It may have been 6 months ago that Real Estates Investment Zambia Plc posted its half year performance on SENS, but it is important for us to prepare for the final year results as the real estate Group closed off what was a challenging year for companies in their sector.
A glance at half year saw the Group’s revenue reduce from K36.5 million to K28 million from the previous year’s first 6 months. This led to a reduction in operation income which saw results reduce to K19.8 million from K29.3 million. The half year result on profitability saw the Group’s earnings come in at 50% in comparison to the previous year’s half year performance.
According to the Group’s half year statement on SENS, the reduction in profitability is primarily attributable to the impact of rental remissions granted to tenants at Arcades shopping mall as a goodwill and gratuitous gesture for staying committed to Arcades during the redevelopment period. In their statement, the Group also reminded the market that a good portion of the car park was hoarded off and some shops closed during the redevelopment
The costs to the Group remained relatively contained save for the fact that inflationary pressures were weighing in on the company.
The headline earnings per share (EPS) moved from 0.48 at half year 2017 to 0.32 in 2018. Forward EPS estimates from Financial Insight project the end of year EPS will be in the region of 0.64 which would bring the forecast bottom-line to approximately K 36.1 million. Note that this is an analyst forecast hence it may come in higher or lower depending on the economics of Q3 and Q4.
A closer look at the interim cash flow statement paints a picture of a Group struggling at half year on net cash from operating activities. At half year, K 4.8 million compared to K18.1 million from the previous year was their position. However, it is clear the company is making substantial investments as activities saw a 750% increase in the amount spent on investment activities which rose to K 79 million as at half year. In addition, the company continues to finance its activities organically as there was no movement in cash from financing activities.
From a strategic point, the Sydney Popota led management team’s move to increase leasable space at its Arcades Shopping Mall will come under scrutiny come end of 2019. At half year 2018, the construction works had been concluded with tenants taking up leasable space in the newly refurbished mall. According to the Group, the completion of redevelopment works and letting out of the new space will positively impact the Group’s earnings for the remainder of the financial year and beyond.
With the conclusion of the Southview Park purchase, a housing complex situated in Lilayi area, the Group expects to increase its margins based on the premium product offering that comes with an upmarket residential community. This acquisition is in line with the Group’s strategy of sectorial diversification.
Another property that is expected to make an appearance in the 2018 annual report will be Parkway Industrial Park which the group was hoping to commence pre-leasing following its construction.
At present, we expect the Directors of the company will be reviewing the results of the 2018 full year. We also anticipate the conversation of a dividend will be tabled for approval by Shareholders at the Annual General Meeting that will be held before 31 March 2019.