company to clear its
short term borrowings and reduce finance cost to just above US$
1,000. Revenue for the period shot up 61% to US$ 185.6m with gross
margins increasing from 16% to 17.1%. PBT for the period amounted
to US$ 5.1m up from US$ 0.6m for the prior period indicating a
profit before tax margin of 2.7% up from 0.53%. Attributable profit,
on the other hand, stood at US$ 3.8m and translated to an EPS of
US 0.38 cents, which compares favourably to US 0.03c for H1 2010.
The company declared an interim dividend of US 0.15c, which
works out to an interim dividend yield of 1.61%.
Strong cash position
As the company cleared its borrowings it was able to register an
impressive current ratio of 1.8x up from 1.4x in the prior period.
Cash ended the period down from US$ 9.5m to US$ 2.26m as the
company forged ahead with its expansion and branch refurbishment
drive.
OK Zim Shareholding - 30/12/11
Shareholder
# of Shares (m) of Total
1 Old Mutual Life Assurance Co. Zim Ltd 160.0 15.3%
2 Old Mutual Zimbabwe Ltd 105.7 10.1%
3 National Social Security Authority 105.6 10.1%
4 Barclays Zimbabwe Nominees P/L NNR 83.4 8.0%
5 IAFPEF OKZL Limited NNR 82.9 7.9%
6 Lasmid Investments (Pvt) Ltd 62.1 6.0%
7 National Social Security Authority 55.7 5.3%
8 Ractor Investments (Pvt) Ltd 54.9 5.3%
9 IAFPEF OKZL Management Partnership 27.1 2.6%
10 Mining Industry Pension Fund 25.9 2.5%
OK Zimbabwe H1 2012 results
Income Statement (US$) H1 2011 H1 2012 %∆
Revenue 115,061,283 185,609,258 61%
Net operating expense 1,546,033 7,037,745 355%
Profit/(Loss) before tax 614,951 5,151,350 738%
Attributable Profit/(Loss) 322,151 3,826,861 1088%
HEPS (USc) 0.04 0.38 762%
Balance Sheet (US$)
Total Assets 52,667,957 75,688,375 44%
NAV 31,612,196 41,005,970 30%
Current Assets 31,724,238 42,313,328 33%
Current Liabilities 17,893,909 31,114,884 74%
Current ratio 1.8 1.4 -23%
Cash flow (US$)
C/f from operating activities 3,221,361 2,729,510 -15%
C/f from investing activities (4,299,591) (7,010,898) 63%
C/Financing activities 6,942,292 2,100 -100%
Closing cash and cash equiv 9,536,942 2,264,991 -76%
Outlook
Refurbishments still on the cards
The company had planned a US$ 16.0m capex budget for FY 2012. A
number of new store sights were also being negotiated, whilst
major refurbishment was planned for four more stores and face
lifting for another four branches.
Valuation and Recommendation
We forecast FY 2012 revenue of US$ 370.2m whilst margins are
likely to improve given the declining shrinkage; we forecast a gross
profit margin of 17.9% for FY 2012 and 18.6% for FY 2013. Our
forecast operating profit margin is 4.0% for FY 2012 up from 2.1%
for FY 2011.
Using an EV/EBITDA valuation, we derive a price of US 15.7c, by
multiplying our forecast EBITDA of US$ 18.4m by the average
EV/EBITDA for OK and its South African peers. BUY
51

OK ZIM - 5 YEAR CGR COMPARISON
31 MAR (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 5.7 7.2 7.5 14.2 16.7 38.8 48.5 60.7
Deffered tax - - - 3.6 3.0 3.3 1.8 1.0
Total shareholders' funds 5.7 7.2 7.5 17.8 19.7 42.1 50.3 61.7
Interest Bearing Debt - - 0.1 1.3 7.1 - 5.0 5.0
Trade creditors 5.7 3.4 1.7 6.5 10.9 26.0 28.1 19.9
Current Liabilities 7.5 3.6 1.8 8.6 13.0 26.7 31.0 23.6
Total Liabilities and equity 13.2 10.9 9.4 27.7 39.8 68.8 86.2 90.2
Fixed Assets 0.9 6.0 7.1 17.5 17.8 27.3 31.0 36.1
Investments 0.3 0.1 0.1 0.1 0.1 0.4 1.7 2.3
Stock - Trade net 8.2 3.0 1.6 8.6 17.3 31.3 41.5 43.7
Debtors - - 0.0 0.2 0.8 2.8 4.6 1.9
Cash at bank 3.1 1.5 0.4 1.2 3.7 6.5 7.4 6.2
Current Assets 12.0 4.8 2.2 10.0 21.8 40.7 53.5 51.8
Total Assets 13.2 10.9 9.4 27.7 39.8 68.8 86.2 90.2
Income Statement
Turnover 103.4 70.2 38.3 20.3 187.5 257.4 370.2 436.8
Gross profit 0.4 0.3 0.2 8.5 50.1 43.5 66.3 81.1
EBITDA 12.4 11.0 4.6 1.3 4.9 8.1 18.4 22.7
Net finance income 4.2 2.2 0.4 0.1 (1.3) (0.1) (0.6) (0.6)
Profit before Tax 16.7 13.2 5.0 1.4 1.2 5.3 14.7 18.4
Taxation 3.9 3.3 1.5 0.4 0.0 1.0 2.9 3.7
Profit after Tax 12.7 9.9 3.4 1.0 1.2 4.3 11.9 14.8
Minorities - - - - - - - -
Attributable Income 12.7 9.9 3.4 1.0 1.2 4.3 11.9 14.8
Weighted shares 3,518.0 3,518.0 3,518.0 1,020.9 1,020.9 1,060.5 1,120.1 1,189.5
EPS (USc) 1.2 1.0 0.3 0.1 0.1 0.4 1.0 1.2
Cash EPS (USc) 1.2 1.0 0.3 0.1 0.3 0.6 1.3 1.5
DPS (USc) 0.6 0.5 - - - 0.2 0.2 0.3
NAV per share (USc) 0.6 0.7 0.7 1.4 1.6 3.8 4.8 5.9
Growth Ratios
Sales growth (%) (39.96) (32.12) (45.48) (46.94) 823.76 37.28 43.80 18.00
Pre-interest profit growth (%) 35.28 (11.40) (58.20) (71.75) 95.28 113.56 183.27 24.16
Earnings growth (%) 5.83 (22.29) (65.41) (70.93) 23.12 249.78 176.92 24.32
Margins
Gross margin (%) 0.4 0.4 0.5 41.9 26.7 16.9 17.9 18.6
EBITDA margin (%) 12.0 15.7 12.0 6.4 2.6 3.2 5.0 5.2
Pre-interest margin (%) 12.0 15.7 12.0 6.4 1.4 2.1 4.1 4.4
Interest cover (times) 2.9 5.1 12.8 9.5 - 1.9 53.4 - -
Pre-tax profit margin (%) 16.1 18.8 13.0 7.1 0.7 2.1 4.0 4.2
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which
may not reflect a true account due to variability of exchange rates during that period.
52

EQUITY RESEARCH
ZIMBABWE
MINING
The ramp-up story continues
Despite the fact that New Dawn Mining is listed on the
Toronto Stock Exchange (TSX) and has access to international
capital markets, we think that capital raising initiatives are
likely to remain thwarted given the issue of indigenisation in
Zimbabwe (at least in the short to medium term).
Management has already indicated that the group will
require a total sum of US$ 40.0m in capex funding so as to
grow the mining operation beyond the 100,000oz annualised
gold production target.
• Moving towards low grade mass mining
New Dawn is unique in the sense that it is one of the
few stocks that offers a pure direct-exposure in
Zimbabwe’s gold mining sector. The group has been
injecting some funds into CAG assets with the aim of
stabilising operations, settling liabilities and
undertaking some refurbishments. The company is now
ensuring that its mining assets move towards lowermedium
grade mass mining to achieve its production
targets.
• Grossly undervalued
We have derived a theoretical valuation for New Dawn
of US$ 2.22 per share, which implies 141.1% upside
potential on the current price. We think an
EV/Resource oz of US$ 24.63 points to gross
undervaluation given an average EV/resource oz of
cUS$ 80.00 for other African gold producers. We
maintain our call that investors BUY.
BLOOMBERG:ND:CN
BUY
Current price (CAD) 0.92
Current price (USD) 0.92
Target price (USD) 2.22
Upside/Downside 141%
Liquidity
Market Cap (USDm) 39.6
Shares (m) 42.9
Free float (%) 15.0
Ave. daily vol ('000) 30.0
Share Price Performance
6 Months (%) 1.20 -23.3%
Relative change (%)* -20.3%
12 Months (%) 1.25 -26.4%
Relative change (%)* -9.7%
*Relative to MSCI Frontier Market Index
Financials (USDm)-FY 30 Sept 2011 2012F 2013F
Revenue 38.3 60.3 77.9
EBITDA 6.3 6.3 22.3
Attributable earnings 4.2 9.8 16.1
EPS (USc) 10.02 23.28 38.24
DPS (USc) - - -
NAV/share (USc) 88.2 93.7 98.4
Ratios 2011 2012F 2013F
Gearing 5.4% 5.1% 6.1%
RoaA 8.0% 15.6% 23.6%
RoaE 13.4% 25.6% 39.8%
EV/EBITDA (x) 6.3 2.4 1.8
EV/oz produced (USD) 1,566 1,124 887
PBV (x) 1.0 1.0 0.9
PER (x) 9.2 4.0 2.4
Earnings Yield 10.9% 25.3% 41.5%
Dividend Yield 0.0% 0.0% 0.0%
EBITDA Margin 16.4% 26.8% 28.6%
New Dawn - volume vs price
2.50
2,500,000
2.00
2,000,000
1.50
1,500,000
1.00
1,000,000
0.50
500,000
-
-
Jul-09 Feb-10 Sep-10 Apr-11 Nov-11
Volume-RHS Price-LHS
STRENGTHS
WEAKNESSES
Balance sheet has negligible debt (Gearring of 5.4%) Over reliance on gold- Limited diversification.
Fully funded capex
Power constraints and mining labour wages
20+ years mine life at max output leading to higher production costs thereby
Significant gold assets around the country through increasing cash costs.
its three gold camps ( Kadoma, Bulawayo & Kwekwe)
TSX Listing enables group to access international
capital markets
OPPORTUNITIES
THREATS
First mover advantages in Zimbabwe
Production disruption due to ZESA power outages
Exploration upside- There is scope to expand Turk mine Indigenisation regulations may threaten capital
(SRK discovery of an additional 1.5-2.0m oz of resources) raising initiatives especially on foreign
Potential for Bulk mining at the Kadoma and Gweru Camp markets such as the TSX.
Potential of 1.2m tonnes per annum tailings
Lack of skilled labour due to brain drain
retreatment plant
Source: IES
53

Nature of business
A pure gold play
New Dawn Mining is a Zimbabwe-focused junior gold miner engaged in the
production, exploration, development, mining and processing of gold. New
Dawn has an objective to reach a consolidated annualised gold production of
50,000-60,000oz of gold by 2013 and 100,000oz of gold by 2015. We note
that the miner’s ultimate goal is to become a mid-tier gold producer
(250,000oz per annum). The recent acquisition of CAG (Central African Gold)
has enabled New Dawn to increase its gold resource base and associated
mining capability to support its production targets. These production targets
are premised, in part, on accessing adequate financing. Furthermore,
production targets may also be impacted by more restrictive and expensive
environmental regulations in the country which could require revisions to
New Dawn’s capital allocation budget and expansion plans.
Three Main Gold Camps (Bulawayo, Gweru and Kadoma) identified
As part of its efforts to integrate and consolidate mining activities, New
Dawn has identified three main gold camps making up its core portfolio of
mining assets. Turk, Old Nic and Dalny form two of the three gold camp
areas while potential near term opportunities at some of its other properties
form the third gold camp. Management has highlighted that the projected
expansion at Turk Mine and planned production at Old Nic and Dalny as well
as the potential near term projects, place New Dawn at a firm position to
meet its target of annualised consolidated production of 38,000 to 40,000oz
by FY 2012.
Exploration activity is gathering momentum
New Dawn is actively exploring on highly prospective ground employing
modern exploration techniques in Zimbabwe, a country that is proven to be
geologically rich, highly prospective, and significantly under explored. More
recently, New Dawn initiated an 8,000m exploration project at its
Camperdown mine, which is part of the company's Gweru Gold Camp located
in the Shurugwi District of Zimbabwe. The program aims to test the down-dip
extent of the known mineralised zones within the claims area. To provide
efficient drill rig positioning, initial drilling will be sited around the areas of
previous underground operations. While drilling is occurring, extensive
geological mapping and structural analysis will also be conducted. Also,
approximately 650.0m to the SW of Camperdown, within the claims area,
there is another small open pit, known as the Redhill deposit, where a small
amount of mining has taken place in the past with recovered grades on the
order of 1.5 g/t of gold. The exact geological relationship and stratigraphic
position of Redhill relative to Camperdown is not fully understood and
therefore will be investigated during this exploration program.
Overview of Q1 2012 results
Revenue at US$ 15.4m for Q1 2012 was 139.0% ahead of Q1 2011. The growth
was driven mainly by consolidated gold production that reached a record of
9,095oz of gold for the quarter, compared to 4,808oz of gold for the quarter
ended Q1 2011. This represented an increase of 89.2% (y-o-y). We note that
the production increase was achieved through a continued focus on the CAG
mines that were acquired in June 2010. We also note that the average sales
price per oz of gold sold increased by 23.0% from US$ 1,370/oz in Q1 2011 to
US$ 1,684/oz. This was a direct effect of the increase in the international
gold price.
Margins expanded despite the increased cash costs
The cash cost for all the gold produced by the company's mines was US$
1,029/oz for Q1 2012 (Q1 2011: US$ 821/oz). Cash costs per oz increased
primarily as a result of significant increases in various base costs such as
labour, power and mine supplies. New Dawn expects continuing upward
pressure on these costs in 2012, as well as a potential increase in
Group structure
Note: New Dawn Mining has since increased its
stake in CAG from 89% to 96%
Three main gold camps
Income Statement (USD) Q1 2011 Q1 2012 % Δ
Revenue 6,458,735 15,440,766 139%
Operating Expenses (6,046,682) (12,276,410) 103%
EBIT 412,053 3,164,356 668%
EBITDA 1,010,375 3,583,788 255%
PBT 586,826 3,005,592 412%
Tax (374,165) (706,712) 89%
PAT 212,661 2,298,880 981%
EPS (USD) 0.01 0.05 400%
Margins Q1 2011 Q1 2012
EBIT margin 6.4% 20.5%
EBITDA margin 15.6% 23.2%
PBT Margin 9.1% 19.5%
PAT Margin 3.3% 14.9%
Balance Sheet (USD) FY 2011 Q1 2012 % Δ
Current Assets 13,823,487 15,270,884 10%
Other Assets 43,783,067 47,664,842 9%
Total Assets 57,606,554 62,935,726 9%
Current Liabilities 8,776,016 9,413,876 7%
Other Liabilities 10,980,773 13,283,145 21%
Total Liabilities 19,756,789 22,697,021 15%
Equity 37,849,765 40,238,705 6%
Total Equity & Liabilities 57,606,554 62,935,726 9%
Other Measures Q1 2011 Q1 2012 % Δ
Gold produced (oz) 4,808 9,095 89%
Gold sold (oz) 4,715 9,171 95%
Cash cost/oz 821 1,029 25%
Revenue/oz 1,370 1,684 23%
54

environmental costs. However, as gold production moves
toward higher normalised levels and refurbishment
programs are completed, increased operating efficiencies,
with a corresponding expected downward trend in cash
costs per ounce can be realised.
Despite an increase in cash costs, New Dawn registered a
significant improvement in margins. EBIT increased 668.0%
to US$ 3.2m, giving an EBIT margin of 20.5%. (Q1 2011:
6.4%). Likewise, EBITDA increased 255% to US$ 3.6m giving
an EBITDA margin of 23.2% and PAT was up 981% to US$
2.3m.
Outlook
The Ramp-up trend expected to continue
Despite the fact that capital raising efforts may be
hamstrung by the aforementioned indigenisation laws,
management remains committed to ramping up
production at the mine in line with set production targets.
We also note the fact that as the group moves towards
mass mining, cash costs are likely to decrease as
production rises due to economies of scale. Using a
conservative average gold selling price of US$
1,742/oz and a production estimate of 45,647oz for
FY 2013, we expect revenues to be around US$
77.9m. Applying a PAT margin of 20.6% implies after
tax earnings of about US$ 16.1m.
Valuation and Recommendation
We have modelled New Dawn earnings outlook in line
with is company’s gold production ramp-up project.
However, we consider our estimates conservative
as we think production numbers will reach
c100,000oz by FY 2019. We have derived a
theoretical valuation for New Dawn of US$ 2.22 per
share, which implies 141.1% upside potential on the
current price. We have also carried out a
comparative analysis for New Dawn. We think an
EV/Resource oz of US$ 24.63 points to gross
undervaluation given an average EV/resource oz of
cUS$ 80.00 for other African gold producers. We
maintain our call that investors BUY.
NEW DAWN MINING - 5 YEAR CGR COMPARISON
30 SEPTEMBER (USDm) 2006 2007 2008 2009 2010 2011 2012F 2013F 5yr CAGR
Income Statement
Sales 7.7 9.0 7.5 5.6 16.4 38.3 60.3 77.9 38%
Operating Expenses 6.8 9.3 8.5 6.7 15.0 33.5 46.2 58.3 37%
Operating Income (loss) 0.8 (0.3) (1.1) (1.1) 1.4 4.8 14.1 19.6 42%
EBITDA 1.8 0.8 0.1 (0.4) 2.4 6.3 16.1 22.3 28%
Other Income 0.6 2.2 (1.4) (2.5) (0.1) (0.1) (0.4) (0.4)
Income (loss) before tax 1.4 1.9 (2.4) (3.6) 1.3 4.7 13.7 19.3 27%
Tax provision (0.6) (0.7) (0.0) (0.1) (2.3) (0.7) (2.8) (5.8) 3%
Share of loss /profit to minority interests - - - - 0.2 0.1 (1.1) 2.6
Net income (loss) for the year 0.8 1.3 (2.5) (3.7) (0.8) 4.2 9.8 16.1 39%
Balance Sheet
Assets
Current Assets 5.3 6.7 7.2 9.6 8.9 13.8 15.4 16.3 21%
Fixed Assets 10.0 9.8 9.2 9.5 32.9 39.9 44.1 47.9 32%
Total Assets 16.2 18.6 21.4 19.2 44.8 59.9 65.5 70.7 30%
Liabilities and Shareholders' Equity
Total Liabilities 3.6 4.1 4.2 5.6 19.2 22.8 25.9 29.1 45%
Shareholders' Equity 12.6 14.5 17.2 13.6 25.6 37.0 39.3 41.3 24%
Total Equity & Liabilities 16.2 18.6 21.4 19.2 44.8 59.9 65.5 70.7 30%
Ratios
EPS (USc) 2.8 4.4 (8.5) (12.9) (2.5) 10.0 23.3 38.2
NAV (USc) 43.5 50.0 59.4 46.8 80.6 88.2 93.7 98.4
Gearing - - - - 5.9% 5.4% 5.1% 6.1%
RoaA 6.0% 7.3% -12.4% -18.4% -2.5% 8.0% 15.6% 23.6%
RoaE 7.9% 9.3% -15.6% -24.3% -4.0% 13.4% 25.6% 39.8%
EV/EBITDA 20.0 48.7 547.5 (90.3) 16.2 6.3 2.4 1.8
EV/Oz (produced) 7,266 7,351 4,023 6,113 2,733 1,566 1,124 887
Current Ratio 4.5 5.6 5.8 3.2 1.2 1.6 1.5 1.3
DPS - - - - - - - -
Dividend Yield - - - - - - - -
Margins
OP Margin 10.8% -3.1% -14.1% -19.3% 8.7% 12.6% 23.3% 25.2%
PBT Margin 18.4% 21.6% -32.4% -64.4% 8.0% 12.4% 22.7% 24.7%
PAT Margin 10.7% 14.0% -33.0% -66.2% -4.8% 11.0% 16.2% 20.6%
EBITDA Margin 23.7% 8.4% 0.8% -7.2% 14.5% 16.4% 26.8% 28.6%
55

EQUITY RESEARCH
ZIMBABWE
AGRICULTURE
A huge catch for the day
Padenga Holdings operates, three farms, located on the
shores of Lake Kariba in Zimbabwe. The company
produces crocodile skins and meat for export to Europe
and Asia. Padenga is one of the largest Nile crocodile
farming operations in Africa, supplying about 33% of the
world’s demand.
• Better quality skin on fewer animals
Padenga’s emphasis is on producing large crocodile
skins. In 2009, the company decided to reduce the
number of its skins produced from 60,000 skins a
year to 42,000 skins. This strategy has paid off, as
they are now producing better skin quality, with
fewer bite marks which reduce the value of the skin.
• Average skin price expected to improve
For FY 2012, expected capacity increases by two
premier luxury brand manufacturers are expected to
increase demand for the company’s products.
Culling commenced on the 1 st of March, and the
group is confident of culling and selling its targeted
42,800 skins. The average skin price achieved for FY
2011 was approximately US$ 300 per skin and this is
expected to improve in FY 2012.
• Luxury goods market demand to double
Growth in the luxury branded goods market is
expected to double in the next decade led by
demand from emerging markets. Padenga is thus
prioritising value addition to the skins where
possible in a manner that will not compete with
existing customers.
• Valuation
We have valued Padenga using a combination of the
EV/EBITDA and NAV valuation techniques, deriving a
target of US 9.9c. Forward ratings are undemanding
at PER+1 of 4.1x and PBV of 0.9x. BUY.
BLOOMBERG: PADENGA:ZH
BUY
Current price (USc) 5.5
Target price (USc) 8.5
Upside/Downside (%) 54.4
Liquidity
Market Cap (US$m) 29.8
Shares (m) 541.6
Free float (%) 37.8
Ave. daily vol ('000) 370.8
Share price performance
6 Months (%) 10.0
Relative change (%)* 18.0
12 Months (%) 10.0
Relative change (%)* 28.9
*Relative to ZSE Industrial Index
Financials (US$m) - FY 30 Jun 2011 2012F 2013F
Turnover 19.7 21.3 23.0
EBITDA 6.3 11.2 12.3
Net finance income (1.0) (0.6) (0.3)
Attributable earnings 3.7 7.2 8.1
EPS (USc) 0.7 1.3 1.5
DPS (USc) 0.2 0.3 0.4
NAV/share (USc) 5.7 6.4 7.5
Valuation Ratios
PBV (x) 1.0 0.9 0.7
PER (x) 8.0 4.1 3.7
EV/EBITDA (x) 5.8 3.3 3.0
EBITDA margin (%) 32.1 52.4 53.4
Dividend Yield (%) 3.0 5.9 6.6
Earnings Yield (%) 12.4 24.2 27.2
Gearing (%) 9.4 5.6 2.4
RoaA (%) 9.4 15.4 15.4
RoaE (%) 12.2 22.1 21.6
Padenga - volume vs price
10
5
0
Dec-10 Jul-11 Feb-12
10
8
6
4
2
0
STRENGTHS
WEAKNESSES
Group synergies
Strong competitive environment
Branded products
Conglomerate feel
Strong marketing
Advances to farmers at a cost to
Diversified operations the company
OPPORTUNITIES
THREATS
Franchise expansion Cheap imports
Growth in disposable incomes Prolonged time to recovery
New product development Drought
Volume (m) RHS
Middle Price USc
Source: IES
56

Nature of business
Padenga Holdings is a wholly owned Zimbabwe holding company for
businesses engaged in the rearing, slaughter and processing of
crocodiles with the end products being meat and skins. Padenga
supplies approximately 33% of the world’s demand for large, high
quality skins making it one of the largest single exporters of crocodile
skins in the world. Between eight and nine kilogrammes of exportable
meat is produced per animal, based on a slaughter size of 2.1 metres.
The group currently operates three farms on Lake Kariba, producing the
Nile crocodile Crocodylus Niloticus, and also has an abattoir which
slaughters the animals on behalf of the farms. The production of
crocodiles incorporates both ranched stock raised from wild eggs
collected on permit and incubated on-farm, and stock produced from
captive domestic breeders.
Overview of H1 2012 results
Depressed H1 performance in line with the seasonal nature of the
business
Padenga’s interim results obviously showed a loss position given the
seasonal nature of the business, in which the first half is a cost
accumulation period. However it is consoling to note that the results
were consistent with budget with the company still expecting to
achieve its full year profit target of US$ 7.1m. Revenue was minimal at
US$ 7,235, whilst an EBITDA loss of US$ 4.3m was registered against a
loss of US$ 409,578 for the prior period. A fair value adjustment of US$
1.3m was allowed for from a fair value loss of US$ 1.2m. A net interest
payment of US$ 162,004 was realised on borrowings of US$ 3.0m
(average borrowing cost was 7%). The attributable loss for the period
totalled US$ 2.9m (H1 2011: US$ 1.9m).
The balance sheet remained pristine as gearing remained unchanged at
11%, whilst the current ratio remained strong at 8.0x against 8.3x for
the prior period. The group is cash positive with US$ 877,516 raised
from operating activities.
Stable trading environment and depreciation of Rand supported
lower input costs
The stable trading environment and depreciation of the Rand by 21%
benefitted the company in terms of lower input costs as the majority of
the feed input is imported from South Africa and Namibia. Annual egg
collection and the incubation exercise during the period yielded 50,163
hatchlings, which were inducted into hatchling pens consistent with
production requirements. The total grower stock grew to 159,761
animals with an additional 5,034 breeders in pens across the three
farms. The group is moving towards self-sufficiency in egg production,
69% of eggs collected in 2011 were from domestic breeders. Nine
breeder pens and four rearing pens were completed during the period
and a further two rearing pens and six at Nyanyana Farm are still under
construction.
Padenga Holdings Shareholding - 30/12/11
Shareholder
# of Shares (m) % of Total
1 ZMD Investments P/L 102.8 19.0%
2 H M Barbour P/L 100.2 18.5%
3 Old Mutual group 37.7 7.0%
4 Sarco Investments P/L 22.5 4.2%
5 Fed Nominees P/L 18.7 3.5%
6 Datvest Nominees (Pvt) Ltd 14.8 2.7%
7 Pharaoh Limited NNR 14.6 2.7%
8 Stanbic Nominees P/L 14.5 2.7%
9 Muzika Rubi Holdings (Pvt) Ltd 11.3 2.1%
10 City & General Holdings (Pvt) Ltd 9.8 1.8%
Padenga Holdings H1 2012 results
Income Statement (US$) H1 2011 H1 2012 %∆
Revenue 4,082,336 7,235 -100%
Operating profit (409,578) (4,329,268) 957%
Fair value adjustment (1,184,144) 1,319,192 -211%
Profit/(Loss) before tax (2,508,759) (3,848,945) 53%
Attributable Profit/(Loss) (1,867,085) (2,851,136) 53%
HEPS (USc) (0.3) (0.5) 56%
Balance Sheet (US$)
Total Assets 34,524,086 35,995,061 4%
NAV 26,392,249 27,009,814 2%
Current Assets 19,266,591 21,195,170 10%
Current Liabilities 2,322,802 2,654,119 14%
Current ratio 8.3 8.0 -4%
Cashflow (US$)
C/f from operating activities 3,236,888 877,516 -73%
C/f from investing activities 588043 ‐559864 -195%
C/Financing activities (4,894,090) 114,050 -
Closing cash and cash equiv (1,069,158) 158,824
Outlook
Global market conditions improving
The global market for crocodile skins has improved and the demand for
big, high quality skins is strong. Management reports that the group is
on target to achieve the FY 2011 off-take target of 43,305 skins and
attributable profits of approximately US$ 4.4m. The company intends to
produce 42,000 skins per annum thereafter and from FY 2013 will
achieve this entirely from domestic stock.
57

Luxury goods market demand expected to double
The company hopes to pursue joint venture projects
with suitable partners so as to access technology,
increase value creation, secure market access and
enhance returns to shareholders.
Ultimately a diversified agro-business
Padenga aims to establish itself as a diversified agrobusiness
involved in the primary production of
crocodiles and their derivatives, freshwater fish and
related animal proteins. The company could also
venture into production of crocodile oils and related
by-products for use in the pharmaceutical and
cosmetics industries. Commercial fish production is
also a natural progression for Padenga given the
similarities in the operational and production systems,
raw feed ingredients, abattoir and processing plant
technology, export markets and end customers
Valuation and recommendation
We have valued Padenga using a combination of the
EV/EBITDA and NAV valuation techniques, deriving a
target of US 9.9c. Forward ratings are undemanding at
PER+1 of 4.1x and PBV of 0.9x. BUY.
PADENGA- 5 YEAR CGR COMPARISON
30 JUNE (US$m) 2009 2010 2011 2012F 2013F 2014F 2015F
Balance sheet
Shareholders' equity 32.4 30.1 30.8 34.5 40.6 47.8 56.7
Deffered Tax 3.0 3.6 4.3 3.7 3.5 3.3 2.6
Total shareholders' funds 35.4 33.7 35.1 38.2 44.1 51.1 59.3
Interest Bearing Debt 1.4 7.8 2.9 1.9 1.0 - -
Trade creditors 1.3 0.7 1.1 2.4 2.5 2.8 3.2
Current Liabilities (0.2) (1.9) 1.3 6.8 7.5 8.6 10.8
Total Liabilities and equity 36.7 39.6 39.3 46.9 52.5 59.6 70.1
Fixed Assets 14.5 14.4 13.6 14.6 14.6 21.6 26.6
Investments 0.9 1.2 1.3 1.3 1.3 1.3 1.6
Stock - Trade net 1.8 0.7 1.0 1.1 2.7 2.9 3.4
Debtors 1.8 5.6 7.1 8.0 8.7 10.8 12.9
Cash at bank 0.5 1.0 0.6 1.2 1.3 1.4 1.6
Current Assets 21.3 24.0 24.4 31.0 36.6 36.8 41.9
Total Assets 36.7 39.6 39.3 46.9 52.5 59.6 70.1
Income Statement
Turnover 10.2 11.8 19.7 21.3 23.0 25.3 29.1
Gross profit 10.2 11.8 13.0 15.9 17.3 19.7 23.8
EBITDA 0.1 1.3 6.3 11.2 12.3 14.0 17.3
Net finance income (0.1) (0.6) (1.0) (0.6) (0.3) - -
Profit before Tax 0.5 (1.6) 5.0 9.7 10.9 12.6 15.9
Taxation (1.8) (0.7) - - - - -
Profit after Tax 2.3 (0.9) 3.7 7.2 8.1 9.4 11.8
Minorities - - - - - - -
Attributable Income 2.3 (0.9) 3.7 7.2 8.1 9.4 11.8
Weighted shares 541.6 192.3 192.3 541.6 541.6 541.6 541.6
EPS (USc) 0.1 (0.3) 0.7 1.3 1.5 1.7 2.2
Cash EPS (USc) - 0.3 (0.1) 0.9 1.5 1.7 2.0
DPS (USc) - - 0.2 0.3 0.4 0.4 0.5
NAV per share (USc) 6.0 3.3 5.7 6.4 7.5 8.8 10.5
Growth Ratios
Sales growth (%) 15.22 67.16 8.36 7.99 9.97 14.99
Pre-interest profit growth (%) (106.56) 9,836.85 94.98 11.43 11.65 26.19
Earnings growth (%) (140.61) (490.05) 94.73 12.38 15.81 26.04
Margins
Gross margin (%) 100.0 100.0 65.9 74.4 74.9 77.7 81.7
EBITDA margin (%) 0.7 11.0 32.1 52.4 53.4 55.4 59.4
Pre-interest margin (%) (7.73) 0.4 26.2 47.1 48.6 49.3 54.1
Interest cover (times) (5.77) 0.1 5.4 15.6 34.8 n/a n/a
Pre-tax profit margin (%) 5.4 (13.73) 25.2 45.3 47.2 49.9 54.6
58

EQUITY RESEARCH
ZIMBABWE
PROPERTY
Leveraging on improving the quality of its lettable space
The property market has been characterised by limited
demand for CBD offices and suburban retail space, yet
despite this Pearl Properties expects to grow its rental
income and occupancy levels through improving the
quality of its lettable space. From one of its suburban
retail properties, the group expects the rental yield level
to rise from a pre-refurbishment yield of 4.26% to a postrefurbishment
yield of 11.35%. New property
developments are also expected to attract higher quality
tenants and thus improve on rental income and yields.
• Office parks remain the highest in terms of rental
growth and higher occupancy levels, however there
is limited upside for continued rental growth.
Consequently the group is targeting to grow its
lettable area and holds a land bank worth 10% of the
total portfolio. During FY 2011 it purchased
52,611m 2 of prime residential land.
• The group’s entry into the residential sector is
expected to yield a high target return of 25%
We are excited about the group’s prospective
property developments in the lucrative sector. The
country has a massive housing backlog, estimated at
1.2m units, which in the short to medium term
should support the high rentals. Upward movement
on prices for residential properties could however be
constrained by limited liquidity and the lack of
mortgage finance.
• Yield on industrial properties improve
Industrial properties have been attracting negligible
rental and yield levels, due to the continued
depressed performance of the manufacturing sector.
However, a new trend of increasing demand for
retail warehousing space has brought the sector to
life.
• Valuations show significant upside
Using an EV/EBITDA valuation method we derive a
value of US 4.7c, signifying significant upside, we
rate the counter a BUY.
BLOOMBERG: PEARL:ZH
BUY
Current price (USc) 2.7
Target price (USc) 4.7
Upside/Downside (%) 74.0
Liquidity
Market Cap (US$m) 33.4
Shares (m) 1,238.2
Free float (%) 16.3
Ave. daily vol ('000) 834.0
Share price performance
6 Months (%) -13%
Relative change (%)* -3%
12 Months (%) -10%
Relative change (%)* 11%
*Relative to ZSE Industrial Index
Financials - 31 DEC (US$m) 2011 2012F 2013F
Turnover 9.2 10.5 11.7
EBITDA 5.0 5.7 6.2
Net Finance Income 0.4 -0.8 -0.6
Adj Attributable earnings 4.3 4.6 5.3
Adj EPS 0.3 0.4 0.4
DPS (USc) 0.1 0.0 0.1
NAV/share (USc) 8.6 8.1 8.7
Valuation Ratios 2011 2012F 2013F
PBV (x) 0.3 0.3 0.3
PER (x) 7.8 7.3 6.3
EBITDA/EV (%) 15.4 17.3 19.0
EBITDA margin (%) 54.7 54.0 53.3
Dividend Yield (%) 4.1 1.8 2.5
Earnings Yield (%) 12.9 13.8 15.8
Gearing (%) 0.0 7.1 5.5
Adj RoaA (%) 3.7 3.8 4.1
Adj RoaE (%) 3.7 4.1 4.3
Pearl Properties-Price vs Volume
10.0
8.0
6.0
4.0
2.0
-
Feb-09 Feb-10 Feb-11 Feb-12
50.00
40.00
30.00
20.00
10.00
-
STRENGTHS
Focused and experienced management
Sizeable land bank
Diversified property portfolio
Managable arrears levels
OPPORTUNITIES
Improving economic fundamentals
Operating costs stabilising
Increased use of project finance
WEAKNESSES
Limited free cashflow for new
projects
THREATS
Increasing debtors
Drawnout economic recovery
Middle Price (US c)-LHS
Total Volume (m)-RHS
Source: IES
59

Overview of FY 2012 results
Steady performer
Pearl’s final results reflected a steady performance from the
group, as it continued to derive significant value from its
substantial asset base. Rental income growth was sustained by
successful rental reviews, and rose by 15% to US$ 8.1m whilst net
property income amounted to US$ 6.9m, rising by about 1.2% as
the group continued to carry out several maintenance and
refurbishment projects.
High operating costs, but within budget
The group had finance income of US$ 439,271 with US$ 192,076
being interest on overdue tenant accounts and US$ 247,195
interest on investments. Other operating expenses went up by
15.8% as the group pays utility bills for the buildings and recovers
the money from its tenants (recoveries are good at between 82%
and 85%). Tenant receivables went up by 62% to US$ 1.5m, of this
total US$ 751,231 are tenant balances that were handed over for
litigation in a bid to recover past amounts due. Provisions for
credit losses were also increased by 71% to US$ 658,239.
Recoveries from cases handed over for collections have been good
at about 98%.
Pearl Shareholding - 30/12/11
Shareholder
# of Shares (m) % of Total
1 FML Policyholders 375.0 30.3%
2 Barclays Zim Nominees P/L NNR 134.9 10.9%
3 Afre Corporation Limited 98.2 7.9%
4 EW Capital Holdings P/L 61.9 5.0%
5 Fist Mutual Life Managed Funds 61.0 4.9%
6 FML - Shareholders 59.1 4.8%
7 FMRE Property and Casulaty Shareholde 53.0 4.3%
8 Stanbic Nominees (Pvt) Ltd NNR 50.5 4.1%
9 Econet Wireless Hldings Limited 49.0 4.0%
10 Fed Nominees (Pvt) Ltd 28.5 2.3%
Bottom-line boosted by a fair value adjustment
A fair value adjustment on property of US$ 19.4m was allowed
for, following a valuation by Knight Frank, which raised the PBT
to US$ 24.9m (FY 2010: US$ 17.1m) and the attributable profit to
US$ 18.6m. Stripping out the fair value adjustment we derive an
adjusted attributable profit of US$ 4.3m.
Balance sheet remains solid
The balance sheet remains solid with total assets up 25% to US$
117.6m, largely backed by the 26% jump in investment properties
to US$ 109.7m. The group has nil gearing and a strong current
ratio of 3.9x.
Gross Lettable Area Split
Retail
Suburban
7%
Office
Parks
20%
Retail
CBD
9%
Industrial
31%
CBD
Office
33%
Improved average rentals..
Portfolio performance showed improved average rentals/m 2 on
the back of ongoing refurbishments which have yielded improved
quality space. Office parks rentals moved from US$ 9.5/m 2 to
US$11/m 2 , as demand remains strong. For CBD offices, average
rentals increased from US$ 7.3/m 2 to US$ 8.7/m 2 and although
the sector has been characterised by low demand, the company is
realising the fruit of its refurbishment exercise as the recovered
space is being let out to quality tenants. Vacancies at 19.5%
reflect evictions of non-paying tenants. CBD retail rentals moved
up from US$ 5.5/m 2 to US$ 7.1/m 2 whilst suburban retail rentals
averaged US$ 7.2/m 2 from US$ 3.7/m 2 with a high vacancy rate of
79.9% being driven by major refurbishments. Industrial properties’
rentals improved from US$ 2.30/m 2 to US$ 3.0/m 2 as there has
been a rise in demand for retail warehousing space.
..at lower rental yields
Occupancy levels for FY 2011 stood at 77.5%, lower than the FY
2010 level of 87.4%, attributed by management to ongoing
refurbishments. The overall portfolio yield, although in line with
budget, declined from FY 2010’s 10.1% to 9.8% due to a decline in
the CBD retail, office parks and suburban retail property yields.
Property Portfolio Review
1.2
0.8
0.4
0
Industrial
CBD
Office
Office
Parks
Retail
Surbaban
Source: IES, company
Retail
CBD
Average rental per m2 ($) Occupancy rate (%)
Rental Yields (%)
$/m2
16
12
8
4
0
Source: IES, Company
Outlook
In a trading update, management reported that revenue for the
two months (January and February 2012) amounted to US$ 1.37m,
slightly short of the budget of US$ 1.40m, whilst property
60

expenses amounted to US$ 0.26m against a budgeted US$
0.55m. The group intends to continue improving the quality
of its space, acquiring land and existing buildings whilst
tenant re-organisation will continue. Two greenfield
projects to be undertaken in 2012, are the mixed use
development in Borrowdale which is expected to cost US$
5.0m (project yield of 10%) and 2 Arundel office blocks at a
cost of US$ 9.0m at a yield of 10%. The projects are to be
funded through long term project structured finance.
Valuation and recommendation
We expect rental reviews to be limited given the
prevailing liquidity strain, however Pearl’s
significant land bank and planned property
developments are likely to make the company
derive significant growth going forward. Ratings are
undemanding, with the PBV ratio at less than the
regional average while yield ratios are attractive
and in line with the region. Using an EV/EBITDA
valuation method we derive a value of US 4.7c,
signifying significant upside, we rate the counter a
BUY.
PEARL- 5 YR CGR and Forecasts
31 DEC (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 29.1 27.4 66.5 75.1 89.0 106.5 100.7 107.7
Deffered tax 9.2 11.2 27.8 3.7 3.7 9.2 11.0 13.0
Total shareholders' funds 38.6 38.8 95.0 79.5 93.6 116.8 112.8 121.7
Interest Bearing Debt - - - - - - 8.0 6.7
Trade creditors 0.0 0.1 0.1 0.6 0.5 0.8 0.9 1.0
Current Liabilities 0.1 0.1 0.1 0.9 0.7 0.8 1.2 1.3
Total Liabilities and equity 38.7 38.9 95.1 80.4 94.3 117.6 122.0 129.7
Fixed Assets 0.0 0.2 1.3 0.4 0.4 0.6 1.5 2.2
Investments - - 4.9 6.0 3.5 2.3 4.0 5.8
Investment Properties 46.1 32.7 88.8 72.4 86.9 109.7 113.6 117.6
Debtors - - - 1.5 1.9 2.3 1.7 2.6
Cash at bank 0.1 0.0 0.0 0.1 1.6 0.8 1.0 1.3
Current Assets 0.1 6.0 0.1 1.6 3.5 3.3 2.9 4.1
Total Assets 46.2 38.9 95.1 80.4 94.3 117.6 122.0 129.7
Income Statement
Turnover 0.8 2.2 0.1 5.3 8.9 9.2 10.5 11.7
Gross profit 0.8 2.2 0.1 5.3 7.9 8.0 9.1 10.0
EBITDA 0.5 2.1 (0.0) 3.1 5.1 5.0 5.7 6.2
Net finance income 0.1 0.1 0.0 0.1 0.3 0.4 (0.8) (0.6)
Adj Attributable Income 0.1 1.1 (3.3) 3.4 4.5 4.3 4.6 5.3
Weighted shares 1,238.2 1,238.2 1,238.2 1,238.2 1,238.2 1,238.2 1,238.2 1,238.2
Adj EPS 0.0 0.1 - 0.3 0.3 0.4 0.3 0.4 0.4
DPS (USc) - - - - 0.1 0.1 0.0 0.1
NAV per share (USc) 2.3 2.2 5.4 6.1 7.2 8.6 8.1 8.7
Growth Ratios
Sales growth (%) 190.7 (96.7) 7,254.8 67.9 3.5 13.8 11.3
Pre-interest profit growth (%) 2,005.5 (100.8) - 66.7 (2.9) 7.8 7.0
Earnings growth (%) 994.5 323.6 (48.0) 577.6 14.6 (66.3) 7.7
Margins
Gross margin (%) 100.0 100.0 100.0 100.0 88.8 87.4 86.7 86.0
EBITDA margin (%) 13.2 95.7 - 22.0 58.3 57.7 54.7 54.0 53.3
Pre-interest margin (%) 13.2 95.7 - 22.0 56.9 56.5 53.0 50.2 48.3
Interest cover (times) n/a n/a n/a n/a n/a n/a 6.8 8.9
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true
account due to variability of exchange rates during that period.
61

EQUITY RESEARCH
ZIMBABWE
AGRICULTURE MINING
A definate cash spinner
SeedCo, which is 50.86% owned by ZSE listed AICO
Africa Limited, is a producer and marketer of certified
seeds. The company has a dominant market share in the
hybrid maize seed market, controlling around 70% of
the Zimbabwean market. Its main products include
maize, wheat, barley, cotton, soya, sorghum and
groundnut seed. It also owns Quton, a cotton seed
growing company. SeedCo has been expanding its
operations in the region to Zambia, Malawi, Botswana,
DRC, Swaziland, Uganda and Kenya.
• Fortune favours the group
For H1 2012, an improvement in commodity prices
buoyed winter cereal sales while demand for
cotton seed in Malawi and Tanzania continues to
grow. Management is confident that improved
stock levels should lower transport and duty costs
and improve margins.
• Production expected to increase for FY 2012
Management estimates overall production volumes
of about 94,000mt for FY 2012 up from 55,000mt
and is targeting sales of about 66% of total
production.
• Real growth in earnings expected
For FY 2012, we expect the earnings yield to rise
to 10.6% from 8.7% whilst the ROaE should remain
steady at the 27.5% level. Intensified marketing
efforts and positive contribution from new
businesses should provide a boost.
• Valuations are undemanding
Using a DCF valuation, we derive a value of
US$1.43 per share. Ratings are undemanding at
PER+1 of 9.5x and PBV of 3.0x. We maintain our
Buy recommendation.
BLOOMBERG: SEEDCO:ZH
BUY
Current price (USc) 80.0
Target price (USc) 143.4
Upside/Downside (%) 79.3
Liquidity
Market Cap (US$m) 154.4
Shares (m) 193.0
Free float (%) 35.3
Ave. daily vol ('000) 63.2
Share price performance
6 Months (%) 45.3
Relative change (%)* 30.4
12 Months (%) 81.6
Relative change (%)* 61.5
*Relative to ZSE Industrial Index
Financials (US$m) - FY 31 Mar 2011 2012F 2013F
Turnover 97.8 124.6 148.4
EBITDA 24.5 29.5 36.3
Net finance income (2.1) (2.1) (2.4)
Attributable earnings 17.4 18.4 22.8
EPS (USc) 9.0 9.5 11.8
DPS (USc) 2.4 3.2 2.6
NAV/share (USc) 27.5 33.8 43.0
Valuation Ratios
PBV (x) 2.9 2.4 1.9
PER (x) 8.9 8.4 6.8
EV/EBITDA (x) 7.1 5.9 4.8
EBITDA margin (%) 25.0 23.7 24.5
Dividend Yield (%) 2.9 4.0 3.3
Earnings Yield (%) 11.3 11.9 14.8
Gearing (%) 29.2 17.3 12.3
RoaA (%) 16.4 14.4 15.9
RoaE (%) 27.5 24.2 25.0
SeedCo - volume vs price
160
1.0
120
80
40
0
0.0
Mar-09 Mar-10 Mar-11 Mar-12
Total Volume(m)-RHS Middle Price (US c)-LHS
Source: IES
STRENGTHS
Significant market share
Strong brands & Syngenta r/ship
Growing presence in SSA
Strong research and dev. unit
Hybrids protected by patents
OPPORTUNITIES
Quintessential recovery play on
Zimbabwe agric sector
Growth in Angola, Malawi & Tanzania
Gvt opening up to GMO varieties
WEAKNESSES
Dependence on reg governments
Aggressive competition
and imported varities
Over reliance on maize
THREATS
Drought
Lower aid inflows and less public
spend on small holder farmer
input schemes
Fertiliser and fuel price shocks
62

Nature of business
SeedCo has a research collaboration agreement with Syngenta, a
European based global agribusiness involved in seed and crop
protection. Quton Company is the only cotton seed producer in
Zimbabwe with a production base of about 10,000 tonnes a year and
about 20 seed varieties. Seed production is equally spilt between
Zimbabwe and the region. Annual regional production amounts to
50,000 tonnes, and the group’s total capacity is about 70,000
tonnes.
Overview of H1 2011 results
Sales volumes boosted by winter cereals
Because of the seasonality of the business, SeedCo’s first half is a
cost only period and as such the company posted a loss for H1 2012.
Nonetheless, sales volumes grew 63% y-o-y propelled by a 44%
growth in winter cereals to 5,441mt and early seed cotton to Malawi
of 3,400mt. Maize seed sales declined 4% to 6,754mt.
Profitability margins weaker
Gross profit margin eased to 40% from 42%, a result of carryover
stock of winter cereals (wheat) which had to be sold at lower prices
as it is open pollinated with a shorter life. Opex increased 24% y-o-y
driven by a 28% increase in research costs and a 34% jump in sales
and marketing expenses as the company has moved from a
production based approach to a market oriented approach in order
to stimulate increased sales volumes. SeedCo fully provided for
doubtful debtors which knocked off approximately US$ 0.7m off the
earnings. Finance charges increased as the group financed the seed
intake and the carryover borrowings that funded production.
Strained cashflows
Due to the seasonality of its business, cash flows were strained on
high working capital requirements. Gearing deteriorated to 73.1%
from 32.8% at year-end. Borrowings were at an average cost of
approximately 13% in Zimbabwe (approximately US$ 25.0m) and
between 5% and 7% in the regional businesses.
Outlook
Management anticipates sales volumes to exceed 65,000mt in FY
2012 and the company has adequate stock to meet the firm
demand. Revenue is forecast to grow by at least 20% and net
margins to be maintained at approximately 20%. In our view,
margins might be enhanced given the carryover stock which was
produced at lower prices.
We estimate that the average seed prices will stay at the same
levels of between US$ 1,800/mt and US$ 2,000/mt. Soya bean seed
is expected to sell out. The cotton seed business continues to grow
especially in Tanzania and Malawi with further opportunities in
Zambia. Production in 2011/12 will be scaled down due to carryover
stock. SeedCo is likely to have significant cash in FY 2012/3 due to
reduced working capital requirements allowing for increased
dividend payouts.
SeedCo Shareholding - 31/12/11
Shareholder # of Shares (m) %
1 AICO Africa Limited 97.5 50.2%
2 Old Mutual Life Assurance Co. Zim Ltd 20.5 10.5%
3 Barclays Nominees P/L - NNR 12.5 6.4%
4 Stanbic Nominees P/L 8.4 4.3%
5 Fed Nominees (Pvt) Ltd 5.4 2.8%
6 National Social Security Authority 3.7 1.9%
7 Local Authorities Penion Fund 3.4 1.7%
8 Old Mutual Zimbabwe Limited 2.6 1.3%
9 Mining Industry Pension Fund 2.3 1.2%
10 Dekalb Genetics Corporation 1.7 0.9%
SeedCo H1 2012 results
Income Statement (US$ '000) H1 2011 H1 2012 % change
Turnover 20,350.9 30,388.8 49.3
Gross Profit 8,504.2 12,053.5 41.7
PBIT (693.2) 509.3 (173.5)
Net finance income (244.6) (1,075.3) 339.7
PBT (937.8) (566.0) (39.6)
Attributable earnings (1,458.8) (1,404.1) (3.7)
EPS (USc) (0.76) (0.73) (3.7)
Balance Sheet (US$ '000) FY 2011
Total Assets 122,567.8 146,477.6 19.5
NAV 70,014.7 62,726.8 (10.4)
Current Assets 81,625.4 103,027.7 26.2
Current Liabilities 17,239.8 25,494.3 47.9
Current ratio 4.7 4.0 (14.6)
Cash flow (US$ '000) H1 2011
Operating activities (13,694.4) (13,713.7) 0.1
Investing activities (6,549.2) (5,395.1) (17.6)
Financing activities (3,601.7) (6,887.5) 91.2
Source: IES, Company
SeedCo Market Share
80%
20,000
60%
16,000
12,000
40%
8,000
20%
4,000
0%
-
Sales Volumes (Tonnes)-RHS Market Share-LHS
Source: IES, Company
Valuation and recommendation
Using a DCF valuation, we derive a value of US$ 1.43 per share.
Ratings are undemanding at PER+1 of 9.5x and PBV of 3.0x. We
recommend investors Accumulate.
63

SEEDCO- 5 YEAR CGR COMPARISON
31 MAR (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 4.3 14.1 29.5 52.0 57.0 70.0 82.3 100.0
Minority interests 1.3 1.9 2.3 2.2 2.4 - - -
Total shareholders' funds 6.4 19.5 40.5 68.9 70.6 82.4 88.5 103.1
Interest Bearing Debt 12.5 16.3 13.5 6.0 4.4 25.4 20.5 20.2
Trade creditors 2.1 1.3 1.6 3.5 5.2 11.2 17.2 22.9
Current Liabilities 6.7 3.5 4.5 10.6 14.5 14.7 24.0 31.3
Total Liabilities and equity 25.7 39.3 58.5 85.5 89.5 122.6 133.0 154.6
Fixed Assets 3.9 16.7 30.1 46.6 37.0 40.6 40.6 49.6
Investments 0.0 0.0 0.3 1.2 1.1 0.3 0.4 0.4
Stock - Trade net 7.4 13.8 11.0 11.9 14.6 28.5 30.8 36.7
Debtors 8.3 7.1 12.9 17.2 19.6 40.4 45.7 49.2
Cash at bank 3.5 0.2 1.3 3.5 9.6 5.0 6.3 7.9
Current Assets 21.7 22.6 28.1 37.7 51.3 81.6 92.0 104.6
Total Assets 25.7 39.3 58.5 85.5 89.5 122.6 133.0 154.6
Income Statement
Turnover 33.8 39.2 52.8 53.9 77.0 97.8 124.6 148.4
Gross profit 14.1 23.4 25.8 27.6 33.4 49.7 61.0 72.7
EBITDA 14.8 12.9 15.0 12.9 17.4 24.5 29.5 36.3
Net finance income (1.8) (2.0) (3.7) (0.6) (0.6) (2.1) (2.1) (2.4)
Profit before Tax 11.9 7.8 11.6 16.7 17.9 23.4 24.7 30.6
Taxation 0.9 3.0 1.6 2.0 4.5 6.0 6.3 7.8
Profit after Tax 9.8 4.7 9.2 13.9 13.4 17.4 18.4 22.8
Minorities 0.5 0.9 0.5 0.9 - - - -
Attributable Income 9.4 3.8 8.7 12.9 13.4 17.4 18.4 22.8
Weighted shares 176.1 159.2 159.2 159.2 192.3 193.0 193.0 193.0
EPS (USc) 5.9 2.4 5.4 8.1 7.0 9.0 9.5 11.8
Cash EPS (USc) 3.3 5.2 7.6 7.4 10.4 10.9 13.5 101.3
DPS (USc) - - - - 1.4 2.4 3.2 2.6
NAV per share (USc) 1.4 0.5 5.0 11.7 18.6 27.5 33.8 43.0
Growth Ratios
Sales growth (%) (36.45) 15.95 34.58 1.99 42.93 27.06 27.35 19.09
Pre-interest profit growth (%) 21.16 (22.90) 36.87 (15.68) 36.13 32.62 23.15 22.98
Earnings growth (%) 7.46 (58.97) 125.67 49.43 3.56 30.12 5.58 23.97
Margins
Gross margin (%) 41.6 59.6 48.8 51.3 43.3 50.8 49.0 49.0
EBITDA margin (%) 43.8 32.8 28.3 24.0 22.6 25.0 23.7 24.5
Pre-interest margin (%) 40.1 26.7 27.1 22.4 21.4 22.3 21.5 22.3
Interest cover (times) 7.6 5.3 3.9 19.4 29.9 10.5 12.5 13.8
Pre-tax profit margin (%) 35.1 19.9 22.0 31.1 23.2 23.9 19.8 20.6
*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which
may not reflect a true account due to variability of exchange rates during that period.
64

Resilince in diversity
TA Holdings is a Zimbabwe investment company
whose portfolio spans insurance, agro-chemicals and
hotels. Having had first hand expertise in virtually
every business sector in the country, at one time or
another, the company boasts one of the strongest
and most experienced board of directors in the
country.
• Diversified earnings base
TA’s diversified and expansive earnings base
stretches across several sectors including
agriculture, hotels/tourism, mining, insurance
and industrial. Geographical diversity adds to
the group’s attractiveness with a presence in
Botswana, Malawi, Uganda and now Angola,
making it a play on SSA.
• Significant balance sheet outside Zimbabwe
The bulk (53%) of the group’s balance sheet is
outside Zimbabwe, enhancing the group’s
ability to weather downturns in any of the
countries it operates in.
• Cash generating businesses
Generally, the insurance and hotel businesses
are cash cows. The free cash generated has
been used to invest in new projects and
advance both horizontal and vertical
integration. Local hotel properties are soon to
be refurbished, in a renewed bid to benefit
from Zimbabwe’s improving local eco-political
situation
• Asset base
TA has a strong asset base and all its
investments have good growth potential. The
group’s investments are well poised for the
recovery in the local economy. We believe that
there is limited downside at current levels.
Spec Buy.
TA - volume vs price
75
-
May-11 Oct-11 Mar-12
Volume (m) RHS
Price (USc) LHS
1.75
1.5
1.25
1
0.75
0.5
0.25
0
BLOOMBERG: TAHLDS:ZH
Spec Buy
Current price (USc) 12.0
Target price (USc)
na
Upside/Downside (%)
na
Liquidity
Market Cap (US$m) 19.8
Shares (m) 164.8
Free float (%) 31.3
Ave. daily vol ('000) 49.9
Share price performance
6 Months (%) (40.0)
Relative change (%)* (33.2)
12 Months (%) (23.8)
Relative change (%)* 0.0
*Relative to ZSE Industrial Index
Financials (US$m)- FY 31 Dec 2011 2012F 2013F
Turnover 62.1 77.6 93.1
EBITDA 7.3 10.8 11.6
Attributable earnings 4.6 6.9 8.1
EPS (USc)
STRENGTHS
2.8
WEAKNESSES
4.2 4.9
DPS Diversified (USc) amalgamation of Too -diversified ‐-conglomerate-feel
NAV/share uncorrelated (USc) businesses
massive 31.1 recapitalisation 31.1 needs 31.2
EBITDA
market
margin
leadership
(%)
in several areas Government
11.8
interference
13.9
in
12.4
Regional footprint
fertilizer pricing
Valuation
Strong management
Ratios
PBV OPPORTUNITIES
(x) THREATS 0.4 0.4 0.4
PER Continued (x) regional expansion Exchange 4.3 rate risk 2.9 2.5
Expansion of fertilizer plant capacity Competition in insurance
Gearing (%) 5.5 5.6 5.7
Increased insurance activities Slump in hotels business
RoaA (%) Energy 2.3 price shocks 3.4 3.9
RoaE (%) 0.9 1.1 1.2
Source: IES
EQUITY RESEARCH
ZIMBABWE
CONGLOMERATE
STRENGTHS
WEAKNESSES
Diversified amalgamation of Too diversified - conglomerate feel
uncorrelated businesses
massive recapitalisation needs
market leadership in several areas Government interference in
Regional footprint
fertilizer pricing
Strong management
OPPORTUNITIES
THREATS
Continued regional expansion Exchange rate risk
Expansion of fertilizer plant capacitCompetition in insurance
Increased insurance activities Slump in hotels business
Energy price shocks
65

Nature of business
INSURANCE
Botswana Insurance Company (BIC): A short-term insurer, acquired in 2003 at
a total cost of US$ 13.0m. The claims ratio has been in the 53%-57% region
over the past couple of years.
Lion Assurance of Uganda: A short term insurance arm acquired in January
2004 and is a subsidiary of Botswana Insurance Company. It has an 8% market
share in Uganda.
Zimnat Life Assurance: The fifth largest life assurance company in Zimbabwe
commanding a market share of 6% by gross premium. The long-term portfolio
currently stands at approximately US$ 10.3m.
Zimnat Lion: A short-term insurer and the second largest insurer by written
gross premiums. TA is to recapitalise the short term insurer after having
bought out the minorities by way of a share swap for TA shares.
Aon: Zimbabwe’s largest insurance broker.
Grand Reinsurance - Purchased the asset/liability book of Swiss Re
(Zimbabwe) and rebranded to GrandRe. Its earnings have been dominated by
investment income (property revaluation and exchange gains).
MANUFACTURING
Sable Chemicals - A 51% owned operation that has an electrolysis plant
(ammonia manufacturing) and an ammonium nitrate (AN) plant. Installed
capacity amounts to 240,000 metric tonnes per annum, however it is currently
operating at below 40%. Due to aged technology the long term plan is coal
gasification and in the interim the importation of ammonia will be scaled up.
Zimbabwe Fertiliser Company (ZFC): An associate in which TA own 22.5%,
the company manufactures and distributes fertiliser. ZFC sells 135,000 tonnes
of fertiliser per annum, though production is dependent on availability of
Ammonium Nitrate from Sable. Capacity utilisation is approximately 40%. The
operations continue to be negatively impacted by the liquidity constraints as
farmers are failing to access finance for the purchase of inputs.
HOTELS
The group owns and operates hotel investments in Zimbabwe & Botswana and
has management contracts in Uganda, Zambia, Malawi and Ghana. Total room
nights amount to 475,230 per annum, with approximately 45% being four-star.
In Zimbabwe TA operates under the Cresta brand, which has a total of 442
rooms. The local hotels break-even occupancy level is 30%. TA owns 40% of
Cresta Marakanelo (Botswana), which owns and operates eight hotels and
lodges in Botswana mostly in urban areas. Cresta Marakanelo is listed on the
Botswana Stock Exchange.
Overview of FY 2012 results
TA reported an improved operating result to record an attributable profit of
US$ 4.6m from a loss of US$ 6.4m. The turn around was driven by a strong
performance from the external operations and fair value adjustments on
property in Zimbabwe. Revenue contribution was evenly split between
Zimbabwe and external operations. The external operations recorded a
phenomenal 12.2 times growth in operating profits to US$ 3.8m while the
Zimbabwe operations posted a loss of US$ 2.1m, flat on last year. The
investment in PGI was reclassified from associate to a trade investment
following the decision to disinvest and the cancellation of the JV with
BancABC. Sables posted a reduced loss of US$ 0.1m from a loss of US$ 4.2m,
benefiting from a reduced negotiated viable electricity tariff.
TA Shareholding - Jan 2012
Shareholding shares (m) %
1 FMI Investments (Pvt 49.5 30.0%
2 Old Mutual Life Assura 25.6 15.6%
3 Edwards Nominees P/ 17.0 10.3%
4 Remo Nominees P/L 14.7 8.9%
5 L.E.S Nominees (Pvt) 12.7 7.7%
6 Old Mutual Zimbabwe 6.4 3.9%
7 Waughco Nominees P 4.3 2.6%
8 Local Authorities Pens 3.5 2.1%
9 Stanbic Nominees P/L 3.0 1.8%
10 Triedward Investment 2.2 1.3%
TA HOLDINGS LIMITED
INSURANCE
Grand
Reinsurance
Zimnat Life Ass.
100% ‐ Life Assurance
Lion Assurance Uganda
58.3% ‐ Life insurance
Zimnat Asset Mgt
100% ‐ Asset Mgt co.
Botswana Insurance
Co
Zimnat Lion Insurance
100% ‐ Short term insurance
AON (Pvt) Ltd
30.0% ‐ Insurance brokers
HOSPITALITY
Cresta Hospitality
100% ‐ Hospitality and Leisure
Cresta Hotels
100% ‐ Hospitality and
Cresta Marakanelo
40% - Hospitality and Leisure
AGRO-INDUSTRIAL
Sable Chemical
industries
51% F tili f
Zimbabwe Fertilizer.
Co
INVESTMENT
TA INVESTMENTS &
CONSULTANTS ET AL
Cash generation improved with cash generated from operations turning
66

positive. The gearing ratio was slightly up at 5.5% from
5.1%.
The group was streamlined and restructured.
Approximately US$ 1.6m was used for retrenchment
costs for the Zimbabwean operations. Management
stated that the long term solution for the local
fertilizer industry is coal gasification and in the interim
the company will increase the importation of
ammonia. TA’s Botswana operations remain
profitable and in our view, good investments. Local
hotel and insurance operations performances
continue to improve.
Valuation and Recommendation
We believe that there is limited downside at
current levels. Spec Buy.
TA HOLDINGS - 5 YEAR CGR COMPARISON
31 DECEMBER (US$m) 2006 2007 2008 2009 2010 2011 2012F 2013F
Balance sheet
Shareholders' equity 22.1 37.2 27.8 62.6 48.1 51.2 51.3 51.4
Minorities 6.5 11.7 6.3 8.7 10.1 11.4 13.1 15.0
Total shareholders' equity 43.4 70.6 39.2 89.1 77.2 85.5 90.6 96.3
Interest Bearing Debt 4.9 4.5 0.8 3.3 2.4 2.8 2.9 2.9
Current Liabilities 18.5 36.6 40.5 79.2 47.2 50.4 69.6 85.0
Total Liabilities and equity 66.9 111.7 80.5 171.6 126.9 138.8 163.0 184.2
Fixed Assets 8.0 8.9 0.1 15.4 15.4 17.8 20.3 21.8
Investments 45.8 73.0 0.0 75.7 62.1 51.4 56.5 59.3
Cash 5.9 7.9 0.1 13.0 17.1 - - -
Current Assets 13.1 29.8 80.4 80.5 49.4 69.6 86.2 103.1
Total Assets 66.9 111.7 80.5 171.6 126.9 138.8 163.0 184.2
Income Statement
Turnover 37.6 36.9 16.8 41.8 52.2 62.1 77.6 93.1
Pre-interest profit 14.0 15.9 0.9 1.9 0.3 7.3 10.8 11.6
Interest Income (0.7) (0.7) 0.2 (0.3) (0.5) (0.6) (0.4) (0.4)
Associate Profit 0.7 1.1 6.6 (2.1) (4.4) 0.4 (1.8) (1.8)
Pre-tax Profit 14.1 16.4 7.7 (0.5) (4.6) 7.2 8.6 9.4
Taxation 1.9 3.3 2.3 0.9 0.5 0.9 0.9 0.9
Minorities 2.3 2.7 0.0 1.1 1.2 1.7 0.8 0.4
Attributable Income 9.7 10.3 5.3 (2.5) (6.3) 4.6 6.9 8.1
Shares in issue (m)
EPS (USc) 5.9 6.3 3.2 (1.5) (3.8) 2.8 4.2 4.9
DPS (USc) 0.7 0.0 2.9 0.0 0.0 0.0 0.0 0.0
NAV per share (USc) 13.4 22.6 16.9 38.0 29.1 31.0 31.1 31.1
Growth Ratios
Sales growth (%) (34.2) (1.7) (54.6) 149.1 24.8 19.0 25.0 20.0
Pre-interest profit growth (% (12.3) 13.7 (94.4) 107.0 (82.4) 2,145.7 46.9 7.1
Earnings growth (%) 2.5 5.8 (48.4) (147.2) 150.2 (173.7) 48.3 17.1
Margins
Pre-interest margin (%) 37.3 43.2 5.4 4.5 0.6 11.8 13.9 12.4
Interest cover (times) 20.4 22.8 (4.3) 6.8 0.7 12.2 24.9 26.1
Pre-tax profit margin (%) 37.4 44.4 45.8 (1.2) (8.7) 11.6 11.1 10.1
*Note: Historic financials are from Company annual reports
67

EQUITY RESEARCH
ZIMBABWE
A season to re-build
All sharks want a bite of the “value”…
In recent years, we have witnessed Implats going full steam
ahead with its expansion at Zimplats in the face of looming
indigenisation demands. Most analysts (including ourselves)
were of the opinion that Implats was managing this threat
through various agreements that were entered into with
the government of Zimbabwe in yester-years. However,
what seemingly began as a threat is now being executed.
Besides demanding a 51.0% stake in foreign owned mines,
Zimbabwean authorities have also raised taxation and
royalty fees. Simply put, Zimbabwe’s indigenisation
legislations imply that its shareholders (Implats and other
minorities) must reduce their stakes to a combined 49.0%.
• The share price has suffered
Clearly, Zimplats has been tainted by the country’s
political problems. Of course, political actors and the
media can be held accountable here. The share price
has de-rated to about AUD 10.00 from historic highs of
AUD 13.00.
• Uncertainty persists but the stock remains
fundamentally undervalued
We have valued Zimplats using a DCF approach which
yielded a target price of USD 15.00, indicating 46.1%
potential upside. On the other hand, our comparative
analysis shows that Zimplats is trading on a stand-out
mark to market 5.7x 2013 PER. This represents a
significant discount to peers (average of 20.7x). We
are still convinced that Zimplats has the potential to
create material additional value for shareholders in
the long term. BUY.
MINING
BLOOMBERG:ZIM:AU
BUY
Current price (AUD) 10.27
Current price (USD) 10.41
Target price (USD) 15.0
Upside/Downside 46.1%
Liquidity
Market Cap (USDm) 1,120.4
Shares (m) 107.6
Free float (%) 11%
Ave. daily vol ('000) 14.0
Share Price Performance
6 Months (%) 11.40 -9.9%
Relative change (%)* -6.9%
12 Months (%) 12.45 -17.5%
Relative change (%)* -0.8%
*Relative to MSCI Frontier Market Index
Financials (USDm)-FY 30 June 2011 2012F 2013F
Revenue 527.4 515.0 631.5
EBITDA 278.2 253.4 309.0
Attributable earnings 200.4 159.6 197.2
EPS (USD) 1.9 1.5 1.8
DPS (USD) - - -
NAV/share (USD) 6.9 8.7 10.2
Ratios 2011 2012F 2013F
Gearing 5.1% 4.1% 3.5%
RoaA 22.4% 14.7% 15.3%
RoaE 31.4% 19.0% 19.3%
EV/EBITDA (x) 3.1 3.1 2.3
EV/4E oz(USD) 2,351.8 2,102.3 1,531.5
PBV (x) 1.5 1.2 1.0
PER (x) 5.6 7.0 5.7
Earnings Yield 18% 14% 18%
Dividend Yield - - -
EBITDA Margin 52.8% 49.2% 48.9%
Zimplats - volume vs price
20.00
16.00
12.00
8.00
4.00
-
Jul-09 Feb-10 Sep-10 Apr-11 Nov-11
Volume-RHS Price-LHS
300,000
250,000
200,000
150,000
100,000
50,000
-
STRENGTHS
WEAKNESSES
Low gearing of 5.4% enables the group to fund Weak PGM prices directly impact revenues- Eurozone
future expansion projects through debt.
Crisis presents a stumbling block.
Defensive - PGMs core business
Low grade ore (3.4g/ tonne of ore)
Technical & strategic support from parent company,
Impala Platinum eg Refining through Impala Refineries
Shallow depth of ore (100-1,500m max-depth)
The underground mines are operating at full capacity
OPPORTUNITIES
THREATS
Ngezi Phase II and III Expansion Projects
Slump in PGM prices as a result of slow global economic
Increased emerging markets demand for automobiles recovery
may drive PGM prices up.
Indigenisation issues leading to weak share price.
Regulatory environment i.e. APT
Mining rights ownership risks
High electricity tariffs could squeeze margins
Skills flight to neighbouring countries.
Source: IES
68

Nature of business
Zimplats Holdings Limited is a mining group which explores for and
produces platinum group metals (PGMs) in Zimbabwe. The
company's exploration projects include Ngezi South and North,
Hartley Platinum and Selous. It is a company incorporated in
Guernsey, British Isles and is listed on the Australian Stock
Exchange (ASX). Zimplats is 87% owned by Impala Platinum
Holdings (IMP: SJ) of South Africa. It operates from two main sites
(Ngezi and Selous) and employs underground mining techniques
(board and pillar method) to extract PGMs. We note that six metals
(Platinum, Palladium, Gold, Rhodium, Nickel and Lithium)
contribute c99% of total revenues whilst other metals contribute
1.0%.
Group Structure
Zimplats has a vision to be the leading platinum company in
Zimbabwe, producing 1.0m platinum oz per annum. In line with its
vision the company has embarked on a phased expansion drive to
ramp up production levels. For example, the Phase II project which
is currently underway is the second stage in a series of planned
expansions to grow the business.
Zimplats currently has three underground mines
It is worth noting that Zimpats has shifted away from open pit
mining and now employs underground mining through its three
mines (Ngwarati, Rukodzi and Bimha Mine). Ngwarati and Rukodzi
Mine have a combined capacity in the region of 2.2mtpa whereas
the new Bimha Mine has a capacity of around 2.0mtpa. This implies
that the group currently has an estimated capacity of 4.2m tonnes
of ore per annum. However, the Phase II expansion project is
expected to add another 2.0mtpa through the Mupfuti Mine (Portal
3).
Zimplats also operates two concentrators at Ngezi and the Selous
Metallurgical Complex (SMC) with a combined capacity of 4.2mtpa.
The concentrators are currently operating at full capacity.
Furthermore, Zimplats also has a smelter at the SMC with the
capacity to process 6.2mtpa of concentrate.
Refining is done through parent company’s Impala Refinery
Services (IRS). Of the 4.2m tonnes of ore that is mined, c3.0%
(127,000 tonnes) is the concentrate. This gives about 7,500 tonnes
of white matte that is then exported to South Africa to a Base
Metal Refinery (Impala Refinery Services). Zimplats receives
approximately 90% of the value of PGMs and 80% of the value of
base metals from IRS. Management has indicated that the group is
currently evaluating the possibility of commissioning a refinery.
Overview of Q3 2011 results
Improved quarterly performance
Zimplats recently issued its Q3 2012 financial results showing 32%
q-o-q revenue growth to US$ 28.0m. However, revenues were down
2.0% y-o-y. We attribute the surge in quarterly earnings to
improved metal prices compared to Q2 2012.
Zimplats: Operational Indicators
1,800
1,600
1,400
1,213
1,200
1,000
878
800
644
600
400
200
1,555
630
1,169
1,432
1,395
3.50
3.45
3.40
3.35
3.30
3.25
3.20
3.15
3.10
Mining production was adversely affected by illegal industrial
actions
An industrial action at Zimplats led to a loss of two and a half
production shifts during Q3 2012. As a result, a tonne mined at
1,125,000 was 1.0% below Q2 2012, although it was up 6.0% y-o-y.
The head grade at 3.33g/t was satisfactory at 1.0% above Q2 2012.
Tonnes of ore milled at 1,069,000 were 4.0% lower than Q2 2012
-
2005 2006 2007 2008 2009 2010 2011 2012F
Gross revenue per 4E oz (USD) Cash cost per 4E oz (USD) Ore head grade (g/t)
Source: IAS/Company Reports
3.05
69

(up 6.0% y-o-y) owing to scheduled major plant
maintenance shutdowns. Overall, production dropped by
2.0% to 90,557oz q-o-q (up 8.0% y-o-y) on the back of
illegal strikes and power outages which affected
operations at the mine's platinum matte furnace.
An increase in cash costs
Operating costs surged 18.0% y-o-y to US$ 76.4m from US$
64.9m in Q3:2011. We note that the cost performance for
Q3 2012 was worse than the same period last year due to
significant increases in electricity and employment costs.
Furthermore, the company’s local spend (including
payments to government and related institutions)
increased by 6.0% to 69% of total payments in Q3 2012.
Consequently, cash cost of production per 4E oz was 1.0%
higher than Q2 2012 and 12.0% higher that Q3 2012,
driven mainly by lower 4E production. Overall, operating
profit for the quarter amounted to US$ 51.9m.
Outlook
Strong commodity prices to boost cash flows
While platinum in particular remains exposed to downside
risks related to economic issues in the euro zone, we
remain bullish on the long term outlook for PGMs as
demand is likely to be dominated by the expected
commodity requirements stemming from projected
economic growth in China, India and importantly the N-11
(Next 11 emerging economies). Furthermore, a rise in
investor appetite for precious metals should support
platinum and palladium prices. We expect platinum prices
to trade in a range of US$ 1,470/ oz ounce to US$
1,770/oz this year, and palladium to trade between US$
575/oz to USD775/oz. This compares with a 2011 trading
range of US$ 1,350/oz to US$ 1,890/oz in platinum and
US$ 549/oz to US$ 858/oz in palladium.
Underlying fundamentals in favor of palladium
In 2011, platinum's surplus eased 12.5% to 735,000z, as a
7.0% increase in global fabrication demand outweighed a
near 5.0% rise in global platinum supply. Meanwhile,
palladium's supply shortfall dropped by almost 50% in
2011, with the market recording a 313,000oz deficit,
compared with a shortfall of 587,000oz the previous year.
We are therefore seeing gross deficits on palladium versus
surpluses and growing stocks of platinum. However, we
think investor sentiment is unlikely to swing dramatically
enough in palladium's favor in 2012 to warrant a closer
proximity between the two metal's prices.
Despite the noise on indigenisation issues, strong
organic growth is likely to continue beyond the
near-term
Zimplats boasts a +200moz (4E) minerals inventory
and is capable of growing to at least 1.0moz Pt pa in
the longer-term. The group is in the midst of its
Phase II expansion project that will see production
move from at least 180koz Pt p.a. to at least 270k oz
p.a.. Nonetheless, we believe that continued
investment in this type of infrastructure requires a
resolution of issues such as indigenisation and
assurance of stability thereafter. Clarity regarding
security of tenure is also a pre-requisite in our view,
to any form of material mining investment, in any
jurisdiction.
In line with the company’s production increase
project, we expect total ore mined in FY 2013 to be
in the region of 4.6m tonnes. Applying a conservative
selling price of US$ 1,409/4E oz on our projected 4E
matte volume of 448,104oz would imply revenues of
US$ 631.5m in FY 2013. Based on these estimates, we
project after tax earnings to be around US$ 197.2m.
out of South Africa is likely to propel PGM prices.
Valuation and Recommendation
We have valued Zimplats using a DCF valuation
approach. Our model assumes that mined tonnage
will increase to about 6.0m tonnes by FY 2015 as the
Phase II expansion project reaches completion. Our
model also assumes that Phase III will kick in soon
after and mined tonnage will increase to c8.4m by FY
2019. We have derived a WACC of 20.0% and applied
a country risk premium of Zimbabwe of 15.0%.
Furthermore, our model places a 60.3% weighting on
the terminal value (TV) given the massive minerals
inventory of >200moz (4E).
On the other hand, our comparative analysis shows
that Zimplats is trading on a stand out mark to
market 5.7x 2013 PER (based on our estimates). This
represents a significant discount to peers (average of
20.7x). We think Zimplats has the potential to create
material additional value for shareholders. The
share price has taken a knock on indigenisation
concerns. Our valuation methodology yielded a
target price of US$ 15.00, indicating 46.1% potential
upside. BUY.
70

ZIMPLATS- 5 YEAR CAGR COMPARISON
30 JUNE (USDm) 2006 2007 2008 2009 2010 2011 2012F 2013F 5yr CAGR
Income Statement (USDm)
Turnover 162.4 236.0 294.3 120.3 404.0 527.4 515.0 631.5 27%
Platinum 84,755 102,253 153,868 81,807 233,929 284,991 298,217 365,684 27%
Paladium 19,186 23,771 28,690 12,995 53,658 98,347 172,697 211,767 39%
Gold 4,759 6,071 8,159 8,179 19,902 26,636 100,009 122,634 41%
Rhodium 28,774 42,474 63,245 (1,985) 33,385 30,030 57,915 71,017 1%
Nickel 19,559 52,655 31,509 14,835 48,418 66,135 33,539 41,126 28%
Other 5,413 8,743 8,786 4,480 14,661 21,215 19,422 23,816 31%
Gross Profit 73.8 138.2 172.4 14.9 232.0 323.1 293.5 353.6 34%
Profit/(loss) before tax 57.3 117.4 145.5 (26.0) 166.6 236.1 220.2 272.0 33%
Taxation (9.5) (17.8) (21.1) 1.0 (44.5) (35.7) (60.5) (74.8) 30%
Profit/(loss) after tax 47.7 99.6 124.4 (25.0) 122.1 200.4 159.6 197.2 33%
Attributable to minority interests - - - - - - - -
Profit/(loss) attributable to shareholders 47.7 99.6 124.4 (25.0) 122.1 200.4 159.6 197.2 33%
Balance Sheet (USDm)
Assets
Non Current Assets 188.2 228.6 371.6 529.9 592.1 681.9 831.2 926.9 29%
Current assets 108.1 176.8 227.0 120.4 220.7 293.5 366.8 458.5 22%
Total Assets 296.2 405.5 598.5 650.3 812.8 975.4 1,198.1 1,385.4 27%
Capital and reserves 230.6 329.4 442.7 415.2 539.0 739.4 939.8 1,100.7 26%
Non-current liabilities 31.2 34.0 108.3 150.6 183.8 142.8 146.5 150.5 36%
Current liabilities 34.5 42.1 47.5 84.5 90.0 93.2 111.8 134.2 22%
Total Equity and Liabilities 296.2 405.5 598.5 650.3 812.8 975.4 1,198.1 1,385.4 27%
Ratios
EPS (USD) 0.4 0.9 1.2 (0.2) 1.1 1.9 1.5 1.8
NAV (USD) 2.1 3.1 4.1 3.9 5.0 6.9 8.7 10.2
Gearing 1.0% 0.0% 12.9% 23.0% 19.6% 5.1% 4.1% 3.5%
RoaA 18.6% 28.4% 24.8% -4.0% 16.7% 22.4% 14.7% 15.3%
RoaE 23.0% 35.6% 32.2% -5.8% 25.6% 31.4% 19.0% 19.3%
EV/EBITDA 15.5 7.0 5.6 - 5.1 3.1 3.1 2.3
EV/4E oz 5,491 4,848 5,041 5,749 2,873 2,352 2,102 1,531
Current Ratio 3.14 4.20 4.78 1.43 2.45 3.15 3.28 3.42
DPS - - - - - - - -
Dividend Yield - - - - - - - -
Margins
OP Margin 35.1% 48.6% 49.4% -20.7% 42.8% 46.4% 43.2% 43.4%
PBT Margin 35.2% 49.8% 49.5% -21.6% 41.2% 44.8% 42.8% 43.1%
PAT Margin 29.4% 42.2% 42.3% -20.8% 30.2% 38.0% 31.0% 31.2%
EBITDA Margin 40.4% 57.3% 57.6% -3.0% 48.6% 52.8% 49.2% 48.9%
71

Contacts
General
Sean Gammon
Director
Direct +263 4 791 874
Moblie +263 772 205 937
Email
sean.gammon@imara.co
Sales Trading
Tino Kambasha
Head
Direct +263 4 791 593
Mobile +263 772 572 110
Email
tino.kambasha@imara.co
Dealing
Thedias Kasaira
Dave Markham
Director
Dealer
Direct +263 4 792 064 Direct +263 4 792 064
Mobile +263 772 600 562 Mobile +263 772 924 269
Email thedias.kasaira@imara.co Email dave.markham@imara.co
Sebastian Gumbo
Dealer
Direct +263 4 792 064
Mobile +263 772 600 323
Email
sebastian.gumbo@imara.co
Analysts
Tel +263 4 700 000/
+263 4 790 403
Addmore Chakurira +263 772 265 454
Email
addmore.chakurira@imara.co
Batanai Matsika +263 772 889 556
Email
batanai.matsika@imara.co
Nontando Sibanda-Zunga +263 772 772 755
Email
nontando.zunga@imara.co
72

Notes
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estimates expressed in this report are (unless otherwise indicated) entirely those of Imara as of the date of this report only and are subject to change without notice.
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73