After finishing 2020 on a high the ZSE has started 2021 on somewhat of a rampage. As at 26 January 2021 the highest rising individual counter, TSL Limited (formerly Tobacco Sales Limited) is up 122.61%. This is a performance nothing short of amazing. The improving performances of the ZSE come with an increased appetite for investing in the bourse. The whole idea of stock investing, in a nutshell, is to buy low and sell high. So the question eventually comes up as to which counters are underrated and represent an opportunity for investors to make some massive gains.
Underrated can mean many different things to different people. For this article, we will simple criterion to define underrated. Firstly the shares must be lowly priced. While low is a relative term for the most part these will be below ZWL$5. Way below that. Secondly, they must represent a tangible upside, something that can at least be explained in current circumstances.
The following are the opinions of a person who is enthusiastic about stock market investing in general and the Zimbabwe stock exchange in particular. If you intend to act on any of these opinions please seek advice from an investment advisor and do your due diligence as your money is always at risk on the stock market.
Unifrieght is a bit of a storied counter on the Zimbabwe stock. It is a very illiquid stock, trading very few times. It has a historical dividend yield (dividend as a percentage of price) of around 50%, this is quite something considering the second-highest historic dividend yield is only around 8%. Priced at a meagre 32.1 cents Unifrieght also happens to be sitting a huge logistics network and this puts them at the gateway of a lucrative industry as eCommerce starts to take root in Zimbabwe. The prospects on Unifrieght are long term but that doesn’t mean there is no short term action.
LaFarge has had its problems. Its share price recently doubled from around $6 to $13. I know I said we would mostly keep to shares with prices below $5, but LaFarge is the exception and with good reason. LaFarge had production halted by the Environmental Management Authority and has been in a slump since. It’s recent doubling in share price pales in comparison to what the counter can do once they install their new manufacturing plant which will boost their productive capacity. Patient capital can get in now and reap the benefits in good time.
Zimpapers has a lot to cheer about. The widest circulated newspapers in the nation, a prosperous foray into radio with Star FM and the recent awarding of a TV licence are all good signs. However, those are champion positions in media that are being phased out. What lands Zimpapers on this list is their handling of digital through ZTN. From a much-maligned institution to a savvy online media player they cultivated the capability to produce TV content whilst waiting for a licence. At 98 cents per share, there is plenty of opportunity in Zimpapers going forward.
Ariston is an agricultural player that has a lot of export business and famously exports many things including macadamia nuts. Ariston is up a modest 20.39% this year but that will surely not be the best or last we see of it. Food prices continue to push up in international markets as Covid-19 has brought havoc to production lines and supply chains across the world. The rains have been friendly and those foreign currency earnings may count double after the RBZ changed the rules for exporters now allowing them to keep their foreign currency after the initial surrender indefinitely. Ariston is a long term growth bet but we may also see rapid growth in the short term.
Willdale is a strong young counter that manufactures bricks and building materials. With stability starting to show in the Zimbabwean economy after the Reserve Bank of Zimbabwe put a halt to money supply growth that was fueling inflation and exchange rate depreciation planning is a feature that comes back into play in the Zimbabwean economy. This is always evidenced by construction and demand for construction materials. Of course, things are still held down by Covid-19 and its second wave but if the RBZ can hold the centre and the pandemic is eventually beaten the only way is up for construction-related counters. Willdale recently surged to 41 cents per share but in the long, you will likely look back on this price as a bargain.
Edgar’s has had its share of problems. To be fair more than most. EdCon South Africa divested, a management shakeup, a failed rights issue and the plague that the informal market operators have become to them. Edgar’s is not beyond repair. The young and seemingly inexperienced management brought with it a fresh take that shaw the clothing retailer push for Black Friday sales. While the success of the sale itself is neither here nor there it undoubtedly shows that they have a management that is finally on the pulse. This same energy is evidenced in their push to sell clothes via their WhatsApp platform. Have Edgar’s found the solution yet? I don’t think so. However, if management keeps behaving the way it has they will and if you like the odds getting in at $1.10 is a bargain.
For the same reasons as Willdale, Turnall represents a good opportunity. Turnall, however, has a wider array of products than Willdale to include prefabricated and concrete solutions for construction. So far this year Turnall is down 1.11% but the potential in this one is strong. At 92 cents a share Turnall is an absolute steal. However, Turnall doesn’t look like it will do much in the short term and gains will come. In the medium to long term. This would best suit patient capital.
These counters represent some great opportunities to pick up quality assets at a low price. Any counters that you fancy on the ZSE that represent good opportunities?