Not so doubtful debtors– ZAMEFA 2017 Review
Manufacturing, ZAMEFA Plc

On the 12th of December 2017, Rosetta Chabala (Managing Director) will be facing shareholders of ZAMEFA at their annual general meeting. Judging by the numbers her team has delivered for 2017, we believe there will be smiles on shareholders faces when the board proposes a dividend for the third year in a row.

However, it was not smooth sailing this year. At the start of the year, FiZ had made contact with the company on their 2017 prospects and the contraction of liquidity on the market posed a clear and present danger to their income statement on receivables (money owed). However, a quick glance at the summarized financials published on 20 November 2017 through SENS Announcement, shows a surge in revenue (45.59%) in the current financial year. Although cost of sales was up by 46%, the firm was able to post a bottom line that was 178% higher than the previous year. Why? Better than expected collection from doubtful debtors.

Although the operating environment was bearish (characterized by tight liquidity) the firm was able to grow their asset base by 24.7%. This yielded an increase on return on non-current assets (their equipment) from 3% last year, to 50%. Rosetta’s team is clearly sweating the company’s assets. Furthermore, there is evidence they improved their liquidity levels by coming from a cash tight 2016 to being able to cover their currently liabilities by 1.55 times.  However, of note is the new debt ($20 million) that company has now acquired from its parent company. Sadly, at the time of analysis, further details were not available regarding the nature of the loan but we expect it to be on a concessional basis. In addition, we believe there resource and capability plans as signaled in the increase in fixed assets. Consequently, gearing now goes from zero to 203%. But investors need not lose sleep over this because of the aforementioned reason (big brother is watching over).

From a shareholder perspective, 20% and 25% for return on capital employed (RoCE) and return on equity (RoE) are quite impressive compared to the 6% and 12% scored in the previous year. However, with subtle increase in margin analysis of the profitability indicators will indicate that there are forces that are threatening profitability. Although barriers of entry are high for this industry, scale competitors from China easily threaten the dominance of any incumbent as they purse market share (price wars). Therefore, externally, prudent trade legislation that offer equal opportunities to local manufactures are key

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