The year 2020 was one to forget for most companies with regard to earnings. Covid-19 happened; a Black Swan event that very few risk managers around the globe had dared to put on their risk registers. This underperformance in earnings would in turn register on stock exchanges where these companies are listed. Out of 17 most tracked stock exchanges on the African continent, only 5 registered positive performance with the remaining 12 all in the red. The LUSE All Share index plummeted by 8.26% for the year.
The LUSE All share index would open on 4264.51 on 2nd January 2020 in its maiden trading for the year and it would gradually fall overtime as a smooth curve to a bottom of 3809.22 recorded in October 2020, a 10.6% fall at this particular point. It would regain some losses in November and December and eventually close at 3912.33 capping a very challenging year with a 8.26% dive. To put this into context; investment and portfolio managers using a passive investment strategy with the LUSE index as a benchmark lost 8.3 ngwee on every kwacha invested on average. This also applies to mutual funds, unit trusts and other investment vehicles who invested in the broad index trying to replicate the returns of the market.
BLAME IT ON CORONA?
It’s absolutely unfair to heap the entire blame of the underperformance on Covid-19 especially in the Zambian case. This descent started all the way from 2019 when the country recorded the lowest growth rate in almost two decades at 2.0%. The LUSE All Share index lost 16.3% in 2019. The country grappled with an energy crisis, a depreciating kwacha and unsustainable debt levels which has since culminated in a default on the euro bonds. These factors were enough blows to unleash cracks in the foundation and walls of the country’s economy and it was all too easy for Covid-19 to give the knock-out punch to an already ailing economy.
THE ZAFFICO DEBUT
Zaffico, the leading producer and supplier of wood and timber products would make a maiden debut on the public markets with the only IPO of the year. It raised over K329 million and started trading on the LUSE at a price of K2.13 per share. The share price would remain static for most of the year until December 2020 when it lost 47 basis points (0.47%) and closed the year at K2.12 per share. The Zaffico share hangover is not only a victim of a sluggish market but also an underwriting miscalculation, in the writer’s view.
Debuting at a P/E of 10.92, it made the stock relatively expensive considering its profile. However, the challenge could have been due to the absence of comparable firms in the same industry and difficulties in forecasting revenues in a cyclical industry. For the half year, the company announced that the earnings per share (EPS) would be 64% lower than at the same point in 2019 due to delays in harvesting and other challenges posed by Covid-19. The P/E for the 2020 financial year is projected at 12.1 which will send a loud message to management on the need to increase revenues and inevitably profitability; failure to do so might highly result in a one way street for the stock; down south.
ZAMBEEF BOUNCES BACK
Zambeef is the largest vertically integrated food production, processing and retailing brand in Zambia. After a horror show in 2019 in which the stock shed 70% of value, the company has bounced back with a strong performance in 2020 amidst a challenging environment. The stock is up 22% to K1.10 from a low of K0.90 after investors priced in the firm’s changes in the C-suite, dismantling of dollar denominated debt, stable cash flows and its long run ability to make money. Needless to say, investors who invested at the top of the market are still in the red and it’s a long road to recovery for the food giant given the current macroeconomic environment.
BIG BANK IN SMALL DIP, RECOVERY IN SIGHT!
Zanaco is one of the leading banks in Zambia and has seen tremendous growth in recent years. The share price opened the year at K0.50 and hit an all-time low of K0.38 in November 2020. It would regain some losses in the same month to close the year at K0.47 translating into a 6% dip for the year. Word on the financial street is that some outgoing executives liquidated their stock after major changes in the c-suite.
Mukwandi Chibesakunda, a seasoned banker with an excellent track record took over from Henk Mulder who left the podium with the audience clapping with a performance for the history books. His two generals and a core part of the dream team, Lishala Situmbeko and Hamish Chipungu, chief commercial officer and Chief Risk Officer respectively, left a month earlier in November, 2020. The bank announced strong earnings as at 3Q2020 and record 3Q2020 revenues of K1.6 billion and with a projected P/E of 1.9 for the year, a rebound in the stock is expected.
STILL HERE FOR GOOD
The Standard Chartered stock price has been on a downward trajectory since 2018. After hitting a peak K2.80 per share in early March, 2018, it has been on the decline since then opening 2020 at K1.63 and closing at K1.40 as at December. This translates into a 49.5% drop since January 2018 and a 14.1% fall for the 2020 financial year.
The Bank has had quite a busy 2020 almost completing its restructuring process into a very lean efficient machine by closing down some branches and investing in digital channels. The bank hopes to leverage digital capabilities to build a world class digital bank to marvel at with very low margin costs. To the astute investor, this means increased profitability in the medium to long term. With the bank having recently shifted into new state of the art headquarters in December, 2020; a bet that they are still here for good is not so audacious after all!
A YEAR TO FORGET FOR EMBATTLED CEC PLC
Embattled is just the right term to describe the whirlwind of challenges that the energy company has gone through in the 2020 financial year. After hitting a high of K1.7 per share in late February 2019, a decline would ensue in early March, 2019. The stock fell sharply after a standoff with KCM over massive $150 million debt owed to it and the street was rife with rumours that government was planning to make a move on KCM. The government would eventually appoint a liquidator for the mine in May, 2019.
The stock price would hit an all-time low of K0.70 per share in July 2020 translating into 59% drop. CEC’s problem was not only fragile macroeconomic environment and Covid-19, but also shrewd political plays in the corridors of power in Lusaka.
The Bulk Supply Agreement it had with government expired on 31st March 2020 after government drove a hard bargain accusing CEC of getting energy on the cheap and supplying ‘big capital’ (mines) which had the ability to pay. They were further blows for CEC when on 29th May, 2020 government issued a statutory instrument No 57 declaring CEC transmission and distribution infrastructure as common carrier. The stock price went into a tailspin losing 30% in two months and hitting rock bottom at K0.70 in July, 2020. CEC has since sued the state in the High Court for the ‘common carrier’ decision.
There has also been some light at the end of the tunnel with regard to the massive debt outlay KCM owes CEC of $150 million. CEC chief financial officer, Mutale Mukuka, in interviews to the media has been hopeful that a lasting solution with debtor KCM will soon be on the table. All this has been priced in and the stock recovered some losses closing the year at K1.10 per share, translating into a modest 12% dive for the 2020 financial year.
REDEMPTION IN 2021?
The LUSE All Share index will have its first trading session on Monday, 4th January, for the year 2021 and all signs point to another challenging year in equities. A more deadly variant of Covid-19 has been reported in what health officials are calling the second wave. The country is heading to the polls and much of the first and second quarter might be lost to politicking. Macroeconomic fundamentals are still very fragile with inflation threatening to spiral out of control and GDP growth is projected at a meagre 1.1% for the year.
For most observers, it’s yet another year of hoping for the best. But for boardroom executives, Hope is not a strategy and they must get down to formulating proven business and management strategies on how their firms will swim successfully against the tide, more so for listed companies who are always in the spotlight.
Katandula Chitika is an Economist and Writer. The views expressed in this article are solely mine and do not represent the views of my employer, church and any other organization I am affiliated to. Contact me on email@example.com