Zimbabwe Equity Strategy-2011 020311

Zimbabwe Strategy
Equity Research
02 March 2011
Zimbabwe Equity Strategy 2011

‘Bullish macro story amidst potentially turbulent waters’
Equity Research
02 March 2011
Zimbabwe
Zimbabwe Strategy
Equity Research
02 March 2011
Zimbabwe Equity Strategy 2011

Bullish macro story amidst potentially turbulent waters
Agriculture and mining sector propel growth

Zimbabwe achieved economic growth of 8.1% in 2010 to $6.1bn (nominal GDP) on the back of significant growth in the
agriculture and mining sectors. Mining, which grew by 47% in 2010, is forecasted to register 44% growth in 2011, as gold,
platinum and coal are forecasted to grow 70%, 72% and 50% respectively. Mining receipts are also expected to increase on
the back of a firm outlook on resource prices in 2011.The agriculture sector, expected to grow 19.3%, will also help to bolster
the economy, with tobacco, cotton and sugar production output expected to increase 63%, 15% and 29% respectively.
Increasing growth in agriculture output will also benefit select manufacturing subsectors, including foodstuffs, drink, tobacco
and beverages subsectors. Consequently we expect GDP growth in excess of 9.3% in 2011 owing to the above factors. A
key macro-economic challenge yet to be addressed is the country’s external debt, which now stands at $6.3bn (>100% of
GDP). While political uncertainties linger, particularly as regards the timing of the next election, we believe growth will remain
robust in 2011.
Resilient Foreign Portfolio investment amidst weak FDI

As a result of political and regulatory uncertainties, foreign investors continue to shy away from Foreign Direct Investment into
the country, with the country seeing lower growth in FDI than Sub-Saharan peers experiencing lower economic growth tan
Zimbabwe. The country’s FDI fell 19% in 2010, compared to a 0% change in FDI into sub-Saharan peers. The lack of FDI, we
believe, is limiting economic growth as most industries in the country are in need of recapitalization and domestic financing
remains minimal, short term and expensive. Portfolio investment, however, has remained resilient, with the country seeing
42% growth in foreign net portfolio investments in 2010 compared to 25% growth in Sub-Saharan Africa, despite uncertainty
over the indigenization policy. We believe this trend will continue this year as foreign investors become more resilient to
certain factors of political risk and instead prioritize the search for value in this market, especially if negative political
developments are avoided.
Lacklustre equities performance in 2010

The ZSE began 2010 with a total market capitalization of $4,2bn compared to an estimated $1bn in February 2009, when the
bourse officially reopened after a 3 month closure from November 2008. Despite estimated GDP growth of 8.1% in 2010
driven by significant growth in the real sector, total market capitalization only grew by 1.9% to close the year 2010 at $4,3bn
The Industrial Index declined 0.5% y-o-y from 152 (FY09) to 151.3 (FY10). The Mining Index, however, did record growth of
8% y-o-y from 185.5 (FY09) to 200.4 (FY10). This poor performance in both the indices and total market capitalization can be
attributed to the official gazetting of the Indigenisation Regulations in March 2010. Total market turnover fell from a recorded
$414mn in 2009 to $392mn in 2010 down 5%, due to the loss of momentum created by the IEEA. The ZSE only began to
recover from the negative sentiment that dominated the greater part of the year in the last quarter of 2010, as the market
became oversold and foreign funds returned to cherry pick bargains in selected stocks. From its lowest recorded point of
$3,6bn in July 2010, the market recovered by 19% to close the year at $4,3bn.
Our base-case target market capitalization for 2011 is $5.1bn, implying 18% upside
We are forecasting a target market capitalisation of $5.1bn for FY11 implying upside of 18%. The downside risk to our view
remains largely beholden to political developments. We expect the market to largely trade sideways in 1H11 as investors
search for political certainty. We are, however, bullish on the second half, and expect the market to rise on the back of
improved corporate earnings. Our forecast is based on a weighted valuation of 12 counters representing 67% of the ZSE’s
total market capitalisation and 62% of daily liquidity in 2010. We have assumed that their weightings in terms of market
capitalisation remain similar in 2011. We initiate coverage on a further 11 stocks. Our recommendations are as follows:
AICO (BUY, TP $0.22), CBZ (BUY, TP $0.26), DZLH (BUY, TP $0.40), Delta (BUY, TP $0.87), Innscor (BUY, TP $0.77),
Lafarge (BUY, TP $1.26), Meikles (HOLD, TP $0.48), NMB (HOLD, TP $0.013), OK Zimbabwe (HOLD, TP $0.087), Pearl
Properties (BUY, TP $0.049), Seedco (HOLD, TP $1.45).
Disclaimer Research Team Contact Details

This document has been prepared by IH Securities to provide background information Dzika Danha IH Securities (Pvt) Ltd
about the securities and (or) markets mentioned herein, the forecasts, opinions and +263(772) 573 083 4 Fleetwood Road
expectations are entirely those of IH Securities. This document was prepared with the ddanha@ih-group.com Alexander Park
utmost due care and consideration for accuracy and factual information; the forecasts, Harare
opinions and expectations are deemed to be fair and reasonable. However there can be Christine Mhongo Zimbabwe
no assurance that future results or events will be consistent with any such forecasts, +263(774) 171 262
opinions and expectations. Therefore the authors will not incur any liability for any loss cmhongo@ihsecurities.com Tel +263 (4)
arising from any use of this document or its contents or otherwise arising in connection 745133/139
therewith. Neither will the sources of information or any other related parties be held Lloyd Mlotshwa Fax +263 (4) 745879
responsible for any form of action that is taken as a result of the proliferation of this +263(772) 936 677
document. lmlotshwa@ihsecurities.com
Strategy
Equity Research
Contents
Executive Summary 1
Valuation Table 2
Macro-economic Overview 3
Emerging economies to underpin global economic growth 3
Zimbabwe outperforming its Sub-Saharan Africa peers 3
Zimbabwe Economic Outlook 5
Economic growth underpinned by the mining and agricultural sectors 5
Manufacturing Sector continues to face power and liquidity challenges 5
Financial intermediation continues to improve. 6
Benign inflationary pressures expected, upside risks exist 7
Portfolio inflows limiting overall negative BoP 8
The elephant in the room remains politics 8
Equity Strategy 10
Equities perform in a subdued fashion in 2010 10
Sectoral Performance: Retail stocks outperforms market 11
Key Themes in 2011 13
Sectoral Outlook for 2011 15
IH Base-case Target Market Capitalisation 16
Companies 17
AICO Limited 18
CBZ Holdings 19
Dairibord Limited 20
Econet Wireless 21
Innscor Africa 22
Lafarge Cement 23
NMBZ 24
OK Zimbabwe 25
Pearl Properties 26
Seedco Limited 27
Meikles Africa 28
Econet Wireless 29
Strategy
Equity Research
Executive Summary
In this report we serve to highlight our views on the prospects of the Zimbabwe equities market in 2011. On the
macro-economic front, the last few years have seen marked recovery in the country’s economic fortunes with
GDP returning to positive territory following the Lost Decade (1998 to 2008) in which GDP contraction (>40%)
and hyperinflation dominated. 2009 and 2010 saw GDP growth recorded at 5.7% and 8.1% respectively amidst
a begnign inflationary environment; latest inflation figures for Jan’ 11 were recorded at 3.3%. Looking forward to
2011 we anticipate a further consolidation of the gains achieved with GDP growth in excess of 9.3%, to a
nominal $6.64bn; note it is estimated GDP troughed at below $3.75bn in 2008. The main drivers of this growth
are expected to be the mining and agricultural sector, expected to expand by 44% and 19.3% respectively.
Nevertheless challenges abound, amongst which we believe the following are of major concern;
 External debt; amounting to $6.93bn at the end of 2010, representing over 100% of GDP.
 Political uncertainty; the anticipated conclusion of the Government of National Unity (due in Aug
2011 following a six month extension), may hinder FDI inflows. However it is important to note we don’t
anticipate any change in the present dollarization monetary policy in the medium term regardless of
the political dispensation.
 Wage pressures abound, which can only exacerbate Zimbabwe’s uncompetitiveness relative to its
major trading partners, this pressure pervades most sectors of the economy.
 Supply side constraints remain evident as regards the power sector, with the state owned ZESA
struggling to achieve full utilisation of the country’s 1960MW installed capacity.
Our Equity Strategy: 2010 was largely a year to forget for the Zimbabwe Stock Exchange with total market
capitalisation declining 1.9%. Total value traded also declined from $414mn in 2009 to $392mn in 2010. The
poor performance was largely attributed to enactment of the Indigenisation Act in Feb 2010, which served to
dampen foreign sentiment (2010 saw foreigners contribute 46% to value traded on the ZSE. We highlight the
following key drivers for the market in 2011.
 Political developments to drive foreign sentiment. With the growing influence of foreign capital,
equities are increasingly vulnerable to political sentiment. The possibility of elections this year and the
handling of indigenisation will be critical factors in determining the level of volatility in the market.
 Earnings quality Residual contagion from Zimbabwe dollar trading is now completely gone, local
demand is recovering, inputs are improving and inflation is stable. We believe companies will be
punished and rewarded alike on their financial performance.
 Corporate restructuring, 2011 possible crunch time for corporate Zimbabwe. In 2009 and 2010
the common theme for most listed firms was the reconsolidation of operations after the introduction of
the multi currency regime and the normalization of inflation. Going forward we believe the theme has
shifted to focus on recapitalization, restructuring and the alteration of business models, in order to
become competitive, restore working capital cycles, regain lost market share particularly relative to
imports, and re-align capital structures by expunging expensive local debt. We also believe that
management skills are paramount to success within the current operating environment.
 Deepening local financial sector and increased external availability of credit. System deposits in
the local economy grew by 78.57% in 2010 to $2.5bn, with total loans at 2010 at $1.67bn. We forecast
system deposits at YE2011 at $3.2bn, with 70% loan to deposit ratio, implying loans availed in 2011 of
$2.24bn. We expect the trend to continue, thus positively impacting the cost of lending. In addition the
increasing activity of development institutions like PTA Bank and Afrexim Bank in offering cheaper and
longer lines of credit is likely to have positive impact on industry.
With this report we initiate on a further 11 stocks following our recent initiation on Econet (Jan 18). Our universe
of stocks represents 67% of the market capitalization of the ZSE. Our universe trades on a market cap weighted
PER to 2011 and 2012E of 11.4x and 11.2x respectively. We continue to believe that equities hold value on a
selective basis and have derived a base-case target market capitalization of $5.1bn for 2011, representing 18%
upside.
Strategy
Equity Research
Valuation
Table 1: IH Universe Valuation Table

Mkt P/E EV/EBITDA PBV
Indicative
Cap
Target Upside/ 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012E
($mn)
Company Rating price Downside
Financials
CBZ Holdings BUY 127 0.26 41% 15.0x 7.0x 5.2x 1.6x 1.4x 1.1x
NMBZ Limited HOLD 31 0.01 18% 68.6x 13.2x 5.2x 1.4x 1.3x 1.1x
Non-Finanicals
AICO BUY 98 0.22 22% n/a n/a 52.0x 6.0x 4.3x 2.8x 1.2x 1.2x 1.2x
Dairibord Zimbabwe BUY 60 0.40 122% 9.5x 5.7x 4.0x 5.9x 3.9x 2.8x 1.7x 1.4x 1.1x
Delta Corporation BUY 864 0.87 21% 26.8x 16.0x 11.1x 17.2x 8.2x 6.1x 5.2x 4.2x 3.3x
OK Zimbabwe HOLD 75 0.09 14% 60.2x 26.0x 14.2x 15.8x 9.6x 6.1x 4.4x 2.2x 1.9x
Lafarge BUY 72 1.26 40% 11.3x 8.4x 6.5x 8.3x 6.1x 4.6x 3.0x 2.3x 1.8x
Innscor BUY 340 0.77 22% 22.7x 17.0x 13.3x 11.7x 8.3x 6.6x 2.9x 2.6x 2.3x
Pearl Properties BUY 37 0.04 35% 8.6x 3.6x 3.6x 8.3x 7.6x 6.6x 0.5x 0.4x 0.4x
Seedco HOLD 241 1.45 16% 18.8x 16.8x 10.4x 12.2x 10.3x 6.7x 4.1x 3.4x 2.7x
Meikles HOLD 122 0.48 -4% n/a n/a 32.7x n/a 42.7x 7.9x 0.9x 0.9x 0.9x
Econet Wireless BUY 857 6.91 38% 7.6x 6.1x 5.0x 5.5x 4.0x 3.2x 5.3x 3.0x 2.0x
Weighted
2,925 15.9x 11.4x 11.2x 9.1x 7.9x 4.9x 4.2x 3.0x 2.3x
Averages/Totals
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Equity Research
Macro-economic Overview
Emerging economies to underpin global economic growth

After expanding 5% in 2010, the global economy is expected to grow by 4.4% in 2011. Advanced economies
are expected to post growth of 2.5% in 2011 whilst emerging and developing economies, which registered
growth of 7.1% in 2010 and are expected to grow 6.5% in 2011, continue to underpin the global recovery.
Developing Asia continues to see the most rapid growth in emerging markets, having grown 9.3% in 2010 and
expected to grow by a further 8.4% in 2011. Upward pressure on commodities experienced in 2010 is expected
to continue in 2011 as demand, being pushed by emerging markets remains robust and responses in supply
have been sluggish. As a result, the IMF forecasts a 13.4% increase in oil prices, whilst non-oil commodity
prices are forecasted to rise 11% in 2011, with significant risks on the upside for most commodities. Oil has
since reached 2 ½ year highs, as instability in the Middle East and North Africa poses a threat to supplies for
the rest of the year. Higher than expected inflation could therefore be seen across the world, as oil prices rise
higher than expected this year.
Zimbabwe outperforming its Sub-Saharan Africa peers

Sub-Saharan Africa is expected to see robust growth, of 5.5% in 2011, ahead of global economic growth of
4.4%. Oil exporting countries in Sub-Saharan Africa, which grew by 6.5% in 2010, are expected to register
strong growth of 6.3% in 2011 as global demand for the commodity remains robust and supplies come under
threat. Low income countries on the continent will register marginally higher growth, at 6.5% in 2011 as a result
of strong domestic demand, along with growing commodity trade with rapidly expanding Asia. Middle income
economies in Sub-Saharan Africa are expected to continue to register the slowest growth on the continent;
growing only 3.5% in 2011 as high unemployment and subdued confidence have weighed down on economic
growth.
Fig 1: GDP growth: Zimbabwe v. SSA & Economies 2008 to 2012E

15%
10%
Annual GDPgrowth
5%
0%
-5% 2008 2009 2010 2011E 2012E
-10%
-15%
-20%
Emerging & Developing Economies

Sub-Saharan Africa
Zimbabwe
Source: IMF and Ministry of Finance
The continuing growth in Sub-Saharan Africa is expected to spur growing capital inflows in 2011 as investors
search for higher returns outside of developed economies. Private financing inflows into Sub-Saharan Africa,
which were estimated at $50bn in 2010, are expected to grow by at least 10% in 2011, to over $55bn in 2011.
There are, however, significant downside risks to the level of portfolio investment, as well as Foreign Direct
Investment to be received in the region as investors become increasingly risk averse as a result of the political
instability currently being seen in the Middle East and North Africa.
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Figure 2: Private Financing Inflows in SSA from 2007 to 2011E
50
40
30
20
$Bn
10
0
-10 2007 2008 2009 2010 2011
-20 projected
-30
SSA Net ForeignDirect Investment SSA Net Portfolio Investment
Source: IMF
Zimbabwe, whose economy continues to recover from a low base has outperformed growth in both Sub-
Saharan Africa and the average in emerging and developing economies since dollarization of the economy in
2009. With economic growth forecasted at 9.3% in 2011, Zimbabwe is also expected to outperform growth in
both low income African countries and oil producing African countries. Zimbabwe, which is currently registering
higher economic growth than the region is also benefiting from inflows into Sub-Saharan Africa, particulalry in
the form of portfolio investment into the country, which grew 42% in 2010, compared to 25% in Sub-Saharan
Africa.
Figure 3: Zimbabwe y-o-y inflation v. SSA 2009 to 2012E

9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2009 2010 2011E 2012E
Zimbabwe Sub-Saharan Africa
Source: IMF, Ministry of Finance and IH Estimates
Whilst Inflation in Sub-Saharan Africa is currently well contained in most countries, increasing commodity prices
and a weak dollar may see inflation increasing in the region. Zimbabwe, whose economy is highly dependent on
imports will face the same inflationary pressures, brought into the country via imports from other African
countries and the rise in the cost of transporting those goods into the country. We expect inflation in Zimbabwe
to trend towards 4.5% to the end of 2011 v. an SSA average of 6% to 2011.
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Equity Research
Zimbabwe Economic Outlook
Economic growth underpinned by the mining and agricultural sector

After the country achieved economic stability and positive growth in 2009, Zimbabwe continued to consolidate
these gains in 2010, achieving economic growth of 8.1% in 2010 to $6.1bn on the back of growth in most
sectors in the economy. The most significant growth was registered in the agriculture and mining sectors which
registered growth of 33.9% and 47% respectively in 2010. The tourism sector was one of the worst performing
sectors in the economy, registering marginal growth of 0.5% for 2010, as a result of subdued recovery of
tourism arrivals in the country, along with capital limitations delaying refurbishment programs and the growth of
ADRs. Tourism arrivals are estimated to have grown by 10% to 2.2mn in 2010. As a result, bed occupancy
levels, rose only 2% in 2010 to 37%, whilst room occupancy levels are estimated to have improved to 55% from
45% in 2009. The manufacturing sector continued to suffer from a lack of medium term and long term capital,
unreliable utilities, and competition from imports and as a result achieved marginal growth of 2.7% in 2010.
Most subsectors in manufacturing, as a result continued to operate at capacity utilization levels below 40%.
Figure 4: GDP growth by sector 2008 to 2011E Figure 5: Composition of GDP, 2010
1.6
Agriculture
1.4
Production $Bn
1.2 19%
Transport &
1 32% Communication
0.8
Manufacturing
0.6
0.4 14%
Tourism
0.2
0 6% Electricity and
14%
Tourism
Manufacturing
Agriculture
Minining
5% Water
10%
Minining
other
2008 2009 2010 2011E
Source: Ministry of Finance
We expect the Zimbabwean economy to continue to register significant growth in 2011, with the Ministry of
Finance forecasting economic expansion of 9.3% in 2011. The growth expected in 2011 will result from a
buoyant mining sector, expected to register growth of 44% in 2011 through recapitalization and expansion
programs in mining companies that are increasing output from the mines, despite limitations from erratic power
supplies. Gold production is expected to rise 70% to 13000kgs in 2011, whilst platinum production is expected
to register 72% growth to 12,500 kgs and coal is expected to see a 50% increase in production to 3mn tons.
Strengthening commodity prices will also see increasing revenues in the mining sector. Gold, currently trading
at $1,414/oz is expected to cross the $1,500 mark by the end of the year, bolstered by quantitative easing in the
United States. Platinum, currently trading at $1792/oz is expected to remain firm at current levels. The
Agricultural sector, expected to grow 19.3% will also help to bolster the economy. Tobacco output is expected
to increase 63% in 2011 to 175mn kgs on the back of a 54% increase in hectares planted and increasing yields.
Cotton output is expected to rise 15% to 300k tons as the industry responds to record prices in world markets.
Sugar production is expected to rise 29% to 450k with growth driven by Triangle and Hippo Valley Estates.
Manufacturing Sector continues to face power and liquidity challenges

Whilst we expect the manufacturing sector as a whole to remain subdued in 2011, we believe that certain
subsectors in the manufacturing sector are set to see improving capacity utilization and growth. These include
the food-stuffs subsector, the Drinks, Tobacco and Beverages subsector, along with the Wood and Furniture
subsector. We believe that these sectors will be boosted by growing consumer spending in 2011, which will see
greater demand for the goods produced by these subsectors. In addition, we also believe that the Food-stuffs
and the Drinks, Tobacco and Beverages subsectors will also see outputs increasing on the back of increasing
output from the agriculture sector.
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Fig 6: Capacity utilization in Manufacturing Sector
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Food Stuffs Drinks, Wood & Clothing & Paper, Textiles & Overall
Tobacco and Furniture Footwear Printing & Ginning
Beverages Publishing
2009 2010 2011 Projected
Erratic supply of utilities such as electricity and water will continue to constrain the growth of the economy,
especially limiting the manufacturing and mining sectors. The country is estimated to require electricity supply of
2200MW, but has an installed capacity of 1960MW and is currently generating 1400MW. Whilst government
has approved $6.6bn worth of private power projects, with a total estimated power generating capacity of
4400MW, the projects are not expected to reach such levels of production in the short term. Electricity will
therefore remain a significant limiting factor in the growth of the economy, with capacity utilization remaining
low, particularly in the manufacturing sector.
Financial intermediation continues to improve.

The economy is seeing improving financial intermediation, with total deposits growing from $1.4bn in January
2010 to over $2.5bn in December 2010. The loan to deposit ratio, which opened the year at 52.2% had
improved to an average of 65.01% by December 2010. Short term deposits; however, continue to dominate
deposits, with call money estimated at 90% of total deposits in the system. Loans have therefore taken a short
term nature and interest rates have as a result remained restrictive, with annual rates ranging between 12% and
18% annually.
Although increasing depth is being seen in the financial sector of the economy, we expect financing to remain a
key constraint to economic growth in 2011. The Reserve Bank of Zimbabwe, which resumed its function as the
lender of last resort in February 2011, only has access to $7mn, worth less than 1% of total deposits in the
banking sector. We therefore believe the RBZ is not adequately capitalized for the resumption of its duties to
significantly improve confidence in the banking sector, and hence liquidity. We expect deposits to remain largely
short term, with interest rates remaining higher than regional levels. Financial intermediation will therefore
continue to see subdued improvement in 2011 and much needed recapitalization of most sectors of the
economy will see further delays.
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Figure 7: Loan, Deposit growth in $, & Loan deposit ratios 2009 to 2010
4000 90%
3500 80%
3000 70%
60%
2500
50%
2000
40%
1500
30%
1000 20%
500 10%
0 0%
1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
4Q2011
4Q2012
Deposits(LHS) Loans(LHS) Loan to Deposit ratios(RHS)
Source: Ministry of Finance, Reserve Bank of Zimbabwe
Benign inflationary pressures expected, upside risks exist
Figure 8: Annual and Monthly inflation

8.00%
6.00%
4.00%
Inflation
2.00%
0.00%
Jan
April
Jun
Jul
Sept
Oct
Aug
Nov
Dec
Feb
Mar
May
-2.00%
-4.00%
-6.00%
Month on Month Year on Year
As shown in Figure 8, inflation remained stable in 2010, with month-on-month inflation averaging 0.28% a
month and ended the year at 3.2%. Alcoholic beverages, along with non-tradable goods in the inflation basket,
such as housing, health, education and electricity drove inflation in 2010. Tradable goods, however, are likely to
add significantly to inflation pressures this year, on the back of rising oil and food prices in the country, with the
Ministry of Finance forecasting inflation to close the year between 4% and 5%. However, there are risks on the
upside resulting from international pressures on commodities such as food and fuel. In 2010, the country
imported a total of $3.6bn worth of goods, equivalent to 59.2% of GDP. The country is therefore particularly
vulnerable to international inflationary pressures. We also believe that the country will see significant cost push
inflation in 2011, as indicated by the 25 of 47 industrial councils that are currently in wage disputes. Whilst
there does appear to be some upside risk on inflation, we believe there is sufficient support for disposable
incomes to offset the effects of inflation in 2011. Disposable incomes will be supported by the growth in GDP
per capita in the economy, along with hike in civil servant remuneration. The Ministry of Finance announced in
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the 2011 National Budget, that the civil service wage bill would rise to $1.4bn in 2011, from $1bn in 2010. The
40% increase in civil servant wages far outweighs the 11% to 14% increase in commodity prices expected to
cause inflationary pressures internationally, and should see a rise in real wages in the country.
Portfolio inflows limiting overall negative BoP

Total exports improved to $2.2bn in 2010 compared to $1.36bn in 2009, representing an increase of 62.6%.
This positive performance was largely attributable to a significant increase in mineral exports. Mineral exports
contributed 64.5% to forex receipts, led by a surge in diamonds and improved gold exports after the
liberalization of gold trading and firming international metal prices. Diamond exports improved to $361mn in
2010, up 866% from $37.4mn in 2009. Gold exports improved to $334mn up 153% on the [prior year, while
agricultural exports (general agriculture, horticulture and tobacco) amounted to $582.6mn compared to
$467.7mn in 2009, representing an increase of 24.6%. Total external debt stock stood at $6.93bn on 31
December 2010, representing 103% of GDP, 36% of the country’s total debt is owed to multilateral creditors.
Bilateral creditors are owed 33% whilst commercial creditors are owed 31%. The central government is the
largest debtor at 57%, whilst the parastatals and the private sector owe 35% and 8% respectively. At this stage
the government does not have debt reduction strategy in place.
We do not foresee significant foreign investment increasing access to long term capital in the country in 2011.
Zimbabwe, which registered a decline of 19% in FDI in 2010, is only expected to see a 6% increase in FDI in
2011, to $90mn worth of net direct investment. This is lower than the 9% increase expected for Sub-Saharan
Africa as a whole this year. The lower growth in FDI in Zimbabwe is despite growth ahead of its Sub-Saharan
peers, experienced since dollarization. Zimbabwe has therefore failed to attract significant FDI despite the much
higher growth in the economy than its peers. We attribute the low growth in FDI in the country to political and
regulatory uncertainties which have significantly increased the country’s perceived risk. The country is also
facing structural problems that are limiting investment, including higher wages than Sub-Saharan peers, which
make the country a less competitive place in which to operate.
Figure 9: Zimbabwe Private Financing Inflows

120
100
Private Inflows $Mn
80
60
40
20
-20 2007 2008 2009 2010 2011

projected
-40
Zimbabwe Net Direct Investment Net portfolio investment
The elephant in the room remains politics

The Government of National Unity (GNU) formed in 2008 can be credited with stabilizing the local economy,
after officially dollarizing in 4Q2008 and effectively ending the hyperinflation regime. However, as the tenure of
the GNU comes to an end in February 2011, one of the key threats to Zimbabwe’s growth trajectory will be the
dissolution of the GNU and the subsequent holding of national elections. Historically national elections in
Zimbabwe have been accompanied by economic upheavals, as such, the timing of a national election will be
critical to the investment community. It has been agreed by the principals of the GNU that a new national
constitution must first be instituted before elections can take place. Indications from COPAC (Constitution
Parliament Committee) are that the constitution is unlikely to be in place before September 2011, this would
imply that national elections are more likely to be held in 1Q2012. Local consultations with business leaders
have shown that this would be a more favourable outcome, as they look to consolidate economic growth and
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stability before entering national polls. However given the current instability in the GNU and recent statements
by political leaders, the possibility of a national election being held late this year cannot be ruled out.
The second key issue is the country’s indigenization policy, which has been viewed as a threat to foreign
investment in the nation. Whilst government has made assertions about the enforcement of the Act, several
transactions have been concluded which show that concessions can and will be made. A case in point is
government ‘sale of above 50% of its shareholding in Ziscosteel to Essar Energy in Mauritius in 2010 despite
the conditions of the Act, which state that 51% of all businesses must be indigenously owned. We have
observed that although both these factors are critical issues in shaping the investment environment in
Zimbabwe, investors are becoming more willing to invest in the country in spite of them. In 2010, foreign flows
which decreased after the March enactment of the indigenization regulations, returned in the final quarter of the
year to pursue value in over-punished stocks. We believe this trend will continue this year as investors become
more resilient to certain factors of political risk and instead prioritise the search for value in this market,
especially if negative political utterances are avoided.
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Equity Strategy
Equities perform in a subdued fashion in 2010

The Zimbabwe Stock Exchange began 2010 with a total market capitalization of $4,2bn compared to an
estimated $1bn in February 2009, when the bourse officially reopened after a 3 month closure from November
2008. Despite estimated GDP growth of 8.1% in 2010 driven by significant growth in the real sector, total
market capitalization only grew by 1.9% to close the year 2010 at $4,3bn as depicted in Figure 10 below. The
Industrial Index declined 0.5% y-o-y from 152 (FY09) to 151.3 (FY10) failing to reflect the increased output and
performance of the economy. The Mining Index, however, did record growth of 8% y-o-y from 185.5 (FY09) to
200.4 (FY10), as mining output in the economy increased by an estimated 47% for 2010.
Figure 10: Development of Market Cap versus Indices (2010) (Industrial -0.5% y-o-y, Mining +8% y-o-y)
250 5.00
4.50
200 4.00
3.50
150 3.00
2.50
100 2.00
1.50
50 1.00
0.50
0 -
Jul-10
Jan-10
Jun-10
Apr-10
Oct-10
Aug-10
Sep-10
Nov-10
Dec-10
Feb-10
Mar-10
May-10
Market Cap Industrial Index Mining Index
Source: Zimbabwe Stock Exchange: IH Estimates
Figure 10 shows the development of both the Industrial and Mining Indices throughout the year 2010 along with
the monthly movement of total market capitalization. Both the Industrial and Mining indices had a relatively
positive start to the year, before they began trending downwards at the end of 1Q2010. This downward trend
naturally coincided with a decline in total market capitalization during the same period, market capitalisation fell
$800mn from the beginning of 1Q2010 to the end of 2Q2010. This change in both the indices and total market
capitalization can be attributed to the official gazetting of the Indigenisation Regulations in March 2010.
Zimbabwe’s Indigenisation and Empowerment Act (IEEA) was enacted into law in March 2010, stating that all
businesses with a net asset value of $500k or more, foreign or domestic, had to comply with regulations stating
that indigenous Zimbabweans (as defined in The Act) were entitled to own a minimum of 51% shareholding in
all foreign owned and/or non-indigenous owned companies.
The enactment of the Indigenisation Regulations negatively affected foreign deal flow on the Zimbabwe Stock
Exchange which was the primary driver of the market. Official data shows that the percentage contribution of
foreign deal flow to total market turnover was 46% in 2010 (up from 35% in 2009). Total market turnover fell
from a recorded $414mn in 2009 to $392mn in 2010 down 5%, due to the loss of momentum created by the
IEEA. The ZSE only began to recover from the negative sentiment that dominated the greater part of the year in
the last quarter of 2010 (reflected in figure 10), as the market became oversold and foreign funds returned to
cherry pick bargains in selected stocks. From its lowest recorded point of $3.6bn in July 2010, the market
recovered $714mn to close the year at $4.3bn.
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Equity Research
Figure 11: Foreign value traded v. Total value traded ($180mn vs $392mn FY10)
413.98
391.57
179.77
146.42
2009 2010
Turnover value Foreign deal value
Econet (ECWH: ZH) and Delta (DELTA: ZH) led the ZSE in terms of total value traded in 2010 contributing
$160mn of the $391mn turnover recorded for the year. These were the market’s two largest counters by market
cap as at 31 December (Econet $834mn; Delta $766mn), the combination of their liquidity and solid
fundamentals continue to make them attractive to foreign investors and thus very active on the local bourse.
NTS (NTS: ZH) was the top gainer of the year rising 200%, followed by Zimplow (ZIMPLOW: ZH) rising 160%.
The largest faller of the year was CFX (CFX: ZH), now Interfin (INTERFIN: ZH), declining 100%, followed by
Redstar (REDSTAR: ZH) down 100%, (Redstar was eventually delisted on 17 December).
Figure 12: Market Movers in 2010
Top 10 Gainers % Change Top 10 Losers % Change Top 10 Value Traded FY10 ($mn) Avg Daily Value ($mn)
NTS 200% CFX -100% Econet 103.39 0.41
Zimplow 160% Redstar -100% Delta 57.87 0.23
Pioneer 140% Zeco -85% Innscor 26.16 0.10
Turnall 123% African Sun -82% Old Mutual 16.44 0.07
Truw orths 119% PGI -71% Seedco 15.56 0.06
Colcom 118% ART Corp -69% Hippo 11.03 0.04
DZL 113% GB Holdings -67% OK 9.99 0.04
ABCH 100% TA Holdings -64% RioZim 8.67 0.03
Hw ange 89% Fidelity -63% AICO 8.60 0.03
Trust 86% TN Holdings -60% CBZ 8.52 0.03
Sectoral Performance: Retail stocks outperforms market

The sectoral performance split for the ZSE in 2010 directly reflects the national improvement in GDP per capita
for the year. The best performing sectors were consumer driven, led by Retail (including food, clothing and
lifestyle) which rose 48% (by sectoral market cap) against 2009. This was followed by Beverages up 31% from
the previous year. Both these sectors are highly sensitive to disposable incomes and their performance is
indicative of increased consumer spending power. The Agro processing sector recorded strong growth
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increasing 18% y-o-y as agricultural output in the economy improved by 34% against the previous year. Most
sectors, however, displayed negative performances in 2010, with the poorest performance being in Tourism
where sectoral market capitalisation declined 63% y-o-y. The largest sector by market capitalisation in 2010
was Telcom (20%) followed by Beverages and Agro-processors (both 18% each).
Figure 13: ZSE Sector Performances; 2010 (%)
60%
40%
20%
0%
Tourism
Retail
Telcom
Beverages
Agro
Manufacturing
Banking and financial
Property
Pharmaceutical
Media
Minings
Diversified conglomerate
Building & manufacturing
-20%
services
-40%
-60%
-80%
Source: Zimbabwe Stock Exchange; IH Estimates
Figure 14: Market composition by Sector
Other, 12% Telcom, 20%
Manufacturing,
8%
Diversified
conglomerate,
11%
Beverages, 18%
Banking and
Finances, 13%
Agro, 18%
Source: Zimbabwe Stock Exchange; IH Estimates
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Equity Research
Key Themes in 2011
Sustained economic growth to spur equities. The country, albeit coming off a low base, is currently on
a strong economic growth path driven by a continued rise in mining and agricultural output amidst firming global
commodity prices. The MoF expects inflation to remain subdued between 4-5% in 2011 and domestic revenues
to improve from $2bn in 2010 to $3.2bn in 2011. We expect this current growth trend to have a direct impact on
listed companies and are already witnessing top line growth across many listed stocks, in strategic sectors. In
addition continued focus on recurrent expenditure (albeit detrimental to the economy in the long run) should
boost consumer demand.
Corporate restructuring, 2011 possible crunch time for corporate Zimbabwe. In 2009 and 2010
the common theme for most listed firms was the reconsolidation of operations after the introduction of the multi
currency regime and the normalization of inflation. Going forward we believe the theme has shifted to focus on
recapitalization, restructuring and the alteration of business models, in order to become competitive, restore
working capital cycles, regain lost market share particularly relative to imports, and re-align capital structures by
expunging expensive local debt. In 2010 we have already witnessed the beginning of increased initiatives in the
arena of capital raising and corporate restructuring namely:
 OK Zimbabwe’s (OKZIMBAB: ZH) successful $15mn rights issue in 1Q10, underwritten by South
Africa’s Investec Africa Frontier Private Equity fund. Investec assumed a 7% stake in OK after
purchasing 29% of unsubscribed stock. The capital raised was used to fund working capital, expunge
expensive debt, upgrade systems and increase the retail network.
 PG Zimbabwe (PGIZ: ZH) held a combination of a renounceable rights offer and convertible
debentures in 4Q10 to raise $11.2mn, this again, was used for working capital growth, to expunge
costly short term debt, plant replacement and retooling. The CD has tenure of 60 months with a
biannual coupon of 10%.
 Innscor unbundled it’s crocodile operation Padenga in 4Q10 to focus on its core strategy in
FMCG. Dairibord Zimbabwe disposed of its stake in citrus company Interfresh (1H10), to recapitalise
and focus on its core business in dairy products.
In 2011, we expect to see continued capital raising initiatives with firms like AICO (AICO: ZH), RioZim (RIOTZ:
ZH), and CFI (CFI:ZH) already planning significant capital raises in the first quarter of this year. We also expect
to see the continued streamlining of operations with firms such as Innscor and Star Africa still looking at further
disposals and ART Corporation in the process of selling off its Mutare Board and Paper Mill in 1Q11.
Lower cost of capital. Debilitating finance costs have negatively impacted the bottom line of most firms.
Despite increased deposits in the banking system (up from $1.4bn in January 2010 to $2.6bn in December
2010) and improved loan to deposit ratios (76% versus an international benchmark of 70-90%), lending rates
still remain prohibitive. Due to the volatile nature of deposits, financial institutions are predominantly extending
short term debt at interest rates between 12-18%. Therefore listed firms looking to raise capital, will have to
increasingly explore offshore debt at more conducive terms, consider asset disposals or alternatively raise
equity capital from shareholders. Financial institutions like PTA, Afrexim Bank and lately DBSA have begun to
extend lines of credit on more sustainable terms which should offer some relief. We also believe that the local
cost of borrowing for credit worthy institutions could be reduced below current levels.
Influence of foreign capital. At an investor level, we foresee foreign interest on the ZSE increasing as
foreign flows continue to seek higher returns in both developing and potential high growth markets including
Zimbabwe. Political stability locally and within the greater context of the economy, given the disturbances in
North Africa, will clearly remain a guiding factor. Given the normalizing of the Zimbabwean economy, domestic
inflows into pension funds are steadily improving and restoring the ability of local institutions to once again
actively participate in equities. Overall we see an improvement in liquidity on the back of both local and foreign
activity. Equity returns should be aided by improved dividend streams in 2011, as general profitability improves
in line with economic growth.
Developments in fixed income space. Although the money market remained generally inactive due to the
low liquidity levels and the absence of treasury bills; in 2010 we did see the beginning of the exploration of fixed
income instruments. CBZ (CBZH: ZH) in September 2010 successfully instituted a 3 year bond worth $50mn
dedicated to infrastructural projects and guaranteed by Afrexim bank. The bond was issued on a tender basis,
eventually settling on an interest rate of 10%. PGIZ successfully launched a convertible debenture as part of its
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own capital raising initiative, with a tenure of 60 months and a biannual coupon of 10%. We believe that in
2011, we are likely to see a continuation of similar initiatives driven by the private sector to create fixed income
products and raise capital outside mainstream borrowing. With traditional institutional investors like local
pension funds experiencing improved US dollar inflows and looking to balance the risk profiles of their
portfolios, we foresee both appetite and opportunity for well structured products in this arena. The development
of the fixed income space continues to be hampered by the lack of an interbank market and a benchmark
interest rate in the economy.
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Figure 15: Sectoral Outlook
CY10
Sector weighting Comment Company
Driven by increased output on the farms amidst firming global commodity
prices. Access to finance still a challenge for farmers given the 90 to 120 day AICO, DZL,
Agriculture Overweight
crop cycles and the volatile nature of available funding outside specific out Seedco
grower contract schemes.
Local deposits are increasing, as a result loan to deposit ratios are steadily
improving. Deposits are still volatile though, preventing medium to long term CBZ, NMB,
Banking Neutral
lending. Central Bank's inability to effectively act as a lender of last resort due Barclays
to limited funding, prevents financial deepening.
Rising GDP per capita driving consumer spend will benefit this sector.
Beverages Neutral Consumption leverage to GDP per capita estimated at 3.5x for 2011, GDP Delta
growth and volumes highly correlated.
Although dollarisation has improved the collection of premiums, the size of the
formal, insurable sector is still limited. Llimited range of investment instruments
Insurance Underweight Nicoz, ZHL, Afre
specifically in fixed income bracket creating a challenge particularly for short
term insurers that can not be overweight in equities.
Improving capacity utilisation levels and recovering local demand both positive
for this sector. Rand strength will provide an opportunity for local
Construction Neutral manufacturers to price competitively against imports and recover market share. Lafarge, PGI
Liquidity still a challenge, working capital cycles still in need of improvement.
Power supply issues also a critical factor
Rising ouput and capacity utilisation in the mines, favourable global commodity
Mining Neutral prices, However, significant amounts of capex required in an illiquid RioZim, Hwange
environment.
Rising local rentals spurred by increasing economic activity in an environment

Property Overweight with limited supply. However limited liquidity prevents frequent buying activity Pearl
which is likely to negatively impact valuations.
Increased consumer spend and improving local supply of goods will positively
Retail Neutral impact this sector. Strong competitive pressure is likely to impact margins that OK, Innscor
are already squeezed.
Diversification into broadband will increase value add going forward and
cushion declining ARPU rates as mobile penetration expands. Diversifying into
Telco Overweight Econet
products like mobile money transfer should create positive additional revenue
streams.
Tourist arrivals increased by 10% in 2010, although bed occupancies are said
to have only increased by 2% (Source: National Budget). ADRs are still below
Tourism Underweight African Sun
regional averages. This space is highly susceptible to political developments
and competing destinations within the region.
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Key Equity Drivers/Catalysts in 2011

 Political developments to drive foreign sentiment. With the growing influence of foreign capital,
equities are increasingly vulnerable to political sentiment. The possibility of elections this year and the
handling of indigenisation will be critical factors in determining the level of volatility in the market.
 Earnings quality Residual contagion from Zimbabwe dollar trading is now completely gone, local
demand is recovering, inputs are improving and inflation is stable. We believe companies will be
punished and rewarded alike on their financial performance
 Deepening local financial sector and increased external availability of credit. System deposits in
the local economy grew by 79% in 2010 to $2.5bn, with total loans at 2010 at $1.7bn. We forecast
system deposits at YE2011 at $3.2bn, with 70% loan to deposit ratio, implying loans availed in 2011 of
$2.2bn. We expect the trend to continue, thus positively impacting the cost of lending. In addition the
increasing activity of development institutions like PTA Bank and Afrexim Bank in offering cheaper and
longer lines of credit is likely to have positive impact on industry
IH Base-case Target Market Capitalisation for 2011: $5.1bn (+18% upside)

Key assumptions/methodology:
 We are forecasting a target market capitalisation of $5.1bn for FY11 implying upside of 18%.
 Our forecast is based on a weighted valuation of 12 counters representing 67% of the ZSE’s total
market capitalisation and 62% of daily liquidity in 2010.
 We have assumed that their weightings in terms of market capitalisation remain the same throughout
2011.
 We assume the weightings of the respective companies remain the same until 2011.
 We apply a 20% discount to our ‘fair value’ to take into account political risk.
Key limitations to our approach are as follows:

 The absence of risk adjustment.
 The fact that our sample only represents a 67% weighting
 Our valuations are not cash flow-based, given limitations of DCF valuation in an environment in which
there is no proxy for the risk free rate.
 It assumes a static composition of the index
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COMPANIES
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Equity Research
Agro-processing
Zimbabwe
AICO Africa
Return to profitability on higher volumes
Declining volumes and high interest limiting profits in FY11 Market Data
AICO Africa is an agro-processing conglomerate, with a cotton ginning division
Report Date 02 Mar 2011
(Cottco), and an FMCG division (Olivine), along with a 51% owned seed manufacturing
division (Seedco). Cottco is the biggest cotton ginning company in the country, with Rating BUY
47% market share. Seedco is has market share of 65% in Zimbabwe, 50% in Zambia Bloomberg Ticker AICO: ZH
and 55% in Malawi and is currently producing approximately 60,000 metric tonnes of
Current price $ 0.18
seed, of which 45,000 tonnes are maize seed. Olivine is an FMCG producer, whose
products include cooking oil, margarine and soap, with strong brand recognition. Target Price $ 0.22
AICO’s unaudited financial results for the 6 months ended 30 September 2010 showed Market Cap $mn 96.02
a 3% decline in revenues (y-o-y) in the group to $53mn, resulting from a 30% decline
EV $mn 119.57
in cotton revenues to $24mn, despite a 58% growth in revenues from Seedco to
$20.4mn. The decline in AICO revenues resulted from side-marketing in the cotton Market Weight 2.15%
business. Growth in revenues for Seedco reflects increasing seed production, with Common Shares Outstanding mn 531
maize seed production estimated to have grown 83% in FY11. Olivine sales and
volumes also declined 3% (y-o-y) in 1H2011, limited by lack of working capital and Freefloat mn 39%
erractic power supplies. Group profitability is currently being limited by high finance Average daily value traded '000 32.34
costs resulting from $50mn worth of debt that the company is currently holding. Last Dividend declared N/A
Finance costs totaled $8.1mn in 1H2011, and are forecasted at $17mn for FY11.
PER (+1) 51.98
Improving volumes and firm lint prices expected EV/EBITDA (+1) 2.82
The country is expected to grow a total of 300,000 tonnes of cotton in 2011, up 15%
Dividend Yield 0%
from 262,000 in 2010. AICO aims to take up 180,000 tonnes of cotton, on the back of
this increase in national production. However, we believe residual problems with side- ROE -5%
marketing may limit AICO’s market share in 2011, and forecast conservative deliveries Share price performance YTD -5%
of 135,000 tonnes, equivalent to 45% of market share, up from 42% in 2010. This
would result in a 22% increase in Cottco’s cotton intake. World cotton production
Share Price Performance (12m)
continues to lag behind the growth in demand, with world cotton production in 2011,
forecasted at 25.1mn, lower than global usage, expected at 25.4mn. The global stocks- 0.30
to-usage ratio, which was 37% in 2010, its lowest level in 17 years, is expected to
remain at 37%, supporting a firm lint price outlook for the year. Prices are currently at
0.25
$1.65/lb, and expected to remain firm for the rest of the year. Seedco which expanded
its seed production by 68% in FY11 is expected to grow production by 58% in FY12.
Olivine, however, will see weak recovery in volumes, as the group continues to suffer 0.20
from erratic utility supplies, along with a lack of sufficient working capital.
0.15
Valuation
We estimate that AICO trades on PER (+1) 52x, compared to a PER (+1) of 13.8x for 0.10
emerging market peers, and an EV/EBITDA (+1) 2.8x, compared to 8.4x for emerging
market peers to 2012E. We assume that AICO will achieve lint prices of $0.82/lb and 0.05
$1.13/lb in FY11 and FY12, along with growth in seed production of 68% and 58% in
FY11 and FY12. We therefore forecast revenues of $203mn in FY11 and $318mn in
0.00
FY12. We assume that the group does not carry out a rights issue, and continues to
Jul-10
Jun-10
Jan-11
Apr-10
Oct-10
Nov-10
Dec-10
Feb-10
Mar-10
Aug-10
Sep-10
Feb-11
May-10
carry $50mn of debt in FY12. Whilst low volumes will fail to cover the operating and
interest costs the group is facing in FY11, we expect growing seed and cotton
volumes, along with high lint prices to allow revenue growth sufficient to return the
group to profitability in FY12. Using a weighted combined multiples valuation method
(PER, EV/Sales & EV/EBITDA), we have arrived at a target price of $0.22 for AICO,
implying upside of 21%. We therefore initiate our coverage of AICO with a Buy
recommendation.
Net EPS DPS EBITDA Net EV/ EV/ EV/

Revenue EBITDA Income ($) ($) Margin EV Debt Sales CF EBITDA P/E P/CE P/Bk
2010 164.4 20.1 -4.3 -0.01 0.00 12.2% 119.6 23.5 0.73 5.7 5.96 -22.5 31.8 1.2
2011E 202.5 27.9 -5.3 -0.01 0.00 13.8% 135.1 39.1 0.59 5.0 4.28 -18.0 57.5 1.2
2012E 317.7 42.4 1.8 0.00 0.00 13.3% 137.3 41.3 0.38 6.0 2.82 52.0 11.4 1.2
2013E 361.4 57.1 16.7 0.03 0.00 15.8% 120.8 24.8 0.33 2.0 2.09 5.8 4.2 1.0
2014E 405.8 69.7 24.6 0.05 0.00 17.2% 103.9 7.8 0.29 1.4 1.72 3.9 3.1 0.8
2015E 455.5 84.6 33.7 0.06 0.00 18.6% 78.8 -17.2 0.30 1.2 1.41 2.8 2.3 0.6
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Equity Research
Banking
Zimbabwe
CBZ Holdings
Universal appeal
Dominant player in the local market

CBZ Holdings group is an integrated financial services group in Zimbabwe. While its Market Data
core subsidiary is CBZ bank, the group is also the wholly owner of a Building
Society (branded Beverley), Asset Management Company (branded as Datvest), Report Date 02 Mar 2011
insurance company (branded Optimal) and Property Company. Additionally, the Bloomberg Ticker CBZ: ZH
group also owns 59% of a local insurer. The group’s bank is a number 1 player in
Rating BUY
the market; it has the largest deposit (22.3% of total), loan (25.9% of total) and the
widest branch network of 59 branches. The group retains over 150k active Current price $ 0.19
accounts. In addition the group retains a property portfolio acquired during the Target price $ 0.26
hyperinflationary period with an estimated at $21mn on the group’s balance sheet at
Market Cap $mn 116.30
1H2010.
Market Weight 2.59%
Strong Liquidity and Capital Adequacy Common Shares Outstanding mn 684.14
We estimate that at 2010 will retain Tier 1 capital base of $85mn, reflecting a capital Free-float 32%
adequacy ratio of 16.63%. The group’s recent focus has been integrate Beverley
Average Daily Value traded $'000 34.31
Building Society under one brand CBZ Bank resulting in a reduction in branches
from over 70 in 2009 to the present 59. It is anticipated that this will have a positive Last Dividend declared n/a
impact on cost to income ratios, at 1H10, the cost to income ratio was at 71%, we Dividend Yield 0
forecast this trend towards 52.6% to 2011E. Going forward management’s focus will
PER (+1) 6.97
be increasing efficiencies in its IT system, monetizing the group’s land, and
enhancing the scale in the group’s smaller businesses, namely insurance. PBV(+1) 1.37
Share price performance YTD 16%
Valuation
The Zimbabwean banking sector continues to face major challenges, namely due to Share Price Performance (12m)
the lack of fully functioning Central Bank post dollarization, which effectively
increases the cost of financial intermediation due to lack of an interbank market. 0.20
Thus all banks at the present juncture pursue a liability driven balance sheet model. 0.18
After the dollarization of the economy in early 2009 banking deposits have seen an 0.16
aggressive increase, 2010 saw a 56% increase in total system deposits to $2.5bn of 0.14
which CBZ had 22.3% market share. We forecast total system deposits rising to 0.12
$3.2bn by YE11. We forecast deposits for CBZ of $637.5mn (2011), representing a 0.10
market share of 20%. We assume a LDR of 76%. In 2011, we are forecasting a PAT 0.08
of $22.4 mn, up from $16.7mn in 2010 on the back of strong deposit growth. CBZ is 0.06
trading at 1.13x its 2011E BVPS and 5.2x its 2011E EPS compared to 13.6x and 0.04
2.09x for comparable African peers. We are forecasting its 2011E RoE at 23.8% 0.02
and we expect its RoE to trend to 31% by 2014. In the absence of proxy for CoE, -
we value CBZ using a weighted PBV and PER on 2011 metrics on the group’s
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Jan-11
Apr-10
Oct-10
Nov-10
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Mar-10
Aug-10
Sep-10
Feb-11
May-10
financial services, and derive a one year target price of $0.26, implying upside
potential of 37%. Key risks in our view include the possibility of increased
provisioning of NPL’s especially on loans availed in 2009 at higher lending rates.
However we recommend the stock as a BUY.
Year Net Income EPS DPS BVPS P/E P/BV Div Yield (%) RoAA RoAE
2009 7.74 0.0113 0.0000 0.1045 15.0 1.63 0.0% 2.06% 10.8%
2010E 16.69 0.0244 0.0049 0.1240 7.0 1.37 2.9% 2.18% 21.4%
2011E 22.35 0.0327 0.0065 0.1501 5.2 1.13 3.8% 2.62% 23.8%
2012E 33.35 0.0487 0.0097 0.1891 3.5 0.90 5.7% 4.09% 28.7%
2013E 45.83 0.0670 0.0134 0.2427 2.5 0.70 7.9% 5.06% 31.0%
2014E 59.30 0.0867 0.0173 0.3121 2.0 0.54 10.2% 5.06% 31.0%
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Equity Research
Agro Processing
Zimbabwe
Dairibord Zimbabwe
Milking Profits
Dairibord, well on the recovery path Market Data

Dairibord Holdings produces an extensive range of products which include milk, Report Date 02 Mar 2011
foods and beverages which are marketed in the domestic and foreign markets. The
current revenue split is 35% miks, 35% beverages, 29% foods. The group has over Bloomberg Ticker DZLH: ZH
50 brands with factories located in Zimbabwe and Malawi. The group recorded Rating BUY
1H10 revenue growth of 93% from prior comparable period ($31mn vs. $16mn). Current price $ $0.18
EBITDA rose 76% from $2,7mn to $5,3mn for 1H10. During the period, DZL’s h-o-h
Target price $ $0.40
aggregate volumes grew 50%, with beverages increasing 83%, liquid milks 28%
and foods 24%. We estimate that DZL’s monthly milk intake in 2010 increased from Market Cap $mn 62
900k litres pm in January to 1.7mn litres pm in December, excluding the additional EV $mn 64
40% pm intake from import milk substitution. Their average market share, though,
Market Weight 1.39%
remained around 50% due to increased competition within the local industry and
externally from milk imports. However, with an active installed capacity of 180mn Common Shares Outstanding mn 343.17
litres pa (liquid milks), increasing national raw milk production, and the capital Freefloat % 41%
projects undertaken in 2010, we believe DZL remains in good stead to defend its Average Daily Value $000’s 28.52
market share and potentially increase it going forward.
Last Dividend declared n/a
Beverages division to lead growth Dividend Yield 0%

National raw milk production currently stands at 3.5mn litres pm versus estimated PER (+1) 4.8x
national demand of 5.5mn litres pm. An additional 1mn litres pm is imported for EV/EBITDA (+1) 3.4x
retail, which still leaves an undersupply of 1mn litres pm in the country. We believe
Share price perfomance YTD 12%
that going forward demand can potentially increase by a consumption leverage of
1.5x GDP growth (est GDP 9.3% FY11). DZL management estimates that national
raw milk production will grow by 30% in 2011 due to increased yields per cow. After
83% volumes growth for beverages in 2010, Management believes beverages can Share Price Performance (12m)
potentially grow another 50% in 2011. There is established demand for beverages
both domestically and in export markets like Botswana. Although margins are 0.18
comparatively thinner in beverages than liquid milks, management believes 0.16
beverages will lead growth for the group in 2011. The group intends to spend $8mn
in CY11 on capex, to specifically upgrade its beverages capacity, improve 0.14
information systems and purchase new trucks 0.12
0.10
Attractive Valuation 0.08
We estimate DZL trades on PER (+1) 5.7x, and EV/EBITDA (+1) 3.9x to 2011E,
0.06
placing the stock at a significant discount to emerging market dairy sector
comparables, at PER 16.9x and EV/EBITDA 10.3x for 2011E. We expect an FY10 0.04
top line of $84mn given the June interims and then forecast revenue growth of 48%
0.02
to 124mn for 2011E. We forecast EBITDA of $16.5mn and net income of $10.8mn
for 2011E. Using a weighted combined multiples valuation method (PER & -
EV/EBITDA), we have arrived at a target price of $0.40 for Dairibord Zimbabwe,
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Oct-10
Aug-10
Sep-10
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Dec-10
Jan-10
Jun-10
Jan-11
Jul-10
May-10
Feb-10
Mar-10
implying upside of 123%. We therefore initiate our coverage of Dairibord Zimbabwe

Holdings with a Buy recommendation.
Net EPS DPS EBITDA Net

Revenue EBITDA Income ($) ($) Margin EV Debt EV/Sales EV/CF EV/EBITDA P/E P/CE P/Bk EV/IC
2010E 83.7 10.9 6.5 0.02 0.00 0.1 63.9 2.1 0.8 7.8 5.9 9.5 7.5 1.7 1.7
2011E 123.7 16.5 10.8 0.03 0.01 0.1 62.3 0.5 0.5 3.2 3.9 5.7 5.0 1.4 1.4
2012E 151.5 23.0 15.5 0.05 0.01 0.2 56.3 -5.5 0.4 2.2 2.8 4.0 3.6 1.1 1.1
2013E 188.8 32.2 22.2 0.06 0.02 0.2 47.4 -14.3 0.3 1.6 2.0 2.8 2.6 0.9 0.9
2014E 238.8 40.3 28.1 0.08 0.02 0.2 35.8 -26.0 0.3 1.3 1.6 2.2 2.0 0.7 0.7
2015E 306.2 51.2 36.1 0.11 0.03 0.2 20.5 -41.2 0.2 1.1 1.3 1.7 1.6 0.5 0.5
20
Equity Research
Beverages
Zimbabwe
Delta Corporation
Ever Resilient
Delta, still dominating the market Market Data

Delta Corporation is Zimbabwe’s largest brewer and bottler of lagers, Report Date 02 Mar 2011
sparkling beverages and opaque beers. The group holds the Coca Cola Co
Bloomberg Ticker DELTA:ZH
franchise, as well as parent company SAB Miller’s lager brands for
Zimbabwe. Delta, as is to be expected, displayed strong earnings growth in Rating HOLD
1H11. The company posted revenue growth of 51% from prior comparable Current price $ $0.72
period ($214mn vs. $142mn). EBITDA in 1H11 was $33mn, up 70% from
$19mn in 1H10. There was strong volumes growth in all Delta brands with
the exception of sorghum. Total beverages volumes were up by 16% led by Market Cap $mn 833
63% growth in SBs and 47% growth in lagers, sorghum was down 4% as EV $mn 841
typical consumers of sorghum switched to lagers. A 2H11 update in October Market Weight 18.62%
showed lager volumes already up 54% against prior year, SBs up 41% and
the decline in sorghums 2% below prior year. Operating margins had Common Shares Outstanding mn 1156.78
improved to 19.1% and management plans to increase this margin to 21% in Freefloat % 12%
2012E. Delta’s beverage market shares currently stand between 90-97% in Average Daily Value $000’s 0.407
their core brands.
Last Dividend declared 30.09.2010
Increasing capacity Dividend Yield 1%

Delta has a current installed capacity of 8.9mn hectoliters, lagers are at a PER (+1) 16.2x
CU of 78% and SBs are at a CU of 82%. With an estimated consumption EV/EBITDA (+1) 8.2x
leverage to GDP growth of 3.5x and forecasted GDP growth of 9.3% in
2011, it is apparent that Delta will have to address capacity issues going
forward as demand improves. The company’s budgeted capex spend for
FY11 is $72mn focused mainly on upgrading plant and equipment. We
believe Delta intends to increase its active installed capacity by 600k Share Price Performance (12m)
hectoliters to reach a total capacity of 9.5mn hectoliters FY12. The
company’s key drivers going forward will be their strategic shift to higher $0.80
margin products particularly in the lagers range and the capex spend on $0.70
equipment and machinery to reduce maintenance costs. We believe that the $0.60
supply chain savings and improved efficiencies will reduce aggregate costs
and translate into higher margins as anticipated by management. $0.50
$0.40
$0.30
Attractive Valuation
We estimate Delta trades on PER (+1) 11.29x, and EV/EBITDA (+1) 6.06x to $0.20
2012E, placing the stock at a discount to emerging market beverage sector $0.10
comparables, at PER 16.3x and EV/EBITDA 9.1x for 2012E. We expect an $-
FY11 top line of $465mn given the September interims and then forecast
Nov-10
Jan-10
Jun-10
Jan-11
Jul-10
May-10
Feb-10
Mar-10
Feb-11
Apr-10
Oct-10
Dec-10
Aug-10
Sep-10
revenue growth of 26% to $589mn for 2012E. We expect FY11 EBITDA of

$103mn and then forecast growth of 35% to $139mn for 2012E. We expect
FY11 net income of $52mn and forecast 42% growth to $74mn for 2012E.
Using a weighted combined multiples valuation method (PER &
EV/EBITDA), we have arrived at a target price of $0.87 for Delta
Corporation, implying upside of 21%. We therefore initiate our coverage of
Delta Corporation with a Buy recommendation.

Revenue EBITDA Income ($) ($) Margin EV Debt EV/Sales EV/CF EV/EBITDA P/E P/CE P/Bk EV/IC
2010 324.47 48.92 31.06 0.03 0.00 0.15 840.57 7.69 2.59 7.34 17.18 26.82 4.03 5.23 4.83
2011E 465.45 102.46 51.93 0.04 0.01 0.22 895.50 62.62 1.81 9.29 8.20 16.04 3.27 4.15 3.64
2012E 588.92 138.80 75.03 0.06 0.02 0.24 891.06 58.18 1.43 4.08 6.06 11.10 2.69 3.29 2.92
2013E 692.56 177.47 98.98 0.09 0.03 0.26 844.12 11.23 1.21 3.56 4.74 8.41 2.14 2.58 2.29
2014E 781.73 205.33 118.60 0.10 0.03 0.26 761.87 -71.02 1.08 3.39 4.09 7.02 1.73 2.05 1.92
-
2015E 842.04 216.18 129.49 0.11 0.03 0.26 669.88 163.01 1.06 3.16 3.89 6.43 1.49 1.68 1.63
-
2016E 901.14 227.12 140.18 0.12 0.04 0.25 571.58 261.30 0.99 2.99 3.70 5.94 1.30 1.40 1.40
21
Equity Research
Telecoms
Zimbabwe
Econet Wireless
Data: The New Frontier
Econet released a solid set of 1H11 earnings Market Data

Econet released an encouraging set of earnings for the 6 month period ended
August 2010. The company recorded revenue growth of 79% from prior
comparable period ($235mn vs. $131mn). EBITDA rose 66% from $69mn to Bloomberg Ticker ECWH: ZH
$114mn for 1H11, the EBITDA margin, however, shrunk 4% from 53% to 49%, Rating BUY
due to increased provisions for interconnect fees. During the period, Econet’s
subscriber base grew significantly from 3,5mn to 4,6mn subscribers Current price $ $4.90
(representing 73% market share). We estimate ARPUs however to have Target price $ $6.91
declined from $15.38 to $9.70 with the inclusion of marginal users associated Market Cap $mn 857.4
with increased penetration. With subscriber base growth approaching maturity,
Econet is now focusing on value added services like broadband to diversify EV $mn 990.9
revenue streams and cushion against declining ARPUs. Market Weight 19.11%
Common Shares Outstanding mn 174.97
The future lies in data Freefloat % 42%
The group has already spent $100mn on network development CY10 and
management plans to spend another $400mn over the next two years. This Average Daily Value traded $’000 0.407
investment is mainly focused on developing Econet’s fibre backbone to Last Dividend declared 31.08.09
enhance its fixed and mobile broadband service offering. Zimbabwe’s internet Dividend Yield 0%
penetration is 12% which ahead of the average in SSA, while broadband
penetration is however only 0.14%. Herein, we believe lies the upside for PER (+1) 6.1x
Econet, whose superior infrastructure should enable it take advantage of the EV/EBITDA (+1) 4x
opportunity. Already within 3 months of the official launch (Oct 10) of their Share price perfomance YTD 0%
broadband offering, the group acquired 432k data subscribers. However, the
group could still see significantly higher uptake of the product, as 432k
subscribers represents less than 10% of the group’s total subscriber base. In Share Price Performance (12m)
addition, the company in FY11 rolled out a mobile life insurance offering, 6.00
Ecolife, which has attracted 800k users, while it is anticipated a mobile transfer
platform will be rolled out in FY12. 5.00
4.00
We estimate Econet trades on PER (+1) 6.1x, and EV/EBITDA (+1) 4.0x to 3.00
2011E, placing the stock at a significant discount to emerging market telecom
comparables, at PER 10.2x and EV/EBITDA 5.1x for 2011E. We foresee 2.00
ARPUs, cushioned by mobile broadband revenues stabilizing at $9, while
1.00
forecast GDP growth of 8%. We expect subscribers to close at 5.3mn for FY11
reflecting a 52.3% increase on prior year. We forecast revenue growth of 38.7% -
to 503.3mn for 2011E, with EBITDA margins of 49% resulting in EBITDA of
Jul-10
Apr-10
Jun-10
Oct-10
Jan-11
Aug-10
Sep-10
Nov-10
Dec-10
Mar-10
Feb-11
May-10
$246.6mn. We forecast net income of $141.3mn for 2011E. Using a weighted

combined multiples valuation method (PER & EV/EBITDA), we have arrived at
a target price of $6.91 for Econet Wireless, implying upside of 41%. We
therefore initiate our coverage of Econet Wireless Holdings with a Buy
recommendation.
Net EPS EBITDA Net EV/ EV/

Revenue EBITDA Income ($) Margin EV Debt Sales EV/CF EBITDA P/E P/CE P/Bk ROaE ROaA
2010 362.8 179.3 113.2 0.65 49.4% 990.9 124.8 2.7 2.8 5.5 7.7 6.4 5.3 69.4% 28.8%
2011E 503.3 246.6 141.3 0.81 49.0% 1,060.8 194.7 2.0 2.4 4.0 6.1 4.6 3.1 63.3% 28.9%
2012E 636.2 308.5 173.1 0.99 48.5% 1,103.3 237.2 1.6 2.0 3.2 5.0 3.7 2.0 48.5% 25.1%
2013E 678.9 329.3 178.0 1.02 48.5% 1,093.1 227.0 1.5 2.2 3.0 4.9 3.4 1.5 35.2% 20.5%
2014E 699.5 339.3 179.6 1.03 48.5% 1,091.4 225.3 1.4 2.1 2.9 4.8 3.3 1.2 27.3% 17.7%
22
Equity Research
Consumer
Zimbabwe
Innscor Africa Limited

Leveraging on the Zimbabwean consumer
Innscor, experiencing volumes growth Market Data

Innscor Africa Limited is a diversified conglomerate, mainly focused on FMCG Report Date 02 Mar 2011
(fast moving consumer goods). The group notably controls the largest fast food
chain in the country through its Inns franchise and controls the third largest Bloomberg Ticker INAF: ZH
supermarket retail chain through its Spar franchise. Innscor holds both domestic Rating BUY
and regional interests. Their FY10 results reflected significant growth, albeit Current price $ $0.63
coming from a low base. Gross turnover of $403mn was recorded for FY10, an
increase of 58% from prior year of $255mn FY09. EBITDA improved 107% to
$29mn (FY10) from $13.8mn FY09, with the EBITDA margin increasing from 5% Market Cap $mn 340
to 7%. After tax profits from continuing operations rose by 100% to $21mn from EV $mn 348
$10.9mn. The 2010 financial year was Innscor’s first full year of operating in the
Market Weight 7.24%
multicurrency environment partially explaining their financial growth. Volumes
were up in most of their business units; the retail silo which houses their fast Common Shares Outstanding mn 540.12
foods division and Spar stores contributed the most to gross revenue, turning Freefloat % 56%
over FY10 $147mn vs restated FY09 $76mn, an improvement of 93%.This was Average Daily Value $000’s 103.12
followed by their milling and manufacturing silo, which houses Colcom, Natfoods,
Irvines and bread making, turning over FY10 $90mn vs restated FY09 $37mn, Last Dividend declared 08.10.10
an improvement of 143%. Dividend Yield 2%
PER (+1) 21.5x
Benefitting from increased consumer incomes EV/EBITDA (+1) 10.3x
Innscor displayed positive operating cashflows in 2010. Cash generated from
operating activities amounted to $25mn, with net operating cash of $17.2mn. A
significant portion of these funds were applied to expansion projects. In CY10 8
new Spar stores were opened adding to the 40 corporate stores and 15
Savemors in existence, Spar is the 3rd largest retailer in the country with around Share Price Performance (12m)
30k sqm of retail space. 3 new bread making plants were commissioned at a
cost of $4mn increasing production capacity to 300k loaves per day. In FY11 the $0.80
group intends to improve cost efficiencies at Natfoods and return the company to $0.70
profitability. In a 1Q11 update, Natfoods had marginally exceeded budgeted $0.60
profits although revenues were still below budget. In FY11 the group also intends
to expand its fast food counters and Spar retail space, this is currently underway $0.50
and the 1Q11 update revealed that both divisions were posting revenues in line $0.40
with budget expectations. Given GDP growth in the nation (forecasted 8% $0.30
CY11) and the subsequent improvement in household incomes, Innscor’s retail
$0.20
and milling & manufacturing silos are poised to display continued growth driven
by positive consumer demand. $0.10
$-
Dec-10
Oct-10
Aug-10
Apr-10
Jan-10
Nov-10
Jan-11
Feb-10
May-10
Sep-10
Feb-11
Jun-10
Jul-10
Mar-10
We estimate Innscor trades on PER (+1) 17x placing it at a discount to weighted

emerging market comparables at PER 19.17x (2011E). The group is on an
EV/EBITDA (+1) 8.32x to 2011E, placing the stock at a discount to weighted
emerging market comparables at EV/EBITDA 12.6x for 2011E. We forecast
gross revenue growth of 32% to $533mn for 2011E and then forecast EBITDA
growth of 40% to $40.8mn for 2011E. We expect FY11 net income of $20mn
versus FY10 net income of $15mn, an increase of 33%. Using a weighted
combined multiples valuation method (PER & EV/EBITDA), we have arrived at a
target price of $0.77 for Innscor Africa, implying upside of 22%. We therefore
initiate our coverage of Innscor Africa Limited with a Buy recommendation.
Revenue EBITDA Net Inc ome EPS ($) DPS ($) EBITDA Margin EV Net Debt EV/Sales EV/CF EV/EBITDA P/E P/CE P/Bk EV/IC
2010 403.49 29.11 14.99 0.03 0.00 0.07 339.19 - 1.09 0.84 6.40 11.65 22.70 15.78 2.99 2.63
2011E 533.18 40.75 20.03 0.04 0.01 0.08 347.81 7.54 0.64 8.59 8.32 16.99 12.89 2.66 2.25
2012E 613.72 51.61 25.61 0.05 0.01 0.08 330.90 - 9.37 0.55 4.74 6.57 13.29 10.40 2.34 1.92
2013E 642.59 60.01 29.83 0.06 0.02 0.09 304.51 - 35.76 0.53 3.93 5.65 11.41 9.04 2.04 1.79
2014E 668.03 68.69 34.66 0.06 0.02 0.10 271.90 - 68.38 0.51 3.47 4.94 9.82 7.89 1.78 1.63
2015E 694.02 71.00 36.13 0.07 0.02 0.10 237.62 - 102.65 0.49 3.37 4.78 9.42 7.53 1.57 1.49
23
Equity Research
Cement
Zimbabwe
Lafarge Cement
Cementing Gains
Lafarge, performing consistently Market Data

Lafarge Cement Zimbabwe is a manufacturer involved in the production and Report Date 02 Mar 2011
sale of cement both domestically and regionally. The group holds an
estimated one third of the installed capacity for cement in the country and is Bloomberg Ticker LAFARGE:ZH
majority owned by international cement group, Lafarge, headquartered in Rating BUY
Paris. Gross turnover in 1H10 rose by 69% to $17.2mn from $10.1mn, H-O- Current price $ $0.90
H, driven by higher domestic demand. Profit before tax increased 300% to
$2mn from $691k H-O-H. After tax profits increased by 84% to $1.5mn from
$807k, whilst earnings firmed by 50% rising to $0.02 per share from $0.01. Market Cap $mn 72
Management provided revenue guidance for 2H10; in line with seasonal EV $mn 72
demand, revenue in the second half of the year should exceed that of the
Market Weight 1.61%
first half. Given 1H09 revenue of $10.1mn and 2H09 revenue of $18mn
(FY09 $28mn), this implies an increase of 44% in H2 vs H1. It is anticipated Common Shares Outstanding mn 80.00
that as the economy continues to recover, construction projects will be Freefloat 18%
revived including shelved projects, leading to increased demand for cement. Average Daily Value traded $000’s 14.64
Zimbabwe’s cement industry only has two dominant players, Lafarge
Cement and their competitor PPC. Last Dividend declared n/a
Dividend Yield 0%
Increasing capacity PER (+1) 8.4x
Lafarge Cement currently has an installed capacity of 450k tons per annum. EV/EBITDA (+1) 6.1x
Capacity utilization averaged 70% in 2010, but is anticipated to rise to 80%
Share price performance YTD -6%
in 2011 and then 90% in 2012. Lafarge’s operating margin is ideally between
18-20%, although management believes this can rise to 30%. At present the
company’s production split is as follows; 90% cement. 7% clinker and 3%
special paints/aggregates. With a current cement price of $154 per ton and Share Price Performance (12m)
clinker $87 per ton, we believe this split greatly assists the top line,
compared to the 2009 split of 70% cement, 27% clinker. Ultimately Lafarge $1.60
is targeting an output capacity of 1mn tons per year and discussions around $1.40
this are currently being held by management. This would likely require
installing a new plant, the capex for which would be raised by a combination $1.20
of debt and equity with the assistance of the parent company in France. $1.00
Lafarge already has existing export markets in Mozambique and Malawi,
$0.80
where regional cement prices can be as high as $176 per ton (cement). The
firm’s current quarry reserves have a lifespan of 15 years and 2 potential $0.60
new reserves are being explored 200km from their present site. Lafarge’s $0.40
predominant challenge continues to be consistent power, the firm is in talks
with ZESA about possible solutions. $0.20
$-
Apr-10
Oct-10
Aug-10
Sep-10
Nov-10
Dec-10
Jan-10
Jun-10
Jan-11
Jul-10
May-10
Feb-10
Mar-10
Feb-11
We estimate Lafarge trades on PER (+1) 8.42x, and EV/EBITDA (+1) 6.1x to
2011E, placing the stock at a discount to emerging market cement sector
comparables, at PER 12.8x and EV/EBITDA 7.6x for 2011E. We expect an
FY10 top line of $47mn given the June interims and then forecast revenue
growth of 23% to $58mn for 2011E. We expect FY10 EBITDA of $8.8mn and
then forecast growth of 36% to $12mn for 2011E. We expect FY10 net
income of $6.4mn and forecast 34% growth to $8.6mn for 2012E. Using a
weighted combined multiples valuation method (PER & EV/EBITDA), we
have arrived at a target price of $1,26 for Lafarge Cement, implying upside
of 40%. We therefore initiate our coverage of Lafarge Cement Zimbabwe
with a Buy recommendation.
Revenue EBITDA Income ($) ($) Margin EV Debt EV/Sales EV/CF EV/EBITDA P/E P/CE P/Bk
2010E 46.99 8.81 6.36 0.08 0.00 0.19 72.13 0.13 1.56 9.65 8.31 11.32 10.73 3.01
2011E 58.23 12.01 8.55 0.11 0.02 0.21 70.93 -1.07 1.26 4.26 6.10 8.42 8.07 2.34
2012E 69.93 15.80 11.11 0.14 0.03 0.23 67.75 -4.25 1.05 3.36 4.64 6.48 6.25 1.82
2013E 76.69 18.87 13.16 0.16 0.03 0.25 58.04 -13.96 0.95 3.26 3.88 5.47 5.28 1.43
2014E 84.92 20.84 14.59 0.18 0.04 0.25 47.47 -24.53 0.86 2.97 3.51 4.93 4.78 1.16
2015E 92.12 22.56 15.95 0.20 0.04 0.24 35.65 -36.35 0.79 2.71 3.25 4.51 4.39 0.96
24
Equity Research
Hotel and Retail
Zimbabwe
Meikles Limited
Leveraging on Access to Financing
Key player in retail and hospitality space Market Data

Meikles Limited is a conglomerate encompassing hotels, a food retail chain,
department stores and an agriculture business. The group operates the largest retail
chain in the country, with 51 supermarkets under its TM retail brand, with average Rating HOLD
space per store of 1100 square meters. The group also operates 24 Thomas Meikles
Bloomberg Ticker KMAL: ZH
stores, including Department stores, Meikles Home and Beauty Stores, as well as
hardware outlets. In the hotel business, the group operates the Meikles Hotel in Current price $ 0.50
Harare, Victoria Falls Hotel in the resort town and the Cape Grace Hotel in South Target Price 0.48
Africa. Tanganda, the agricultural arm of the group currently crops 4.4 ha of land, of
which 60% are taken up by tea which is sold both as bulk unpacked tea, and as Market Cap $mn 122.41
packaged tea under the Tanganda brand. EV $mn 145.70
Financing to boost Supermarkets & Thomas Meikles Stores Market Weight 2.74%
TM Supermarkets and Thomas Meikles stores are expected to see significant growth Common Shares Outstanding mn 244.82
in revenues as the economy continues to pick up and disposable incomes increase.
Freefloat 37%
However, both have so far been limited by a lack of financing. Limited capital and low
stock levels have reduced the extent to which TM Supermarkets have benefitted from 52 week Average trade value '000 30.78
growing retail sales in the country, and have therefore seen a reduction in group’s Last Dividend declared n/a
market share. In addition, TM supermarkets have not been refurbished since
dollarization, as have key competitors. As a result, TM supermarkets have seen sales PER (+1) 30.36
per month of $16mn in 1H2011 in comparison to sales per month of approximately EV/EBITDA (Hist.) 7.62
$19mn for the comparative period by competitor Ok Zimbabwe. . Approximately
Dividend Yield 0%
$13mn in capital from Pick and Pay will see TM supermarkets refurbishing and
increasing stock levels as a result of favorable terms and credit guaranteed by Pick ROE -16%
and Pay. Thomas Meikles stores have also suffered from financial constraints,
Share price performance YTD 11%
leading to an inability to extend credit to customers, historically an important aspect of
the business. Thomas Meikles stores will, however see increased capacity to extend
credit as a result of a relationship with TN Bank, which may allow the group access to Share Price Performance (12m)
credit at reasonable levels. With 20,000 customers taking up credit at the moment, the 0.6
group aims to have 80,000 customers receiving credit.
0.5
Valuation
We value the Meikles Limited Group on a sum of the parts basis. Our valuation of TM 0.4
Supermarkets and Thomas Meikles Stores is based on a combined basis. Using
0.3
emerging market P/E, EV/EBITDA and EV/SALES of 19.9, 11.7 and 1.06 respectively,
we arrived at a valuation of $92.5mn for the Supermarkets and Department Stores. A 0.2
combined multiples valuation based on emerging market agriculture stocks P/E,
EV/EBITDA and EV/SALES of 13.9x, 8.4x and 1.06x to 2012E yields a valuation of 0.1
$6.6mn for Tanganda. Emerging market EV/EBITDA and P/E multiples of 9x and
0
24.2x yield a valuation of $35.2mn. Our sum-of-the-parts valuation results in a total
Oct-10
Aug-10
Sep-10
Dec-10
Feb-11
Jul-10
Apr-10
Jun-10
Jan-11
May-10
Nov-10
Mar-10
valuation of $100.81mn for the group, and a 12-month target price of $0.48, implying
downside of 4%. We therefore initiate coverage of Meikles Limited with a Hold
recommendation
.
Total Net DPS EBITDA Net EV/ EV/ EV/

income EBITDA Income EPS ($) ($) Margin EV Debt Sales CF EBITDA P/E P/CE P/Bk
2010 162.7 -6.0 -4.5 -0.018 0.00 -3.7% 145.7 23.3 0.9 3.4 -24.4 -27.5 6.2 0.89
2011E 334.4 3.3 -2.5 -0.010 0.00 1.0% 142.2 19.8 0.4 -17.7 42.7 -49.1 3.3 0.90
2012E 353.4 18.1 3.7 0.015 0.00 5.1% 146.4 24.0 0.4 74.3 7.9 32.7 2.9 0.87
2013E 413.5 40.1 20.0 0.082 0.00 9.7% 135.6 13.2 0.3 8.5 3.5 6.1 2.5 0.76
2014E 446.5 48.6 25.9 0.106 0.00 10.9% 117.4 -5.0 0.3 6.0 2.9 4.7 2.0 0.65
2015E 480.3 53.7 29.4 0.120 0.00 11.2% 95.1 -27.3 0.3 5.1 2.7 4.2 1.6 0.56
25
Equity Research
Banking
Zimbabwe
NMB Bank
Sticking to its knitting….
Market Data
Focus on its niche market Report Date 02 Mar 2011
NMB Bank was formed in 1992 as an acceptance house and obtained a Bloomberg Ticker NMBZ: ZH
commercial banking license in 2000. Liquidity problems led to two bank runs
in 2004 and 2007. Post dollarization the bank has seen a return of the Rating HOLD
previous management who retain a shareholding in the bank. The bank’s Current price $ $0.01
historic strength is corporate banking having pioneered customer service as Target price $ $0.013
key differentiator. The bank has 7 branches across the country. NMB has a
Market Cap $mn 31
primary listing in Zimbabwe and a secondary listing on the LSE.
EV $mn n/a
Operations in 2011 to be boosted by recent capital raise Market Weight 0.69%
In the face capital constraints related to legacy issues during the Common Shares Outstanding mn 2807.05
hyperinflationary period, as well as new minimum capital requirements of
$12.5mn instituted in 2009, the bank undertook a capital raise by way of a Freefloat % 25%
rights offer. The group raised $10.3mn with African Century, a UK based Average Daily Val. $000’s 3.33
investment firm underwriting the offer, and retaining a 25% stake. Last Dividend declared n/a
Resultantly we forecast the group had Tier 1 capital of $19mn at the end of
Dividend Yield 0%
2010, reflecting a capital ratio of 90%. In addition we estimate the liquidity
ratios to have improved from 51.6% in 2009 to 37.5% in 2011. We also PER (+1) 14.5
believe that the technical expertise that African Century bring to NMB will PBV (+1) 1.5
assist NMB in executing its strategy.
Valuation
The Zimbabwean banking sector continues to face major challenges,
namely due to the lack of a fully functioning Central Bank post dollarization, Share Price Performance (12m)
which effectively increases the cost of financial intermediation due to lack of $0.01
an interbank market. Thus all banks at the present juncture pursue a liability
driven balance sheet model, while liquidity ratios thus remain stubbornly $0.01
high, limiting margins. After the dollarization of the economy in early 2009 $0.01
banking deposits have seen an aggressive increase, 2010 saw a 56%
$0.01
increase in total system deposits to $2.5bn of which NMB had 3.42% market
share. We forecast total system deposits rising to $3.2bn by YE11. We $0.01
forecast deposits for NMB of $143mn (2011), representing a market share of $0.00
5%. We assume a LDR of 68%. In 2011, we are forecasting a PAT of $2.13
mn, up from $0.33 million in 2010 on the back of strong deposit growth. $0.00
NMB is trading at 1.33x its 2011E BVPS and 13.2x its 2011E EPS $-
compared to its African peers trading at 2.09x PBV and 13.6x PER. We are
Jul-10
Jan-10
Apr-10
Jun-10
Oct-10
Jan-11
Aug-10
Sep-10
Nov-10
Dec-10
Feb-10
Mar-10
May-10
forecasting its 2011E RoE to be subdued (13.4%), we expect its RoE to

recover to 28.3% by 2014. In the absence of proxy for CoE, we value NMB
using a weighted PBV and PER on 2011 metrics, and derive a one year
target price of $0.013 implying an upside of 18%. Thus we recommend the
stock as a HOLD.
Year Net Income(Mn) EPS DPS BVPS P/E P/BV Div Yield (%) RoAA RoAE
2009 2.28 0.0012 0.0000 0.0051 8.0 1.98 0.0% 7.67% 27.2%
2010E 0.33 0.0001 0.0000 0.0068 68.6 1.46 0.0% 0.41% 2.4%
2011E 2.13 0.0008 0.0001 0.0075 13.2 1.33 0.8% 1.64% 10.5%
2012E 5.37 0.0019 0.0005 0.0090 5.2 1.12 4.8% 3.38% 23.2%
2013E 7.51 0.0027 0.0007 0.0110 3.7 0.91 6.7% 3.95% 26.9%
2014E 12.17 0.0043 0.0011 0.0168 2.3 0.59 10.8% 4.42% 28.3%
26
Equity Research
Retail
Zimbabwe
OK Zimbabwe
Boosting margins through cost management
Top-line growth amidst rising operating costs Market Data

OK Zimbabwe operates the second largest retail chain in the country, with 50
stores, and an average of 1400 square meters per store. OK stores operate under Report Date 02 Mar 2011
4 brands: OK Stores, Bon Marche stores, OK express stores and Pax Cash and Bloomberg Ticker OKZIMBAB: ZH
Carry stores, to cater to different segments of the population. The group has
Current price $ 0.08
benefitted from a capital injection of $15mn in 2010, underwritten by Investec,
which has allowed the group to undertake a refurbishment program. In the Target Price 0.09
unaudited results for the 6 months ended 30 September, OK Zimbabwe posted Market Cap $mn 75.20
revenues of $116mn in 1H2011, representing 53% growth in its topline (y-o-y). The
EV $mn 77.15
group also witnessed significant improvement in shrinkage, which was estimated at
1.48% in 2010, compared to 3.56% in 2009. However, EBITDA declined 37% to Market Weight 1.68%
$2.4mn on the back of a 67.4% increase in overheads, from $11.1 mn to $18.3 mn, Common Shares Outstanding mn 983,000
which grew faster than growth in revenues. Management has highlighted that sales
Freefloat 46.00%
per month of $20mn were achieved in October and over $22mn in sales was
expected in November. Average daily value traded $'000 38.57
Cost containment central to future prospects PER (+1) 14.15
The Zimbabwean economy is forecasted to grow 9.3% in 2011 and retailers will
benefit from the consequent growth in disposable incomes, consumer spending. A EV/EBITDA (+) 6.12
boost in civil servant wages, estimated at 40%, will also see an increase in Dividend Yield 0%
consumer’s disposable The group is also expected to refurbish approximately 6 ROE 6%
stores a year in the next few years, spending over $5mn a year on refurbishment, a
move which we expect will increase OK’s market share to 15% by 2015, from a Share price performance YTD -4%
current estimated 11%. Growth in both domestic disposable incomes and
increasing market share will facilitate significant top line growth for OK. There is
already evidence of this growth in turnover, with revenues for the 1H2011 53% Share Price Performance (12m)
higher than 1H2010. We expect sales of $253mn and $284mn in FY11 and FY12.
Management has highlighted that operating costs are expected to remain stable at 0.14
these levels, therefore top-line growth will translate into significant growth in
0.12
EBITDA margins, which we forecast to grow from current 2.5% in FY11 to 3.5%
and 4.5% in FY12 and FY13 respectively. We forecast growth in EPS of 132% and 0.10
83% in FY11 and FY12.
0.08
0.06
Valuation
We estimate OK Zimbabwe trades on PER (+1) 14.2x, EV/EBITDA (+1) 6.1x and 0.04
EV/SALES (+1) 0.2x to 2012E, placing the stock at a discount to emerging market 0.02
retailers, at PER 19x, EV/EBITDA 11.2x and EV/SALES 1x for 2012E. We expect
an FY11 top line of $252.7mn; on the back of a stronger second half performance -
and forecast revenue growth of 12.3% to $284mn in FY12. We expect FY11 and
Jul-10
Apr-10
Jun-10
Oct-10
Jan-11
Aug-10
Sep-10
Nov-10
Dec-10
Feb-10
Mar-10
Feb-11
May-10
FY12 EBITDA of $6.3mn and $9.9mn. We forecast FY11 net income of $2.8mn and
forecast 83% growth to $5.2mn in FY12. Using a weighted combined multiples
valuation method (PER, EV/EBITDA and EV/SALES), we have arrived at a target
price of $0.087 for OK Zimbabwe, implying upside of 13%. We therefore initiate
our coverage of OK Zimbabwe with a Hold recommendation.
Total Net EPS DPS EBITDA Net EV/ EV/

income EBITDA Income ($) ($) Margin EV Debt Sales EV/CF EBITDA P/E P/CE P/Bk
2010 187.5 4.9 1.2 0.006 0.00 2.6% 77.1 3.4 0.4 -48.0 15.8 60.2 3.7 4.42
2011E 252.7 6.3 2.8 0.013 0.00 2.5% 60.8 -12.9 0.2 32.3 9.6 26.0 2.0 2.16
2012E 283.7 9.9 5.2 0.024 0.00 3.5% 59.2 -14.5 0.2 37.6 6.1 14.2 1.8 1.90
2013E 327.2 14.7 8.5 0.039 0.00 4.5% 54.8 -18.9 0.2 11.5 4.1 8.7 1.5 1.59
2014E 383.0 22.0 13.6 0.063 0.00 5.8% 45.8 -27.9 0.2 5.9 2.8 5.4 1.2 1.26
2015E 446.7 29.9 19.2 0.089 0.00 6.7% 32.0 -41.7 0.1 3.8 2.0 3.8 0.9 0.97
27
Equity Research
Property
Zimbabwe
Pearl Properties
A simple supply and demand case
Diverse property portfolio covering prime locations Market Data

The group owns 117,800 m2 of lettable space, split 35% CBD offices, 29% Report Date 02 Mar 2011
industrial, 21% office parks, 10% CBD retail, and 5% retail suburban. It also owns
347,000 m2 of development land, the majority of which is residential. Pearl is Bloomberg Ticker PEARL: ZH
looking to further diversify into the leisure space and expand its retail space. The Current price $ 0.029
portfolio is heavily weighted towards commercial, but we believe there may be a
Target Price 0.039
significant opportunity in leisure, given the likely upturn in tourism in Zimbabwe.
Most of the company’s buildings are comparatively modern and situated in key Market Cap $mn 35.29
locations across the country. EV $mn 35.83
Market Weight 0.79%
Fundamental support for rentals Common Shares Outstanding mn 1,238,160
Pearl Properties’ unaudited financial results for the 6 months ended 30 June
2010 revealed that the company is seeing an increase in rental receipts, with Freefloat mn 18%
rental income growing 68% (y-o-y), to $3.3mn on the back of improving rentals Average daily value traded $'000 30.78
per square metre, which grew 66% (y-o-y), to $4.71 per square metre. Rental
yields consequently rose 4.7% to 9.22% on the back of rising rental rates.
Rentals on the group’s properties are forecasted to rise 15% in 2011 and 10% in PER (+1) 3.39
2012 from an estimated $5.00 per square metre in 2010. Growth in rental rates is P/BK (+1) 0.40
the result of both demand and supply factors. On the demand side, increased
Dividend Yield 0%
economic activity is driving companies to seek new, high quality spaces in which
to conduct business. On the supply side, which we believe is the main driver; the ROE 3%
Zimbabwean property sector is facing key constraints in the development of new Share price performance YTD 24%
properties. Chief amongst these constraints is the lack of long term funding to
finance such projects within the country. Lower yields than the 10% to 15%
achievable in other regional markets also continue to limit the extent of foreign
investment in the local property sector. We believe this is likely to remain the Share Price Performance $ (12m)
case in the medium term, and existing property owners will continue to benefit
0.04
from the slow recovery in the supply of rental spaces in the economy.
0.03
Valuation 0.03
We estimate Pearl Properties trades on P/BK (+1) 0.40x and P/NOI factor (+1) of 0.02
10.8 to 2011E, placing the stock at a discount to emerging market property
counters, at P/BK of 0.8x and P/NOI of 13.9x for 2011E. We expect an FY10 top 0.02
line of $6.9mn on the back of growing rentals per square metre and growing 0.01
rental income. We forecast FY11 revenues to grow to $7.9mn on the back of an
increase 14% in average rentals to $5.8 per square metre. We also expect rental 0.01
income to be supported by a decline in vacancy rates, to 5% from an estimated -
15% at the moment. We expect FY10 Profit Before Fair Value Adjustments of
Oct-10
Aug-10
Sep-10
Dec-10
Feb-10
Jul-10
Feb-11
Jun-10
Jan-11
Apr-10
May-10
Nov-10
Mar-10
$3.4mn and $3.5mn in FY10 and FY11, along with book values of $80mn and
$90mn. Using a weighted combined multiples valuation method (P/BK & P/NOI),
we have arrived at a target price of $0.0391 for Pearl Properties, implying upside
of 37%. We therefore initiate our coverage of Pearl with a Buy recommendation.
Total Net EPS DPS EBITDA Net EV/ EV/

income EBITDA Income ($) ($) Margin EV Debt Sales EBITDA P/E P/CE P/Bk
2009 5.3 3.2 2.4 0.002 0.00 60.5% 35.8 -0.1 6.8 11.2 15.1 14.6 0.48
2010E 6.9 4.4 4.6 0.004 0.00 63.3% 31.9 -4.0 4.6 7.3 7.9 7.7 0.45
2011E 7.9 5.1 10.6 0.009 0.00 64.9% 31.2 -4.7 4.0 6.2 3.4 3.2 0.40
2012E 9.4 6.4 15.6 0.013 0.00 68.2% 27.7 -8.2 3.4 5.0 2.3 2.2 0.34
2013E 10.2 7.0 15.2 0.012 0.00 68.4% 23.7 -12.2 3.1 4.6 2.4 2.3 0.30
2014E 11.0 7.6 11.1 0.009 0.00 68.7% 19.1 -16.8 2.9 4.2 3.2 3.1 0.28
2015 E 11.9 8.2 11.9 0.010 0.00 68.9% 14.1 -21.8 2.6 3.9 3.0 2.9 0.25
28
Equity Research
Agriculture
Zimbabwe
Seedco
Pushing regional boundaries
Aggressive growth in production Market Data

SEEDCO is seed-manufacturing company, with operations in Zimbabwe,
Zambia, Malawi and is planning to expand operations in East Africa. The
company manufactures maize, cotton, soya beans and winter cereal seeds. Rating HOLD
Maize seed makes up majority of the group’s production, taking up 75% to 80%
Bloomberg Ticker SEEDCO: ZH
of total production. Production of maize seed, the group’s main product,
increased 83% in the period, to 45,000 tonnes. Most of the growth in production Current price $ 1.2509
was registered in Zimbabwe, which experienced growth of 200%, to 23,000
Target Price 1.45
tonnes of maize seed. Malawi and Zambia also saw growth in production of
24% and 29%, to 5,700 tonnes and 15,000 tonnes respectively. Strong growth Market Cap $mn 241.09
in sales is therefore expected on the back of the strong growth in the group’s
EV $mn 247.02
seed production. In the unaudited results for the 6 months ended 30 September
2010, Seedco posted an encouraging set of financial results, with revenues Market Weight 5.37%
rising 58% to $20.3mn and EBITDA rising 217% to $1mn year-on-year. Common Shares Outstanding mn 193
However, as the first half of the year is Seedco’s cost accumulation period, the
growth in intake of seed, along with production was the key take away from the Freefloat mn 39.10%
results. 52 week Average traded value '000 64.00
Increasing capacity and support for demand Last Dividend declared N/A
With existing operations in Malawi, Zambia and Botswana, Seedco is looking PER (+1) 10.36
to expand in East Africa in the short to medium term and is exploring
opportunities in West Africa. Kenya, Tanzania and Ethiopia, may produce EV/EBITDA (+1) 6.70
close to 10,000 metric tonnes by 2013, from an estimated 200 metric tonnes Dividend Yield 1%
currently produced. Local production in East Africa will also see a significant
ROE 23%
improvement in the group’s margins. This is because seed was previously
exported into the region from Zambia, at a cost of $230/MT, equivalent to 12% Share price performance YTD 32%
of the average price the group receives for maize seed. Regional expansion
will also bring about a diversification of the group’s revenues by geography Share Price Performance (12m)
and by season, to assist in the smoothening of Seedco’s revenues.
Electioneering and government programs which traditionally bring Seedco 1.40
significant demand, along with donor programs attempting to ensure food
security in the region will continue to support the demand for Seedco’s 1.20
produce. There is some risk that growth in sales in Zimbabwe, Seedco’s main 1.00
market will be constrained by the lack of financing that is currently plaguing the
country, which may continue to see farmers in the country unable to take up 0.80
Price $
high volumes of seed. We believe this is mitigated, however, the expansion

into other African countries. 0.60
0.40
Valuation
We estimate Seedco trades on PER (+1) 10.4x, and EV/EBITDA (+1) 6.7x to 0.20
2012E, placing the stock at a discount to emerging market agriculture equities,
at PER 13.8x and EV/EBITDA 8.4x for 2012E. We expect an FY11 top line of -
Nov-10
Oct-10
May-10
Jul-10
Mar-10
Jan-11
Apr-10
Aug-10
Feb-10
Sep-10
Feb-11
Jun-10
Dec-10
$84.7mn on the back of 83% growth in maize seed production. We forecast

FY12 revenues to grow to $135mn on the back of a 58% increase in total seed
sales in FY12. We expect FY11 EBITDA of $24.5 and forecast growth of 54% to
$37.7mn in FY12. We expect FY11 net income of $14.3mn and forecast 62.5%
growth to $23.3mn in FY12. Using a weighted combined multiples valuation
method (PER & EV/EBITDA), we have arrived at a target price of $1.45 for
Seedco, implying upside of 16%. We therefore initiate our coverage of Seedco
with a HOLD recommendation.
Total Net EPS DPS EBITDA Net EV/ EV/ EV/

income EBITDA Income ($) ($) Margin EV Debt Sales CF EBITDA P/E P/CE P/Bk
2010 77.0 20.2 12.8 0.067 0.01 26.3% 247.0 5.9 3.2 8.7 12.2 18.8 16.5 4.06
2011E 84.7 24.5 14.3 0.074 0.02 28.9% 252.8 11.7 3.0 7.8 10.3 16.8 14.6 3.40
2012E 135.5 37.7 23.3 0.121 0.03 27.8% 249.9 8.8 1.9 9.0 6.7 10.4 9.4 2.70
2013E 152.4 41.6 27.4 0.142 0.03 27.3% 263.2 22.1 1.7 5.2 6.1 8.8 8.1 2.17
2014E 169.5 45.7 30.3 0.157 0.03 27.0% 278.8 37.7 1.5 4.7 5.5 7.9 7.3 1.78
2015 E 189.4 50.6 33.9 0.176 0.04 26.7% 296.1 55.0 1.3 4.3 5.0 7.1 6.6 1.49
29
Certification
The analyst(s) who prepared this research report hereby certifies(y) that: (i) all of the views
and opinions expressed in this research report accurately reflect the research analyst's(s)
personal views about the subject investment(s) and issuer(s) and (ii) no part of the analyst’s(s)
compensation was, is or will be directly or indirectly related to the specific recommendations
or views expressed by the analyst(s) in this research report.
Ratings Definition
Buy - Expected 1 year return is at least 20%
Hold - Expected 1 year return of between 0% and 20%
Sell - Expected 1 year return of 0% and below
Disclaimer
This document has been prepared by IH Securities to provide background information about
the securities and (or) markets mentioned herein, the forecasts, opinions and expectations are
entirely those of IH Securities. This document was prepared with the utmost due care and
consideration for accuracy and factual information; the forecasts, opinions and expectations
are deemed to be fair and reasonable. However there can be no assurance that future results
or events will be consistent with any such forecasts, opinions and expectations. Therefore the
authors will not incur any liability for any loss arising from any use of this document or its
contents or otherwise arising in connection therewith. Neither will the sources of information or
any other related parties be held responsible for any form of action that is taken as a result of
the proliferation of this document.

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Zimbabwe Strategy

Zimbabwe Equity Strategy 2011

Zimbabwe Equity Strategy 2011

Agriculture and mining sector propel growth

Resilient Foreign Portfolio investment amidst weak FDI

Lacklustre equities performance in 2010

Disclaimer Research Team Contact Details

Table 1: IH Universe Valuation Table

Emerging economies to underpin global economic growth

Zimbabwe outperforming its Sub-Saharan Africa peers

Fig 1: GDP growth: Zimbabwe v. SSA & Economies 2008 to 2012E

Emerging & Developing Economies

Source: IMF and Ministry of Finance

Figure 2: Private Financing Inflows in SSA from 2007 to 2011E

SSA Net ForeignDirect Investment SSA Net Portfolio Investment

Figure 3: Zimbabwe y-o-y inflation v. SSA 2009 to 2012E

Zimbabwe Sub-Saharan Africa

Source: IMF, Ministry of Finance and IH Estimates

Zimbabwe Economic Outlook

Economic growth underpinned by the mining and agricultural sector

2008 2009 2010 2011E

Source: Ministry of Finance

Manufacturing Sector continues to face power and liquidity challenges

Fig 6: Capacity utilization in Manufacturing Sector

2009 2010 2011 Projected

Source: Ministry of Finance

Financial intermediation continues to improve.

Source: Ministry of Finance, Reserve Bank of Zimbabwe

Benign inflationary pressures expected, upside risks exist

Figure 8: Annual and Monthly inflation

Month on Month Year on Year

Source: Ministry of Finance

Portfolio inflows limiting overall negative BoP

Figure 9: Zimbabwe Private Financing Inflows

-20 2007 2008 2009 2010 2011

Zimbabwe Net Direct Investment Net portfolio investment

Source: Ministry of Finance

The elephant in the room remains politics

Equities perform in a subdued fashion in 2010

Market Cap Industrial Index Mining Index

Source: Zimbabwe Stock Exchange: IH Estimates

Turnover value Foreign deal value

Source: Zimbabwe Stock Exchange: IH Estimates

Figure 12: Market Movers in 2010

Source: Zimbabwe Stock Exchange: IH Estimates

Sectoral Performance: Retail stocks outperforms market

Figure 13: ZSE Sector Performances; 2010 (%)

Building & manufacturing

Figure 14: Market composition by Sector

Other, 12% Telcom, 20%

Source: Zimbabwe Stock Exchange; IH Estimates

Key Themes in 2011

Figure 15: Sectoral Outlook

Rising local rentals spurred by increasing economic activity in an environment

Key Equity Drivers/Catalysts in 2011

IH Base-case Target Market Capitalisation for 2011: $5.1bn (+18% upside)

Key limitations to our approach are as follows:

Net EPS DPS EBITDA Net EV/ EV/ EV/

Dominant player in the local market

Dairibord, well on the recovery path Market Data

Beverages division to lead growth Dividend Yield 0%

implying upside of 123%. We therefore initiate our coverage of Dairibord Zimbabwe

Net EPS DPS EBITDA Net

Delta, still dominating the market Market Data