eBusiness Weekly
Tawanda Musarurwa
Delta Corporation’s revenues are projected to jump by at least 25 percent to $715 million for the 2019 financial year as the group continues to leverage on its ability to evolve and adapt to market trends, analysts say. Full-year earnings are also expected to rise to $110 million.
Although foreign currency shortages are expected to remain a point of disquiet for the giant beverages manufacturer, strong demand for its products and conceivable strategic price adjustments could come in as strong counter measures.
And perhaps more significantly, analysts at Akribos Research Services advance that Delta has healthy margins, which makes it a winning stock.
“Using a conservative revenue growth estimate of 25 percent (versus the 30 percent organic growth seen in H1 2019), we estimate revenues of $715 million for 2019.
Applying a profit after tax (PAT) Margin of 15,5 percent (FY18), we anticipate that earnings will be around $110 million, implying a demanding PE (+1) of 34x.
“Potential upside in Delta’s financial performance stems from price adjustments and strong margin defence, while the conclusion of the termination of the bottling agreement with Coca- Cola presents downside risk,” said the analysts in a recent paper.
According to Investopedia — the world’s leading online source of financial content, “strong margins reflect both good front-end operations, as in a product that is attractive enough to customers that they will pay up for it, and good back-end performance, in that the company can produce and distribute the product profitability.”
“In spite of the uncertain economic environment, we believe Delta Corporation offers a good investment thesis: a well-managed market leader with a diversified product portfolio which cuts across all income groups.”
What Delta Corporation also has going for it, is an ‘appealing market’ so to speak.
In the six months to September 30, 2018, the beverages manufacturer outlined impressive growth in volumes of lager and sorghum beer, which grew by 54 and two percent respectively whilst sparkling beverages grew by three percent.
Delta’s associate African Distillers also performed satisfactorily in terms of volumes and financial performance while another associate Schweppes witnessed growth in volumes.
All things being equal, a good business should be premise on offering a differentiated product, which customers are willing to pay for over and over again.
An impressive H1 set
The group’s half-year results to September 30, 2018 showed a 36,5 percent top-line growth despite the broader forex challenges.
Revenue steadily rose by 37 percent to $341,4 million in the period under review from $250 million recorded previously whereas operating income was $28 million higher than $38 million recorded in the same comparable period last year which was a 73 percent growth.
The bottom line was driven by a 58 percent prior comparable period jump in larger sales with a corresponding 54 percent rise in volumes.
A hefty price for a share of Delta?
For investors, valuation is very critical — the so-called “buying the ‘right’ stock at the “right” price.
But the Zimbabwe Stock Exchange (ZSE) having gone through a whirlwind phase over the last couple of years with the bourse last month hitting a market capitalization of over $16 billion as they sought out a safe haven, the price of some linchpin equities may have become a little over-inflated.
“On the whole, the (Delta) stock is not cheap at a current rolling PE of 32,6x and a PBV of 7,16x (higher than the industry average).
However, Delta Corporation is well positioned as the company is currently benefiting from high demand. As we noted when the H1 2019 trading update was published, Delta has maintained stable prices since 2013, indicating a winning product mix strategy,” said the analysts at Akribos.
“As a bell-weather stock which provides a solid route to gaining direct exposure to the country’s consumer story, we place a ‘Hold’ recommendation on the counter.”
