9 of the active 51 counters on the Zimbabwe Stock Exchange fall within the description of the financial sector. This includes banks, insurers and other financial intermediaries. CBZ Holdings, FBC Holdings, First Capital Bank, Fidelity, First Mutual Holdings Limited, Getbucks Microfinance, NMBZ Holdings, ZB Financial Holdings and ZimRe Holdings Limited are the 9 counters and you can acquaint yourself with them in this previous article that touched on financial counters on the Zimbabwe Stock exchange. Banks and insurers are required to use December as their year-end while Getbucks uses June as a year-end. How have financial sector companies performed during the year?
As an index the Financial services counters have moved 30.37% year to date. This is a much more favourable figure than it initially seems. The ZSE as a whole has moved 106% year to date. As we discussed in a previous article the majority of this performance comes from the small-cap counters. The small-cap counter-rally has been attributed to the influx of retail investors at the low end. Getbucks is the only member of the Financial services index that is also a small-cap counter. Makes sense of what we will discuss shortly. The index is at a low 30.37% because CBZ holdings make up 48% of the index at current levels (66% at the beginning of the year) and it is down 6.39% year to date.
Getbucks surprisingly rules the roost so far this year. In fact, Getbucks has grown twice as much as any other Financial sector counter on the Zimbabwe stock exchange. Getbucks is in fact the 4th best performer on the Zimbabwe Stock exchange in 2021. The company went through a very tough couple of years with the change from US dollar to Zimbabwean dollars. A particular feature of performances is that the incomes of these companies are expected to slow down. The main culprit has been reduced foreign exchange incomes. As rates have slowed down both officially and on the parallel market, foreign exchange translation incomes have lowered and this will certainly impact many of these players who were significant beneficiaries of this in prior years. Fidelity which is still believed to be an acquisition target for ZimRe has performed well so far in the year with that trajectory expected to hold. First Capital Bank posted a decline in earnings of around a third but showed the business is strong and solid with a good future outlook. NMBZ posted double the earnings of the 2019 financial year on an inflation-adjusted basis and owes its performance to this positive result. ZB and FBC are both battling issues on the business front with the former being the target of a cash in transit heist which has agitated security concerns while the latter battles bribery charges in court. Meanwhile, ZimRe has been going through restructuring after purchasing and delisting ZimRe Properties and consolidating its position in Fidelity.
The elephant in the room
One issue has had a major impact on performances across the board and especially on the performance of financial services counters. The ZSE allowed companies that have December reporting date an extension to their reporting period. Generally, listed companies are allowed three months after the end of their year-end to report their results. That would’ve been 31st March 2021 for year-end 2020. The ZSE allowed companies a further 2-month extension which means they now have until the 31st of May to report year-end results. These results and reports contain critical information of both a qualitative and quantitative nature that analysts and the markets rely on in pricing the counters. The delay of these results is a delay in information. Of the financial services counters only NMBZ, FBC and First Capital Bank have published results with others still to publish. Getbucks has a June year end so is not under duress of withheld results. The lack of significant movement in Counters like CBZ and ZimRe is evidence of the impact of this. So too are the modest returns in ZB and First Mutual.
The finance sector is going through changes as the rest of the economy does too. You can count on banks and finance companies to eventually come out on top. It would be wise to look at the financial counters that have not performed well so far this year with an eye to the future.
