eBusiness Weekly
Tawanda Musarurwa
With most listed companies likely to take a hit from the indefinite suspension of Statutory Instrument 122 of 2017, analysts foresee Axia Corporation Limited accruing significant benefits from the policy shift.
SI-122 is a trade policy restricting the importation of various products.
The Axia group operates within the speciality retail and distribution sector with dominant businesses across retail of household goods and appliances (TV Sales and Home), retail of automotive goods (Transerv) and distribution of fast moving consumer goods (Distribution Group Africa Zimbabwe).
Market analysts at Akribos Research Services say Axia will likely leverage on its Distribution Group Africa (DGA) subsidiary — a major contributor to the parent company’s top-line — in view of the lifting of SI-122.
DGA Zimbabwe is a large and successful distribution and logistics concern, with operations in Zimbabwe, Zambia and Malawi, with its central areas of expertise lying in inbound clearing and bonded warehousing, ambient and chilled/frozen warehousing, logistics, marketing, sales and merchandising services.
Although acknowledging that the biggest losers in terms of the policy suspension could be the manufacturing sector (and listing several firms that are likely to take a hit), the analysts highlight the fact that DGA Zimbabwe will no longer need permits to bring in merchandise, a development that will expedite operations and enhance efficiencies.
“In our view, the lifting of the import ban will negatively affect performance of Zimbabwe Stock Exchange-listed companies, as this will lead to an influx of cheap imports (in US dollar terms), making it difficult for local companies to compete.
“The amendment of SI122 will likely affect performance of Medtech (body creams), Meikles unit Tingamira (bottled water), Lafarge & PPC (cement), Dairibord (cheese, ice cream, juice blends, mayonnaise, peanut butter, salad creams, yoghurts), National Foods’s Pure Oil Industries (cooking oil) and Nationals’ Foods (wheat flour), Hippo Valley and Star Africa (sugar) as well as Innscor’s Profeeds (stock feeds).
“On the other hand, this new development (notwithstanding the forex shortages) will likely benefit Axia’s (current PER 21x) Distribution Group Africa (DGA), as they no longer require permits to bring in merchandise.
“DGA remains the major contributor to Axia’s top line (we estimate 60 percent contribution) and we are of the view that this business will thrive under the current circumstances.
During the year ended June 2018, DGA Zimbabwe recorded about $175 million in revenue compared to circa $99 million in 2017, and we estimate that they have been booking average revenue of $18 million each month since the start of the new financial year.
We anticipate this figure will rise going forward, as the group takes advantage of the current situation to stock up!
“Margins may be slightly depressed but we anticipate the company (like many others in FMCG/retail) will be able to pass on the majority of higher costs to the consumer through price increases,” said Akribos in a research note.
The Axia group’s full year results to June 2018 showed a 31 percent top-line growth to $275,93 million on the back of growth across all operating units (TV Sales & Home +36 percent, DGA Zimbabwe +17 percent and DGA region +29 percent).
Earnings before interest, tax, depreciation and amortization (EBITDA) rose 46 percent to $25,81 million buoyed by a 59 percent and 55 percent rise in EBITDA at TV Sales & Home and DGA Zimbabwe respectively.
