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EXECUTIVE SUMMARY

Recent results released by leading hoteliers point towards improving occupancies, RevPARs and ADRS locally. We expect this positive earnings outlook to continue, given the positive outlook for the tourism sector. Our range of scenarios for RevPAR growth is xx, given the limited supply growth until 2013. With occupancies recovering towards peak levels we could see room supply coming at a premium. Prospects for discount business with corporate transient customers. Tight supply environment an important tailwind for African Sun An increase in local salaries should boost local consumer spent while investment interest in the country should boost foreign business visitors An improvement in the global economy will also support the tourism industry. Better earnings visibility for Cresta Hospitality and Meikles, because of their simpler more defensive business model. Business travel and tourism is less fickle than leisure travel so the groups profits are likely to show defensive qualities. We also like African Sun because it has already expanded regionally, and is more diversified. Operating cost inflation, and subdued consumer and corporate profits.The lack of incremental costs on new management contracts should buoy results for African Sun Not cash generative because of capex projects. Prospects for hotels have strong longer term drivers, Economic growth and varied and unique tourist offering.

Zimbabwe Stock Exchange Overview- May 2012


Fortune favours the brave....
Analysts Addmore Chakurira +263 772 265 454 addmore.chakurira@imara.co Batanai Matsika +263 772 889 556 batanai.matsika@imara.co Nontando Zunga +263 772 772 755 nontando.zunga@imara.co

CONTENTS
EXECUTIVE SUMMARY ZIMBABWE IN FIGURES: MACROECONOMIC INDICATORS ZIMBABWE MACRO-ECONOMIC OVERVIEW THE ZIMBABWE STOCK EXCHANGE OVERVIEW Companies In Detail AICO AFRICA LI MITED BARCLAYS BANK ZIMBABWE LIMITED BAT ZIMBABWE LIMITED CBZ HOLDINGS LIMITED DAIRIBORD HOLDINGS LIMITED DELTA CORPORATION LIMITED ECONET WIRELESS LIMITED HIPPO VALLEY ESTATES INNSCOR AFRICA LIMITED MASAWARA MASHONALAND HOLDINGS LIMITED MEIKLES OK ZIMBABWE LIMITED NEW DAWN MINING PADENGA HOLDINGS LIMITED PEARL PROPERTIES LIMITED SEED CO TA HOLDINGS LIMITED ZIMPLATS LIMITED

SECTOR

PAGE 4 5 6 10

Agriculture Financial Tobacco Financial Food Beverages Telecoms Agriculture Conglomerate Investment Holding Property Conglomerate Retail Mining Agriculture Property Agriculture Conglomerate Mining

15 18 21 24 27 30 33 36 39 42 44 47 50 53 56 59 62 65 68

Appendix to Abbreviations: ADR: Average daily rate AfDB: African Development Bank ARPU: Average Revenue Per User CB: Central Bank CIMCG: China International Mining Group Corporation FAO: Food and Agricultural Organisation FDI: Foreign direct investment FMCG: Fast Moving Consumer Goods Forex: Foreign Exchange GDP: Gross Domestic Product GNU: Government of National Unity HIPC: Heavily Indebted Poor Countries IES: Imara Edwards Securities (Pvt.) Ltd Zimbabwe IAS: Imara Africa Securities Limited IFSC: International Financial Services Centre MDRI: Multi-lateral Debt Relief Initiative NIEEF: National Indigenisation and Economic Empowerment NII: Net Interest Income NIM: Net Interest Margin NPL: Non Performing Loan NPV: Net Present Value NSAS: National Sugar Adaptation Strategy OMIR: Old Mutual Implied Rate Pp: per person RBZ: Reserve Bank of Zimbabwe REVPAR: Revenue per available room SADC: Southern African Development Community S.O.P: Sum of parts SSA: Sub-Saharan Africa US$: United States Dollar W.H.O: World Health Organisation ZIMRA: Zimbabwe Revenue Authority ZSE: Zimbabwe Stock Exchange Z$: Zimbabwe Dollar

EXECUTIVE

SUMMARY

Recovery on course although beleaguered somewhat by unfavourable atmosphere.. Four years on in a dollarised economic environment and the economy is still on a growth path, beleaguered somewhat by an unfavourable financial and political atmosphere. The global economy is expected to grow by 2.5% in 2012 and 3.1% in 2013 according to the World Bank. High income growth countries are expected to post a 1.4% growth in 2012 and 2.0% in 2013. Developing countries are forecast to grow by 5.4%. These estimates have been revised downwards from initial estimates made in June 2011 and the Bank insists that even achieving these outturns is very uncertain. The downturn in Europe and weaker growth in developing countries raises the risk of the two developments reinforcing each other. Despite the global economic crisis, Sub Sahara Africa is set to growth by more than 5%, while the Zimbabwean economy is expected to grow by 9.4%. Agriculture/mining sectors, the biggest talking point Major propellers of local economic growth have been the mining and agricultural sectors. The Ministry of Finance estimates that the mining sector (projected to grow by 15.9% in 2012) will remain the major driving force behind overall economic growth. The sector is expected to benefit from firming international commodity prices, strategies to lower electricity supply interruptions and additional private capital injections. The agricultural sector is expected to grow by 11.6% in 2012 on the back of increased funding initiatives. The countrys annual inflation is also expected to end the year at 5%. Several issues, however, threaten the stability of the inflation rate including high utility charges, higher import duties on some basic goods and exchange rate risk against the Rand as most of the basic goods are still being imported. Pell-mell performance on the local bourse due to indigestible policies For 2011 both the industrial and mining indices were down with the industrial index losing 3.58% whilst the mining index lost 49.75%. Although the performance was in line with regional exchanges and some international indices, the mining index was further weakened by the local policy issues. Year to date, the indices have weakened further with the industrial index down 10.62% whilst the mining index is down 9.51%, this is in contrast to the positive performance on the regional and international bourses, where the regional exchanges are up on average by 7% whilst the main international indices have gained an average of 5%. The poor performance on the local front could be attributed to inconsistency on policy pronouncements mainly relating to indigenisation and elections. For 2012, we expect some improvement driven by improving company performance. The market capitalisation to GDP ratio declined in 2011 to 36% from 45% in 2010, this however still compares favorably with the SSA average of above 50%. The other side of the coin Post the hyperinflationary era, most companies are now afloat, after an almost precarious position. A number of corporate earnings statements have been positive in support of an improving economy. The indigenisation issue however remains contentious, with the end document not having been clarified. Investor sentiment has been rattled with minimal foreign direct participation. Consoling, however, is the fact that in October 2011 government released a Gazette revising the indigenisation regulations to state that foreign owned firms could now indigenise their 51% equity over 4 years; with 26% to be localised in the first year, 10% in the second year, 10% in the third year and 5% in the fourth year. Despite talks of elections, we see them as unlikely to occur in 2012, as the liquidity strain continues to bite. The constitution making process is yet to be finalised, then the referendum has to follow before we can have elections. We forecast that at the earliest, we could have the elections late 2013, however, the noose is still ominously around the neck as politicians continue to issue divergence statements. Jump onto the bandwagon.. Despite top line growth ahead of inflation, heavy interest costs continue to negate positive performance in many listed companies. A classic case is that of PG Industries, whose gearing stands at a high of 136%. Several other companies remain hugely undercapitalised hampering earnings growth and curtailing share price performance. Rio Zim recently concluded a rights offer which should see its huge debt being paid, thus lowering finance costs and possibly returning the group to viability. Several other companies are also carrying out corporate activities, and although the prospects of deleveraging are attractive, other factors such as the unclear indigenisation policy and likelihood of elections continue to draw back significant progress. The economic recovery should however continue and is likely to accelerate if further reforms are enacted by the authorities. It is our view that Zimbabwe offers great potential as a recovery play and we urge investors to take positions in rapidly growing, dominant, well managed and strong cash generating companies such as BATZ, Dairibord, Delta, Econet, Innscor, OK Zimbabwe, Padenga and SeedCo.

Zimbabwe in Figures: Macroeconomic indicators

THE 2009-2014 MACRO-ECONOMIC FRAMEWORK 2009 Act Real sector and inflation (US$ m and %) Nominal GDP level in US$ m Real Gdp growth (%) Annual Inflation (average %) Central Government (US$m) Total revenue and Budget Grants Revenue(Tax and Non Tax) Budget Grants Off Budget Grants Total expenditure Central Government Current expenditure OW: Employment costs Other recurrent expenditures Capital expenditure External Sector(US$m) Exports(fob) Imports(fob) Current Account Balance Capital Account Overall Balance of Payments Memorandum Items As a % of GDP Revenues Expenditure and Net Lending Current expenditure OW: Employment costs Other recurrent expenditure Capital expenditure External Sector Exports fob Imports fob As % of Total Expenditures Current expenditure OW: Employment costs Other current expenditures Capital expenditure 87.30% 59.80% 19.80% 4.90% 76.10% 52.10% 24% 19.70% 78% 65.60% 12.40% 20% 73.40% 60% 10% 25% 71.20% 55% 11.90% 27.50% 28.70% 57.10% 50.30% 76.90% 46.10% 62.20% 46.20% 57.60% 45.70% 53.20% 16.60% 16.40% 14.30% 9.80% 3.20% 0.80% 34.80% 31.40% 23.90% 16.40% 7.50% 6.20% 30.50% 30.50% 23.80% 20% 3.80% 6.10% 34% 34.10% 25.10% 20.50% 3.40% 8.50% 34% 34% 24.20% 18.70% 4% 9.40% 1,613.3 3,213.1 (1,140.3) (656.5) (1,867.0) 3,380.1 5,161.8 (1,852.5) 617.5 (412.1) 4,143.7 5,599.6 (1,565.0) 775.4 (789.7) 4,604.1 5,731.5 (1,247.6) 809.5 (438.2) 5,164.4 6,015.5 (1,034.3) 849.8 (184.5) 974.4 933.1 41.3 93.0 920.9 804.0 550.3 182.0 45.2 2,339.1 2,339.1 0.0 500.0 2,106.9 1,603.0 1,098.5 504.8 415.3 2,744.9 2,744.9 0.0 500.0 2,744.9 2,140.2 1,800.0 340.2 550.0 3,400.0 3,400.0 0.0 500.0 3,400.0 2,495.5 2,040.0 340.2 850.0 3,841.0 3,841.0 0.0 0.0 3,841.0 2,734.7 2,112.5 455.5 1,056.3 5,623.0 5.4 -7.7 6,716.0 8.1 3.0 8,998.0 9.3 4.5 9,959.0 7.8 5.0 11,297.0 6.6 5.5 2010 Est 2011 Proj 2012 Proj 2013 Proj 2014 Proj

12,711.0 6.4 5.7 4,321.0 4,321.0 0.0 0.0 4,321.0 2,975.2 2,160.9 622.2 1,296.5

5,684.6 6,355.0 (894.6) 847.7 (46.9)

34% 34% 23.40% 17% 4.90% 10.20% 44.70% 50%

68.90% 50% 14.40% 30%

Source: Ministry of Finance, Reserve Bank of Zimbabwe

GDP Growth Rates


0.30 0.25 0.20 0.15 0.10 0.05 0.00

GDP Growth rate


%

2011 Revenue Contribution


Personal Income 20% Other 1% VAT 31%

12 8 4 0 -4 2008 2009 2010e 2011 2012f


Corporate 10%

-8 -12 -16
2011 Source: Ministry of Finance 2012F

Other direct taxes 7%

Excise Duty 11% Non tax revenue 8% Customs Duty 12%

Source: IMF, Ministry of Finance

Source: Ministry of Finance

ZIMBABWE MACRO-ECONOMIC OVERVIEW


Economy expected to remain on a growth path The gross domestic product has been on the rise, growing by 5.4% in 2009, 8.1% in 2010, 9.3% in 2011 and is projected to move up by 9.4% in 2012. Major propellers of economic growth have been the mining and agricultural sectors. The Ministry of Finance estimates that the mining sector (projected to grow by 15.9%) will remain the major driving force behind overall economic growth. The sector is expected to benefit from firming international commodity prices, strategies to lower electricity supply interruptions and additional private capital injections. The agricultural sector is expected to grow by 11.6% in 2012 on the back of increased funding initiatives. ...although the IMF expects the growth rate to moderate As we pointed out in our 2012 Outlook report, in its 2011 Article IV Consultation (May 2011), the IMF cited two scenarios for the economy. Under an unchanged policies scenario, the group forecast that the GDP growth rate would decline to about 3.0% as investment remains subdued as a result of: Significant structural impediments, The acceleration of indigenisation in mining Uncertainties about the ownership requirements in the sector Higher commodity prices and increased diamond exports if achieved were however forecast to underpin higher growth, higher budget revenues, and a faster reduction of the current account deficit. According to the IMF, additional downside risks for the outlook include: Political disturbances Export price declines Higher-than-anticipated increases in import food and fuel prices Unfavourable weather Reversals of capital inflows Banking system instability. Under the alternative, recommended policies scenario, the IMF assumed that the government would eliminate expenditure overruns while leaving more fiscal space for critical infrastructure and social spending in 2011 and start rebuilding fiscal buffers in the medium term, forcefully address financial sector vulnerabilities, and strengthen the business climate. According to its forecast, in 2011, the economy was to have grown by 7.2% mainly because of higher capital inflows providing for more working capital and higher investment into the mining sector, as well as from higher public investment in critical infrastructure. In the medium term, the country could thus potentially boost growth performance by about 3.0% relative to the unchanged policies scenario, and increase international reserves to about 1 month of imports by 2016. Revenue Collections Q1 2012 - (Zimbabwe Revenue Authority) Zimra total gross collections stood at US$ 773.7m (against a target US$ 715.4m). Net collections for the quarter amounted to US$ 723.9m, 1.2% above budget. Value added tax was the highest contributor at US$ 292.7m (38% of total), individual tax 19% and excise duty US$ 88.9m. According to the Minister of finance, diamonds and nontax revenues for February 2012 amounted to US$ 5.0m and US$ 7.4m against targets of US$ 41.5m and US$ 10.5m, respectively. For January and February, actual diamond collections totalled US$ 19.5m, against a target of US$ 77.5m, (non-tax revenue US$ 18.5m against a target of US$ 21.0m). In terms of the budget performance, there is already a gap with total expenditure of US$ 286.9m exceeding revenues of US$ 227.7m. The Revenue to GDP ratio is expected to grow from 30% to 34%, from ongoing tax reforms focusing on ZIMRA restructuring, compliance initiatives and increased automation of tax collection systems. In total for FY 2012, government revenues are estimated at US$ 4.0bn, with US$ 0.6bn expected from diamond revenues. Total expenditure is expected to amount to US$ 3.4bn, with US$ 2.0bn committed to employment costs (60% of total expenditure) whilst the US$ 600.0m from diamond receipts is targeted for capital projects. The MoF targets to reduce the employment costs/total expenditure ratio to 50% by 2014, whilst capital expenditure is expected to improve to about 25% in 2012, against a desired target of 30% by 2014. Inflation expected to remain stable Inflation, stood at 4.3% for the first two months of 2012 down from 4.9% for December 2011, while for March 2012 the y-o-y rate was 3.98%. On a month-on-month basis, inflation decreased from 0.49% in February 2012 to 0.43% in March 2012. The countrys annual inflation is however expected to end the year at 5%. Several issues threaten the stability of the inflation rate including high utility charges, higher import duties on some basic goods and exchange rate risk against the Rand as most of the basic goods are still being imported.

Zimbabwe Inflation Rates


8 6 4 2 0 -2 -4 -6 Source: CSO
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Political Outlook Zimbabwe recently celebrated 32 years of independence, with four years in a dollarised economic environment; most companies are now afloat, after an almost precarious position. A number of corporate earnings statements have been positive in support of an improving economy. The indigenisation issue remains contentious, with the end document not having been clarified. Investor sentiment has been rattled with minimal foreign direct participation. Consoling, however, is the fact that in October 2011 government released a Gazette revising the indigenisation regulations to state that foreign owned firms could now indigenise their 51% equity over 4 years; with 26% to be localised in the first year, 10% in the second year, 10% in the third year and 5% in the fourth year. Despite talks of elections, we see them as unlikely to occur in 2012, as the liquidity strain continues to bite. The constitution making process is yet to be finalised, then the referendum has to follow before we can have elections. We forecast that at the earliest, we could have the elections late 2013, however, the noose is still ominously around the neck as politicians continue to issue divergence statements. SECTOR OVERVIEWS Annual mineral production for precious commodities has been on the rise as shown below.
Annual Mineral Production 2011 Budget 2011 Revised 2010 Actual Forecast Gold/kg Nickel/t Coal/t Chrome/t Platinum/kg Paladium/kg Black Granite/t 9,620 6,133 2,668,183 516,776 8,639 6,916 169,318 13,000 7,680 3,000,000 700,000 12,000 9,600 168,000 Forecast 13,000 7,700 3,000,000 700,000 10,500 8,400 168,000 2012 Proj 15,000 8,800 3,500,000 750,000 12,000 9,600 170,811

2010 Inflation rate (%) monthly

2011

2012

Inflation rate (%) Annual

The country still has a colossal trade deficit For 2011, total export earnings amounted to US$ 4.1bn, registering growth of 30.2%, whilst 11.1% growth is forecast for 2012 which should bring export earnings to US$ 4.6bn following firm international commodity prices and increased throughput from agriculture, mining and manufacturing. Imports for 2011 amounted to US$ 5.6bn, and are expected to grow to US$ 5.7bn for 2012 leading to a further expansion in the trade deficit and a widening current account (CA) deficit as other contributors such as services and investment income have not yet fully recovered. Imported goods largely comprise fuel, food, machinery and motor vehicles as the local manufacturing sector is still characterised by undercapitalisation. The current account deficit of US$ 1.5bn stands at 17% of the countrys GDP. Liquidity situation set to improve from PTA and international banks support PTA Bank has a keen interest in resuscitating the country and has been working with banks and corporates in the provision of affordable funding to alleviate the liquidity challenges. The bank is looking at lending out US$ 0.5bn in 2012 in the SSA region. The bank recently lent US$ 4.0m to Dairibord, at an 11% all in cost for a period of 12 months. In an environment faced with high liquidity strain, local banks have been charging a huge premium on supply of funding with high interest rates averaging 20% per annum. Cooperation from international banks, charging affordable rates, will thus assist to alleviate the liquidity crisis in the cash stripped economy. Money market rates softer backed by improving money supply Proceeds from the tobacco selling season and repatriated nostro account balances have somewhat led to a softening in money market rates. From the banks, US$ 200.0m was expected from the nostro accounts. As a result, money market interest rates declined from 14% - 16% at the beginning of the year to between 10% - 12%, whilst lending rates now range between 15% - 18% from previous highs of 18% - 22%. The measures are short term however, thus the long term liquidity position still remains unresolved meaning the lending rates are unlikely to decline significantly in the near term.

Source:IES;MinistryofMines,ChamberofMines

For Q1 2012, gold deliveries grew by 5.8%, to register a total of 3,126kgs, the average growth rate for small-scale and primary producers stood at -3.2% and 8.3% respectively. Y-o-y growth was 21.64% for cumulative gold deliveries, 19.2% and 22.3% for small-scale producers and primary producers respectively. The growth rates have been attributed to firming gold prices, as gold prices have increased from just above US$ 1,300/oz in January 2011 to the current US$ 1,650/oz. The Minister of Finance however pointed out that, despite the increase in the international metal prices, the amount of royalties collected from precious metals has remained low. For 2011 it totalled US$ 44.1m against sales of US$ 1.7bn.

IMF forecasts that commodity prices will remain largely unchanged in 2012, According to the IMF, global commodity prices lost some of their luster in 2011, and although they remained high in real terms the prices declined for most of the year, with the exception of crude oil which was increasingly driven by geopolitical supply risk towards the end of the year. The commodity prices rebounded in Q1 2012, although they are still below their end of 2010 levels. A number of factors are at risk of affecting the broad upside potential, including recent downgrades of commodity assets from overweight to underweight and doubts about the continued sustainability of the decade long commodity markets boom. Uncertainty about the near-term global economic prospects is still on the charts while slowdown in the Chinese real estate market has also renewed concerns. Thus given the constrained global economic environment expected for 2012-2013, commodity prices are projected to remain largely unchanged, although cyclical commodity prices may pick up if global growth is stronger than currently expected. The pickup is however expected to be moderate as the growth in 2012 is unlikely to be stronger while the expected reduction in potential growth in China and other emerging economies would dampen cyclical upward pressure. However we see the mining sector as poised for a massive revival... RioZim was recently recapitalised, after Gem Raintree investment underwrote a US$5.0m rights issue and a private placement of US$45.0m, despite the threat of indeginisation. Gem Raintree investments represents the interests of Gem Group a US$3.4bn alternative investment firm whose focus is on emerging markets and Raintree Mining a Zimbabwean owned junior miner. Bindura is also set to recapitalise, as Mwana Africa Plc(52.9% shareholder) has sought to raise funding for the entity. An update from Mwana Africa shows that a total of 140.6m new ordinary shares of 1 pence each in the Company have been conditionally placed by Liberum Capital Limited with investors at a price of 5.5 pence per Placing Share. Further, China International Mining Group Corporation ("CIMGC") had conditionally subscribed for 242.4m new ordinary shares at the placing price. The group expected that this would assist them secure further project funding for BNC and the Group's other projects through CIMGC's banking and industry connections. Using the placing price, the gross proceeds of the Placing and the Subscription would be approximately US$33.5 million. A report compiled by SRK Consulting of UK concluded that Bindura Nickel requires US$26.0m to restart operations.

Agricultural sector to be boosted by increased funding According to the MoF 2012 budget, the agricultural sector was expected to grow by 11.6% in 2012 on the back of increased funding initiatives. Maize production was expected to reach 1.8m tonnes, up from 1.4m for 2011, whilst tobacco production was forecast to reach 150.0m kgs, up from 133.0m kgs in FY 2011. Sugar production, which totalled 259,000 tonnes, was projected to go up to 400,000 tonnes for FY 2012. These targets are likely to be missed due to the dry spell that was experienced in some parts of the country.

Source:IES;goldprice.org

Progress being made on indigenisation in the mining sector According to media reports, since the indigenisation bill was gazetted in March 2011, the Youth Development, Indigenisation and Economic Empowerment ministry has received more than 200 indigenisation implementation plans from mining businesses. Australian listed Zimplats also agreed to cede 51% of its shareholding, with 10% intended for the local community, 10% for employees and 31% for the NIEEF (National Indigenisation and Economic Empowerment Fund). Full details relating to the settlement are yet to be finalised. Although this affirms a high compliance rate, concern on the implications of the bill are still telling through depressed share prices of affected listed companies both on the local bourse and foreign exchanges for the dually listed companies.

The Minister of Agriculture estimates that the maize harvest could fall by 26% to 1.0m tonnes after nearly half of the crop was written off because of the prolonged dry spell. The country however has 400,000 tonnes of maize in reserves, which implies that an additional 400,000 tonnes would have to be imported to make up for the deficit. Further imports of wheat will be needed given an expected wheat output of only 75,000 tonnes this year, against annual requirement of 400,000 tonnes.According to the Food and Agricultural Organisation (FAO), other agricultural crops, such as millet,groundnuts, soy beans, sunflower, sugar beans and sorghum are estimated to be below the levels of 2011, on account of reduced plantings and lower yields. Consequently, cereal production in 2012 is put at 1.17 million tonnes, or one third less than last years output even after including a forecast increase in the winter wheat crop to be planted in May following the governments decision to provide low-interest loans, to help facilitate greater investment in wheat production.

Zimbabwe Cereal Production

Source: CSO

000 tonnes Maize Sorghum Wheat Others Total

2007-2011 Average 1135 107 59 100 1401

2012 2011 Forecast 1452 95 41 97 1685 968 65 60 80 1173

change 2012/11 percent -33 -32 46 -18 -30

expected to reach a high of 95% in 2012. In some subsectors such as clothing, textiles and printing, it has however remained low, averaging around 25%, while the textile and ginning industry capacity utilisation is expected to decline further to 19.0% from about 23.0% in 2010 mainly to due to undercapitalisation leading to a failure to carry out necessary capex projects.


Manufacturing sector capacity utilisation
100% 80% 60% 40% 20% 0%

Source: FAO/GIEWS Country Cereal Balance Sheets

The organisation however notes that higher yields from tobacco and a larger planted area for cotton contributed to a marginal increase in production of about 2%.
Seasonal Tobacco Sales* Total Auction Total Contract Total 2012 Mass sold (kg) Value (US$) Average Price US$/kg 34,578,964 3.69 45,008,544 3.85 79,587,508 3.78 Total 2011 68,603,246 2.77 % Change 16 58 36.55

127,427,605 173,245,821 300,673,426 189,808,834

2009A

2010Est

2011Proj

*As at 4 May 2012-Source: Tobacco Industry Marketing Board

Source:IES;RBZ;MinistryofFinance

A total of 34.6m kg of tobacco have been sold through the auction system whilst 45.0m have been sold through the contract system. In total, the mass sold is 16% above that of last year. The average price has also increased and averages US$ 3.78/kg up from the previous seasons US$ 2.77/kg, a 36.6% increase. Construction sector set to boom The local construction sector is set to grow by an average of 8% per year between 2012 and 2016. The residential real estate sector and office sector have been experiencing the highest growth in demand on the back of an improving economy and consumer wealth. According to the ministry of finance, 80% of the countrys 88,100km road network is in need of rehabilitation and 44,671km of the road network has outlived its lifespan. There are also several road dualisation projects meant to expand the countrys road network. The African Development Bank estimates that the rehabilitation of the network will cost about US$ 2.7bn, while clearing the backlog of periodic maintenance will cost about US$ 560.0m (both at 2009 constant prices). US$ 1.5bn is also needed by local authorities for the resuscitation and rehabilitation of the countrys water systems. Manufacturing Sector The manufacturing sector is expected to benefit from the spill over effect from growth in the mining and agricultural sectors and grow by 6% for 2012, with growth driven mainly by food (6%), wood and furniture (8%), metals and metal products (11%), and non-metal products (25%). The manufacturing sector capacity utilisation has picked up in some subsets including the consumer goods sector. For example, for foodstuffs it increased from 38% in 2010 and is expected to reach 57% in 2012, whilst for drinks, tobacco & beverages it is

Banking sector developments A US$ 100.0m Fund funded by international financial institutions and a regional financier was created early in the year for the rejuvenation of the Central Bank; this should assist the CB to resume its role as a lender of last resort, which could also improve interbank trading. As at 30 Dec 2011, the banking deposit base was estimated to be US$ 3.8bn. Lending to the productive sectors grew to US$ 2.6bn in 2011, constituting 78.4% of total deposits. Primary beneficiaries were the agriculture sector (18.0%), manufacturing, (20.0%), distribution (19.0%) and mining (6.0%).
Banking Sector Deposits, Loans and Advances
4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 (500)

Jun Sep Dec Mar Jun Dec Apr Jun Aug 2 9 16 23 30 09 09 09 10 10 10 11 11 11 Sep Sep Sep Sep Sep 11 11 11 11 11 Deposits Log. (Deposits) Total loans and advances Log. (Total loans and advances)

Source:IES;RBZ;MinistryofFinance

Banks asset quality is a major concern Banking institutions in Zimbabwe have seen strong deposit and credit growth ahead of GDP growth over the last three years albeit off a very low base. Nonetheless, overall undercapitalisation of most banks

remains a challenge especially when non-performing loans are taken into account. In our view, most of the lending decisions have been based on the size of the collateral being offered and relationships rather than cashflow. Good information is also scarce in the absence of a national credit bureau. Furthermore the value of the collateral, which is real estate in most cases, tend to be overstated. This has allowed the official NPLs numbers to be low. However the IMF estimated that NPLs were about 3.1% of outstanding loans. Banks are sitting on a significant unknown quality of NPLs and these continue to grow. Interest rate outlook The loan to deposit ratio remains high at 79.1%. The high lending rates have led to high slippages coupled with weak fundamentals of some local companies (high leverage and low profitability and low risk management) giving concern that credit quality can deteriorate. According to the Reserve Bank, lending rates have been ranging around 30% per annum against a low of between 2.5% and 5.0% paid on savings deposits. We do not expect any changes in the short term due to the liquidity strain. Telecomms sector bearing witness to the improving economic situation From the latest Econet results (FY 2012), we note that the group continues to record significant growth in subscriber numbers from 1.2m when Zimbabwe dollarised to the current 6.4m (2011: 5.5m), on the back of stable disposable incomes. ARPUs have been defended at over US$ 9.00, (FY 2011: US$ 10.33) bearing testimony that the economy is recovering. New customer acquisition rates have also been good, with 1.2m new customers acquired in March 2012 up from 1.0m acquired in February. The company also contributes significantly to the fiscus, with US$ 73.4m paid as income tax for FY 2012 while US$ 414.0m has been paid in cumulative tax, levies and licence fees since dollarisation. Tourism sector The tourism sector is expected to grow by 13.7% in 2012 with average room occupancy rates rising from 56% to 60%. However we expect RevPARs to remain largely unchanged as the ADRs may have to be compromised in order to be competitive given the limited demand in a cash stripped economy, and high competition from regional destinations.
Room and Bed Occupancy Indicator Average bed occupancy rate (%) Average room occupancy rate (%) Overall sector growth (Tourism, Hotels and Restaurants (%) 6.5 0.5 10.3 13.7
Source: Zimbabwe Tourism Authority & MoF

THE ZIMBABWE STOCK EXCHANGE OVERVIEW


History The first stock exchange in Zimbabwe was opened in Bulawayo in 1896, to raise money for gold mining activities in the country and was closed after the South African Anglo-Boer war of 1899-1902. Another exchange was also opened in Umtali (Mutare) in 1896 and it was closed in 1924 after it was realised that the local mining deposits in the area were not extensive. Between 1900 and 1930 an exchange also operated in the town of Gwelo (now Gweru). In 1946 a new exchange was opened in Bulawayo and a second one was opened in Salisbury (Harare) in 1951. The Zimbabwe Stock Exchange Act of 1974 consolidated the two Exchanges under a legal and operational framework, based in Harare. The Act governed the rights and obligations of members of the stock exchange and the general investing public. At eighth place, ranked by market capitalisation, Zimbabwe is not one of the largest markets in subSaharan Africa. However, with 81 listed companies, the ZSE has more depth and diversity than some of the regions markets. The stocks on the exchange include financial, insurance, retail, construction, transport, pharmaceuticals, property, telecommunications, manufacturing and agricultural-related stocks. There are currently two indices on the Stock Exchange; the Mining Index with four companies and the Industrial Index comprising of 77 companies. The indices are calculated using a 2009 base date and are weighted by market capitalisation. The Industrial Index is dominated by price movements in a few big cap stocks such as Delta which represents 20% of the index, Econet (19%), Innscor (8%), SeedCo (6%) and Hippo (5%). Trading on the ZSE Presently trading is by call over, using an open-cry floor system on a matched bargain basis. This trading system is paper based and settlement is on a T+7 basis against physical delivery of scrip (seven day settlement for both shares and payment). Custodial options: Barclays Nominees Stanbic Nominees Standard Chartered Bank Zimbabwe Limited Three Anchor Investments T/A Old Mutual custodial Services ZB Bank Limited

2009 35 46

2010 2011 Est 2012 Proj 36 52 37 56 37 60

Share dealing is done through stockbrokers once a day, from Monday to Friday. The call over session commences at 10.00 hours. The financial instruments traded on the ZSE are common stock, preference shares, corporate debentures, warrants, government stocks and fixedinterest securities. However, the bulk of trades and listings on the exchange are for common stock.

10

Dealing costs The set legislated transaction costs amount to 4.21% for a buy and sell.
ZSE Transcation costs Buying % Brokerage fees Stamp duty (buying) Capital Gains Tax (selling) Securities Commission Levy Investor Protection Levy VAT at 15% on Brokerage Total costs Basic Charge 0.18 0.05 0.15 1.73 US$2 1.00 0.25 1.00 0.18 0.05 0.15 2.48 Selling % 1.00

For 2011, total value traded amounted to US$ 477.4m on 4.7bn shares; up from 2010s US$ 392.0m on 6.2m shares (implying higher value shares were mainly traded in 2011). Net foreign activity amounted to US$ 77.2m (16% of market activity) on 1.4bn shares with net buying at US$ 190.7m whilst net selling totalled US$ 152.1m. The market cap was at US$ 3.8bn up from US$ 3.7bn. Year to date, value traded amounts to US$ 159.0m on 1.4bn shares. The net foreign activity at US$ 38.0m constitutes 24% of total value traded, on 513.8m shares.

Monthly value traded US$m Feb 09 - Apr 12


60

Total costs for both buying and selling 4.21% US$2 Source: ZSE

40 20 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12


Source: IES, ZSE

Foreign Participation and Regulation Foreign participation in stock market trading was introduced in mid-1993, following the partial lifting of exchange control regulations. Foreign investors may hold up to 10% of any listed company without recourse to Exchange Control. Collectively foreign ownership in a listed company may not exceed 40% of the issued capital of that company. These rulings exclude holdings which were acquired before June 1993. Any violation of the above limits would not see registration. It would be reported by the transfer secretary to both the ZSE and RBZ resulting in a directive from the RBZ to the investor to sell any excess holding. Fungibility is permitted for some dually listed companies, such as Old Mutual and PPC. Patience is a virtue when trading emerging markets In the last 12 months the ZSE turned over US$ 0.4bn in value or 10% of total market capitalisation. Given the size of the market, patience is generally required to build a position, equally so when fund managers want to sell. The market is characterised by high levels of local institutional investors who are relatively inactive, compounding the liquidity problem.
Key ZSE Statistics 1995 1996 1997 2008* 2009 2010 Market Cap US$b Annual turnover US$m Number of listed companies Market cap as % of GDP *based on OMIR 2.1 150 64 21 3.9 245 64 58 5.7 329 65 66 4.2 311 81 86 3.9 437 81 75 4.2 Average daily turnover US$ '000 549 2011 4.0

Monthly net foreign dealing US$m Aug 10 - Apr12


29
Millions of US$

19

(1) Aug-10 Dec-10 Apr-11 Aug-11 Dec-11


Source: IES, ZSE

942 1,264 1,225 1,859 1,555 1,905.9 392 477.4 81 67 81.0 44.9

Source: IES, ZSE

For 2011 both the industrial and mining indices were down with the industrial index losing 3.58% whilst the mining index lost 49.75%. Although the performance was in line with regional exchanges and some international indices due to the tight liquidity caused by the Euro zone crisis, the mining index was further weakened by the local policy issues. Year to date, the indices have weakened further with the industrial index down 10.62% whilst the mining index is down 9.51%, this is in contrast to the positive performance on the regional and international bourses, where the regional exchanges are up on average by 7% whilst the main international indices have gained an average of 5%.

11

Millions of US$

The poor performance on the local front could be attributed to inconsistency on policy pronouncements mainly relating to indigenisation and elections. For 2012, we expect some improvement driven by improving company performance. The market capitalisation to GDP ratio declined in 2011 to 36% from 45% in 2010.
ZSE Industrial and Mining Indices
350 300 250 200 150 100 50 0 2/19/2009 2/19/2010
Industrial

ZSE 2011 Volume Traded


400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0

Source:IES

2/19/2011
Mining

2/19/2012

ZSE 2011 Value Traded US$


14.00 12.00

Source: IES

Local institutions remain overweight in equities Presently, local institutions are overweight in equities, a result of the hyperinflation era. We believe this will change with the re-introduction of prescribed asset ratios. Local fund managers have to redesign their portfolios, building up their cash positions and diversifying away from an over exposure to equities and fixed assets. We expect this to improve liquidity as local fund managers sell off their holdings. Recapitalisation remains key Despite top line growth ahead of inflation, heavy interest costs continue to negate positive performance in many listed companies. A classic case is that of PG Industries whose gearing stands at a high of 136%. Several other companies remain hugely undercapitalised hampering earnings growth and curtailing share price performance. Rio Zim recently concluded a rights offer which should see its huge debt being paid, thus lowering finance costs and possibly returning the group to viability. Several other companies are also carrying out corporate activities, and although the prospects of deleveraging are attractive, other factors such as the unclear indigenisation policy and likelihood of elections continue to draw back significant progress. The economic recovery should continue and is likely to accelerate if further reforms are enacted by the authorities. It is our view that Zimbabwe offers great potential as a recovery play and we urge investors to take positions in rapidly growing, dominant, well managed and strong cash generating companies such as BATZ, Dairibord, Delta, Econet, Innscor, OK Zimbabwe, Padenga and SeedCo.

10.00 8.00 6.00 4.00 2.00 0.00

Source:IES

ZSE US$ Market Cap


5.00 4.75 4.50 4.25 4.00 3.75 3.50 3.25 3.00

Source:IES

12

ZSE Listed Companies


Companies Agricultural Ariston Border Timbers AICO Hippo Valley Estates Interfresh Padenga Holdings Seed Company Building and Allied Lafarge M&R PGI Turnall PPC Radar Willdale Beverages, Hotels and Leisure Afdis Delta Innscor RTG Afrisun Engineering CAFCA Gulliver Powerspeed Steelnet ZECO Zimplow Financial ABC Barbican Barclays Bank CBZ Interfin ZBF Holdings FBC Holdings NMB Bank Trust Holdings Insurance Fidelity AFRE Nicoz Diamond Old Mutual Zimre Analyst Year Shares na 3,368.3 NSZ Sept 1,378.4 NSZ June 1.1 42.9 10.0 Price Mkt cap hist 470.9 15.2 (0.5) 0.1 4.3 11.7 63.8 193.0 29.8 164.1 146.2 44.0 12.9 34.5 39.6 3.4 0.5 0.7 7.1 4.5 1.4 0.9 7.8 5.1 1.6 1.0 9.0 0.8 6.0 2.0 7.0 7.0 0.1 1.7 4.6 0.7 9.0 8.9 1.8 0.4 9.0 2.0 Eps (USc) +1 +2 20.5 na 0.9 18.7 na 8.2 0.1 24.7 na P/E (x) hist +1 8.5 6.5 0.6 9.5 3.5 0.6 0.6 1.2 1.2 0.0 0.0 8.8 5.6 0.9 0.8 na na 0.1 0.1 4.2 3.7 1.0 0.9 0.0 0.0 2.0 1.2 0.9 1.4 0.3 0.4 1.5 2.0 2.2 2.0 0.3 0.5 0.0 0.0 0.0 0.0 1.3 0.3 0.0 1.7 0.3 0.3 0.5 0.5 0.0 0.9 0.2 1.0 0.6 0.0 13.9 10.3 (2.1) 7.4 13.5 6.2 (3.7) (37.9) 7.2 9.8 (2.6) 2.9 (0.9) 3.0 0.0 (0.2) 5.9 9.5 5.1 6.2 13.5 8.0 (6.8) 5.8 5.7 6.5 29.3 2.3 (1.0) 3.0 0.0 (0.2) 5.4 8.9 4.5 9.7 4.2 13.0 5.7 13.8 37.6 8.0 12.0 Buy 6.2 Buy (1.1) Sell 13.9 Buy 39.8 Hold 3.6 Hold (7.0) Sell 12.7 Buy 19.2 Buy 10.3 Buy (0.7) Sell (3.7) Sell 12.7 Hold 3.0 Spec Buy 0.0 Susp 20.3 Buy Buy Buy Sell Buy Buy Hold Sell Buy Buy Buy Sell Hold Buy Sell Spec Buy Susp Sell Buy 9.5 8.2 1.6 1.4 na na 0.7 0.7 0.5 0.0 1.1 0.7 0.1 0.7 2.2 (5.3) (3.7) 5.4 16.6 (3.8) 5.2 9.7 7.2 20.1 4.9 8.8 (3.1) 2.8 7.8 2.4 (13.0) 5.3 (14.5) 4.1 15.8 5.7 12.0 2.4 26.2 6.3 22.3 4.9 2.4 12.2 14.0 47.1 21.5 10.6 Sell 7.4 Hold 13.5 Buy 18.0 Buy 48.6 Buy 22.3 Buy Sell Hold Buy Buy Sell Buy Buy PBV (x) +2 hist +1 +2 hist EV/EBITDA (x) +1 +2 hist OPM* (%) +1 Recommendation +2 ST LT end in issue (USc) (US$m)

NSZ Mar 531.7 12.0 NSZ Mar 193.0 100.0 NSZ Dec 487.6 NSZ June 541.6 na 3,114.3 NSZ Dec 80.0 55.0 NSZ Jun 214.3 NSZ Mar 478.3 NSZ Dec 493.0 NSZ Sept NSZ Jun 55.4 0.2 5.5

11.6 11.0 9.9 1.3 1.2

9.7 15.2 1.3 1.5

0.7 (0.3) (0.5) (0.8) 9.5 11.8

(2.6) (19.0) (24.9) (22.4) Sell

NSZ Mar 193.0 85.0

12.4 11.7 9.5 3.1 2.6 20.9 15.6 13.8 2.8 2.3

9.6 (1.4) (0.6) (0.0)

(2.6) (27.6) (29.1) (17.5) 5.3 14.3 13.5 34.0 14.9 12.4

13.0 10.4 8.7 1.7 1.6 na 66.4 39.6 0.3 0.3 na 14.2 na 11.3 11.0 na na -5.2 4.4 na 0.2 0.0 na 9.0 3.5 2.9 0.0 1.6 na 3.5 3.7 4.3 na -0.2 8.8 na 10.3 na 0.0 na na 0.3 0.4 9.8 7.4 6.7 4.5 3.2 2.2 8.9 7.0 3.2 2.4 7.4 5.5 2.5 2.8 na na 1.7 1.8 na na 0.4 0.3 -4.6 -4.0 3.9 2.9 0.8 0.7 na na 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 na na 0.0 0.0 7.8 6.9 1.7 1.5 2.4 1.6 1.7 1.5 0.4 0.4 0.0 0.0 0.0 0.0 1.3 1.0 0.4 0.3 2.4 1.2 0.5 0.4 2.6 2.1 0.6 0.5 2.8 1.9 0.8 0.6 na na 0.0 0.0 -0.3 -0.6 5.0 3.5 0.7 0.7 na 16.8 0.2 0.2 8.6 5.9 1.4 1.2 na na 0.5 0.6 0.0 0.0 0.0 0.0

15.2 260.0

29.6 26.8 23.3 24.3 24.3 25.1

3.9 (0.5) 0.5 1,167.3 9.5 (1.0) 1.9 834.5 287.0 6.2 4.8 7.1

NSZ Sept 1,778.0 na 4,305.9 ATC Jun

1.8 (0.1) (0.0) (0.0) 2.9 9.6

17.8 (101.5) (41.2) 3.2 4.0 (3.8) 5.6 9.5 18.4 7.5 (1.5) (3.7) 10.9 3.0 0.0 19.9 82.8 na 81.8 49.8 78.0 60.8 66.3

95.2 10.0

ATC Mar 1,192.1 70.0 ATC Jun 541.6 53.0 ATC Dec 1,645.5 ATC Sept 831.5 na 2,270.6 NSZ Dec 8.2 50.0 0.0 1.4 0.0 0.2 7.0 NSZ Sept 554.9 NSZ Sept 379.2 NSZ Dec 538.0 NSZ Jan 463.3 NSZ Dec 327.1 na ATC Dec 6,975 64.4 54.0 0.0 3.7 7.0 1.7 6.0 0.7 0.8 1.8 0.8

7.9 10.0

4.5 17.7

29.6 (0.1) (0.1) (0.1) 6.7 (0.6) (0.3) (0.3) 33.5 4.1 15.7 17.9 24.0 0.2 (0.5) (0.8) (1.1) 5.3 0.0 22.9 240.8 34.8 18.9 30.9 36.9 0.0 79.6 47.9 0.4 20.1 35.5 19.6 122.6 17.4 16.8 8.4 1.8 0.3 0.3 3.2 0.3 0.4 4.6 0.4 0.5 0.5 0.1 4.4 3.3 1.6 0.2 0.2 5.4 4.7 2.3 0.3 0.4 7.1 9.2 2.9 0.4 0.1 0.8 0.1 1.0 0.1 1.1

(37.0) (144.3) (290.4) (7.1) 43.0 (16.8) 1.5 10.8 2.9 0.0 3.0 0.0

(0.8) (90.4) (88.3) (85.7) Sell

0.9 (0.4) (0.5) (0.5)

(0.1) (130.1) (138.4) (110.6) Avoid 4.7 22.3 84.7 na 93.5 56.5 91.3 65.9 67.0

81.5 Accumulate Hold na Susp 73.3 Hold 44.9 Spec Buy Sell 67.3 Spec 60.3 Spec 65.8 Spec Buy Sell Hold Sell Hold Buy Spec Susp Accumulate Spec Buy Avoid Hold Hold Buy Sell Hold Sell Hold Buy Accumulate

ATC Dec 119.0 ATC Dec 2,152.6 ATC Dec 684.1 ATC Dec 20.6

56.7 16.0 8.7 2.4 2.1

0.0 (0.2) (0.2)

na na 3.7 6.3 33.4

ATC Dec 175.2 11.5 ATC Dec 591.9 ATC Dec 2,807.1 ATC Dec 359.7 1,394.5 NSZ Dec 108.9 16.0 NSZ Dec 217.1 NSZ Dec 559.5 NSZ Dec NSZ Dec 767.4 6.0 3.0 1.1

2.9 (0.3) (1.3) (1.2)

13.0 (2.3) (0.3)

67.6 144.0

97.3 (9.4) (8.0) (4.0)

OPM* - for finanial companies its cost to income ratio

13

ZSE Listed companies contd


Companies Food Cairns Colcom Dairibord National Foods Starafrica Industrial Holding Apex Astra CFI General Beltings Meikles Phoenix TA TN Holdings TSL Mining Bindura Nickel Falgold Hwange RioZim Paper and Packaging Amalgamated Regional Trading Hunyani Holdings Zimbabwe Newspapers Pharmaceuticals and Chemicals Chemco Medtech Retail stores Celsys Edgars Stores OK Zimbabwe Pelhams Redstar Truworths Tobacco BAT Zimbabwe Technology Econet Transport Pioneer NTS TPH Property Dawn Properties Mashonaland Holdings Pearl Properties Zimre Properties Investments Analyst Year Shares na 1,269.6 NSZ Aug 167.7 0.3 NSZ Jun 159.0 28.0 NSZ Dec 356.0 16.5 NSZ Jun 68.4 90.0 0.6 0.1 3.3 5.5 0.2 1.0 3.9 6.0 3.5 NSZ Mar 518.5 na 2,868.8 ATC Oct 503.7 ATC Aug 139.6 ATC Sep 105.5 ATC Dec 530.2 ATC Oct 87.5 Price Mkt cap hist 168.4 0.5 (4.9) 44.5 58.7 61.6 116.0 0.3 (0.2) 4.5 0.3 5.8 (0.7) 1.0 (0.4) 33.7 0.9 2.4 0.1 0.0 0.9 0.0 1.2 3.1 2.0 7.3 (3.6) (3.8) 3.0 2.7 7.3 3.7 3.6 11.1 Eps (USc) +1 +2 P/E (x) hist +1 na 9.4 na na 5.1 na na 6.6 na na -28.4 47.3 13.3 na 0.7 0.2 0.1 1.8 1.3 1.1 0.6 0.0 0.1 0.1 0.0 0.4 0.4 4.7 1.4 (3.9) 7.6 5.2 8.9 (5.0) (1.1) 1.5 (8.5) 0.0 5.2 15.8 0.0 19.9 (0.3) 0.0 0.0 0.0 5.4 (54.9) 6.0 0.6 (3.9) 7.4 4.2 6.5 (2.7) 0.7 1.1 (2.7) 6.7 3.8 8.8 0.0 14.7 (0.2) 0.0 0.0 0.0 4.2 14.5 (3.4) (0.2) 80.7 (4.0) 5.4 6.5 11.5 0.0 11.2 3.6 2.6 (2.0) (19.9) (29.6) (30.1) Sell 6.1 3.1 5.1 12.2 11.3 3.5 10.8 11.7 4.2 11.9 Buy 13.3 Buy 4.8 Buy Sell Buy Buy Buy Sell Sell Spec Hold Sell Spec Hold Sell Sell Spec Hold Hold Buy Hold Sell Buy Spec Sell Sell Sell Buy Buy Sell Susp Buy Buy Buy Sell Buy Buy Hold Buy Buy Buy 10.6 10.9 8.9 2.3 2.1 7.0 5.1 1.6 1.4 na na 0.5 1.1 16.1 16.1 10.6 1.9 1.4 28.2 17.8 7.1 6.7 5.5 0.0 0.0 1.7 1.3 0.1 0.1 na na na 0.1 0.1 na 0.0 0.0 0.6 (14.6) 1.0 5.2 1.4 6.3 (2.3) 1.8 1.4 0.6 0.0 6.9 1.2 Sell 6.7 Spec (0.4) Hold (9.0) Sell 2.1 Spec 1.4 Reduce 0.6 Spec Buy 0.0 Sell 7.1 Spec PBV (x) +2 hist +1 +2 hist EV/EBITDA (x) +1 +2 hist OPM (%) +1 +2 Recommendation ST LT end in issue (USc) (US$m)

3.1 (2.9)

(2.4) (1.8)

(2.6) (16.0) (23.0) (19.3) Sell

(2.7) (0.4) (0.3) (0.2) (0.5) 0.1 0.1 0.5 0.6 0.1 0.2 0.6

(9.4) (40.8) (2.9) 5.1 3.1 5.5 0.0 13.1 (1.8) 1.0 0.6 0.0 6.1

(2.9) (33.0) (16.0)

ATC Mar 240.8 14.0 ATC Dec 164.8 12.0 ATC Dec 750.8 ATC Oct 345.9 na 443.4 ATC Dec 126.0

na 29.2 0.3 0.3 na na 0.4 0.4

0.3 (134.2)

33.6 33.3 25.9 0.4 0.4 na 30.1 26.3 7.1 5.7 28.7 17.7 15.6 1.5 1.4 -4.8 na 6.9 na na na 7.7 -2.1 na na na 11.7 -4.2 -3.0 na

19.8 (3.8) 29.3 (0.1) 20.8 79.9 0.3

(2.9) (2.1)

4.4 (13.1) (15.1) (16.3) 11.1 43.2 21.2 31.1 1.4 24.0 5.8 2.9 1.1 3.7 13.7 5.0 82.2 7.0 3.7 0.2 0.2 1.3

na (1.8) (0.9) (0.2) 0.0 0.0 0.0 0.1 0.7 0.3 0.2

(0.2) (372.6) (626.0) (610.4) Sell 0.0 0.0 0.0 2.3 8.2 4.9 0.0 0.5 (4.6) 10.6 0.0 2.0 0.1 1.0 12.4 Hold 6.9 Buy 0.0 Hold 3.7 Sell 1.6 Hold 1.3 Spec 3.3 Sell (0.9) Sell (6.9) (63.0)

ATC Sept 111.2 10.0 ATC Dec 166.2 26.0 ATC Dec ATC Sep 40.0 53.0 467.3 0.3 7.5 1.0 0.5 0.1 0.1 7.3 0.6 0.0 5.0 na 1,363.0 ATC Oct 319.7 ATC Dec 576.0 na 2,814.9 ATC Oct 15 ATC Dec 2,800 na 5,417.8 NS June 1,599.6 NS Jan 282.7 NS Mar 995.6 NS Mar 1,145.3 NS Jun 373.6 na ATC Dec na na ATC Dec 17.4 17.4 215.0 171.6 463.5 55.0 2.5 2.0

5.2 3.7 0.0 0.0 na 14.3 0.0 0.0 na na 0.0 0.0

(5.6) (31.4) (0.6) 0.0 0.1 (0.0) 0.6 0.1 (7.3)

-13.8 12.2 7.3 na 1.8 0.1 0.1 4.9 3.8 0.4 0.4 -2.3 54.2 na 3.9 0.2 0.2 na na (1.0) (5.1) (13.6) 61.0 (1.5) (1.0) na 16.3 51.7 (49.5) 123.9 na (0.4) (0.2) (0.1) 1.9 1.7 1.2 0.0 3.7 3.3 1.0 0.7 1.5 0.8 (2.3) 9.7 11.7 13.9 0.0 14.9 4.9 2.8 0.8 172.3 10.7 7.9 1.0 0.8

(1.9) (0.8)

0.1 (5.7) 2.8 (0.1) 148.0 1.3 (0.1) 20.5 102.1 5.5 0.0 18.7 37.4 37.4 28.1 694.8 0.8 0.4 0.0 0.5

(0.0) (0.0) (0.1) (0.1) 1.3 0.8 0.0 1.0 41.8 1.9 1.3 0.3 1.3 43.4

26.3 10.0 5.2 (5.1) (64.2) (26.3) (17.9) Sell 4.0 3.6 2.5 0.0 7.7 3.5 2.1 11.9 2.1 8.5 0.0 10.1 16.0 40.0 15.1 3.4 9.4 0.0 12.2 16.0 40.2 (1.6) 6.6 4.7 15.9 63.9 53.0 48.8 15.7 Add 4.8 Buy 35.0 Sell 0.0 Susp 13.4 Hold 13.3 Buy 40.1 Buy (1.6) Sell 10.7 Hold 5.4 Hold 19.9 Hold 66.9 Buy 50.2 Buy 57.0 Buy 6.9 4.7 6.1 3.2

NS Mar 1,020.9 10.0

25.7 12.3 7.6 2.6 2.2 69.5 30.0 2.5 3.0 2.6 0.0 19.7 7.7 6.4 4.2 4.1 -535.9 na 11.2 2 0.0 0.0 0.0 0.0 9.8 7.1 9.7 5.7 4.3 4.1 4.3 4.1 3.7 3.5 3.5 3.1 3.5 3.0 1.8 1.3 8.3 5.7 8.7 6.9 0.9 0.8 7.6 5.5 1.0 0.9 3 4

ATC June 171.6 405.0

694.8 97.8 115.8 132.9 23.5 1.4 (2.8) 5.1 17.0 105.8 16.0 37.2 34.7 18.0 0.1 0.8 0.5 1.3 1.3 0.3 0.8 0.3 1.2 0.0 0.3 1.5 0.4 1.0 0.5 1.6 0.0 0.3 0.5 0.5

(21.5) (19.6) (18.1) (1.6) (54.3) 0.0 12.3 0.0 15.4 0.9 6.5 0.2 6.3 0.0 10.1 1.3 7.2 0.4 (2.7) 3.9 0.4 61.0 56.5 39.1

ATC Dec 253.8 na 7,271.1 NS Mar 2,457.2 NS Sep 1,859.1 NS Dec 1,238.2 NS Dec 1,716.7

23.6 11.8 6.9 2.2 1.9

ATC Aug 154.7 11.0 0.7 2.0 2.8 1.1

1.3 23.0 13.9 0.2 0.2 1.5 2.1 2.9 7.5 6.0 0.4 0.4 1.8 5.4 0.4 0.3 2.8 2.2 0.4 0.3

0.2 713.1 0.4 0.3 0.3 0.6 6.2 (0.2)

14

EQUITY RESEARCH ZIMBABWE AGRICULTURE/FMCG

Beneath complexity lies hidden value The AICO share price has remained weak as the deadlock of arrangements for a possible capital injection slackened interest in the counter. Consequently, concerns over the groups high borrowings and net finance costs have resurfaced. The company is likely to benefit from the firm commodity prices, although the cancerous finance costs will continue to garner a large portion of the gain. The group however still has its invaluable business portfolio and through the cash-cow SeedCo, upcoming Cottco and debt restructuring we expect an improved performance as the debt issue is addressed. Increasing sales volumes Group sales volumes for H1 2012 increased 19% y-o-y as seed business sales volumes grew 63%, cotton business sales volumes increased 15% and FMCG volumes declined 19%. The FMCG business was negatively impacted by working capital constraints and capacity utilisation remained low averaging between 25% and 30%. Steady market share despite decline in national output The national cotton crop declined by 10% to 242,000 tonnes and AICOs intake declined by 7% to 103,224 tonnes although market share improved to 43% from 41%. Attractive valuation Using a S.O.P valuation approach, we derived a value of US 36c, implying 140% upside potential to the current price of US 15c. AICO remains undervalued on a sum of parts (S.O.P). BUY.
AICO Africa: Price vs Volume 35 30 25 20 15 10 5 0 Fe b-09 Oct-09 Jun-10 Fe b-11 Oct-11 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 -

BLOOMBERG: AICO:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 15.0 36.0 140.0 79.7 531.7 37.7 309.2 (31.8) (19.7) (16.7) (2.0) 2011 210.6 41.1 (17.2) 8.9 1.7 0.0 15.2 1.0 8.9 3.1 12.3 na 11.2 39.4 (2.0) (5.2)
WEAKNESSES Input scheme recoveries

Financials (US$m) - FY 31 Mar Turnover EBITDA Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EV/EBITDA (x) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%)
STRENGTHS Diversified business Dominant market share Strategic Partneships Strong management team OPPORTUNITIES Continued regional expansion New products for FMCG business Improving disposable incomes

2012F 278.0 41.9 (15.3) 9.4 1.8 0.0 16.3 0.9 8.5 3.0 19.4 na 11.8 85.4 0.5 1.2

2013F 296.1 42.7 (14.2) 10.4 2.0 0.0 17.1 0.9 7.7 3.0 15.3 na 13.1 71.2 1.8 3.8

THREATS Competition from new entrants i.e. the Chinese Volatile international lint prices

SI 142 ensures favorable recoveries Drought

Middle Price USc LHS

To tal Vo lume (m) RHS

Source:IES

15

Nature of business AICO Africa Limited is an integrated agro-industrial conglomerate. The group wholly owns Cottco, which with nine ginneries, constitutes the ginning operations of the group. AICO also holds a 51% stake in SeedCo Limited, which in turn holds a 100% interest in Quton Seed Company, a cotton planting seed production house. The group also has a 49% stake in Olivine Holdings and a 75% interest in Scottco. Overview of H1 2012 results AICO posted improved financials driven by a strong performance from the Cotton business which benefited from the firm lint prices. The Cotton business contributed 65% to group revenue from 45%, seed business 25% from 36% and FMCG 8% from 13%. The medium term target for revenue contribution is 33% from each division. EBITDA margins recovering EBITDA margins recovered to 13.8% as the cotton business recorded EBITDA of US$ 16.5m, seed business US$ 2.4m, FMCG US$ 0.2m and spinning, a loss of US$ 0.9m. Group operating profit of US$ 8.5m was negatively impacted by impairments of US$ 5.2m of which US $3.0m relates to investment in subsidiaries (mainly Scottco) and US$ 1.4m cotton business inventories. Finance charges increased with approximately US$ 10.0m in the cotton business as the producer price doubled. The cotton business however contributed US$ 4.6m to group PAT from a loss of US$ 5.6m, the seed business a loss of US$ 1.4m, FMCG a loss of US$ 3.4m versus US$ 1.3m and spinning a US$ 1.6m loss from a loss of US$ 0.6m. Cash flows were strained due to increased working capital Short-term borrowings increased to US$ 162.0m from US$ 119.0m and the average cost was approximately 10.8%. The borrowings are expected to wind down to approximately US$ 50.0m by FY 2012 with about US$ 30.0m in the cotton business. Outlook Management anticipates a marginal increase in group sales volumes for FY 2012 mainly impacted by the FMCG business. Nonetheless, the cotton and seed businesses are expected to post significant earnings growth. Recoveries in the cotton business for the out grower scheme have recovered to average above 90%. The FMCG business is expected to turn to profit in FY 2013. The disposal of Exhort is nearing completion while Scottcos disposal has remained problematic and is likely to be closed. Valuation and Recommendation AICO remains undervalued by the market on a sum of parts (S.O.P) basis. AICOs 51% stake in SeedCo is currently valued at US$ 88.6m. This value is in actual fact greater than AICOs current market capitalisation of US$ 79.7m. The market has somewhat missed the cue as it also means that the value of the other businesses (Cottco, Olivine and Scottco) are not being factored in. Using a S.O.P valuation approach, we derived a value of US 36c, implying a 140% upside potential to the current price of US 15c. BUY.
AICO Shareholding - 30/12/11 Shareholder 1 NSSA 2 Old Mutual Life Assurance Co. Zim Ltd 3 Burket Associates Limited NNR 4 Barclays Zimbabwe Nominees (Pvt) Ltd 5 Caperal Limited NNR 6 Barclays Zimbabwe Nominees (Pvt) Ltd 7 NSSA (W.C.I.F) 8 Stanbic Nominees (Pvt) Ltd 9 Old Mutual Zimbabwe Limited 10 Fed Nominees (Pvt) Ltd # of Shares (m) % of Total 101.9 72.2 40.3 35.9 27.1 26.5 16.1 12.8 10.2 10.2 19.1% 13.5% 7.5% 6.7% 5.1% 5.0% 3.0% 2.4% 1.9% 1.9%

AICOH12012 results
Income Statement (US$ '000) Turnover EBITDA PBIT Net finance income PBT Attributable earnings EPS (USc) Balance Sheet (US$ '000) Total Assets NAV Current Assets Current Liabilities Current ratio Cash flow (US$ '000) Operating activities Investing activities Financing activities H1 2011 H1 2012 % change 116.7 53,082.0 115,021.0 (500.0) 15,900.0 (4,173.0) 8,591.0 63.2 (65.1) (59.2) (59.3) 39.1 4.0 62.5 96.9 (17.5) 20.6 36.5 29.7 (8,170.0) (13,337.0) (11,706.0) (4,086.0) (10,060.0) (4,105.0) (1.82) FY 2011 251,735.0 350,263.0 80,595.0 83,808.0 146,620.0 238,186.0 101,716.0 200,236.0 1.4 H1 2011 (63,337.0) (76,406.0) (6,599.0) (9,006.0) 44,515.0 57,718.0 1.2 (0.74)

16

AICO-

5 YEAR CGR COMPARISON


2006 16.3 4.2 21.3 33.5 8.0 44.9 67.2 4.7 0.0 11.2 13.7 31.4 62.5 67.2 67.5 2.8 33.5 0.0 22.5 0.0 22.5 0.0 31.1 2007 5.4 3.5 10.3 7.2 1.0 2.7 20.2 6.8 0.0 5.7 5.6 1.4 13.4 20.2 47.4 31.0 34.8 8.0 27.4 7.5 19.9 1.8 19.8 2008 82.6 17.9 136.9 15.4 5.6 7.5 159.8 126.1 0.8 10.1 18.9 1.5 32.9 159.8 145.0 94.6 40.0 (6.7) 61.6 13.2 46.0 10.7 35.3 2009 85.7 29.6 154.9 40.7 9.3 17.4 212.9 132.8 2.0 29.6 30.8 5.7 78.2 212.9 120.7 83.4 41.3 (9.0) 16.8 2.9 15.3 7.6 7.8 2010 82.5 32.1 114.6 57.3 40.1 52.8 224.7 116.8 0.7 37.4 29.9 12.2 107.1 224.7 162.9 57.7 40.8 (10.8) 4.9 0.3 4.5 6.7 -4.3 531.7 5.8 5.8 1.2 3.1 (58.81) (32.94) (5,697.84) 3.7 3.7 0.0 1.0 (29.73) (13.64) (36.18) 6.6 6.6 5.1 15.5 205.68 251.83 78.24 1.5 1.5 0.0 16.1 (16.75) (60.59) (78.00) (0.8) (0.8) 0.0 15.5 34.97 (52.45) 2011 80.6 36.0 135.3 115.6 0.0 0.8 251.7 104.2 0.4 0.0 0.0 0.0 147.2 251.7 210.6 86.4 41.1 (17.2) 20.0 1.5 18.6 8.5 8.9 531.7 1.7 1.7 0.0 15.2 29.32 160.07 2012F 86.7 43.9 144.2 102.7 0.0 2.0 248.8 105.2 0.8 0.0 0.0 0.0 142.8 248.8 278.0 80.6 41.9 (15.3) 18.7 1.4 17.4 8.0 9.4 531.7 1.8 1.8 0.0 16.3 32.00 2.31 4.98 2013F 91.0 44.8 149.4 95.6 0.0 1.7 246.7 110.5 0.2 0.0 0.0 0.0 136.0 246.7 296.1 91.8 42.7 (14.2) 25.7 6.4 19.3 8.9 10.4 531.7 2.0 2.0 0.0 17.1 6.50 17.43 10.96

31 MAR (US$m) Balance sheet Shareholders' equity Minority interests Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%)

(154.93) (309.51)

4.1 33.3 33.3 n/a 33.3

65.4 43.6 40.9 n/a 57.7

65.2 51.5 47.1 10.2 42.5

69.1 28.8 22.3 3.0 14.0

35.5 12.3 7.8 1.2 3.0

41.0 19.4 15.8 1.9 9.5

29.0 15.3 12.2 2.2 6.7

31.0 16.6 13.5 2.8 8.7

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

17

EQUITY RESEARCH

ZIMBABWE BANKING

Slowly but surely Barclays Bank turned the corner to post a profit in FY 2011. This was on the back of improved efficiencies following the two restructuring exercises as well as growth in both funded and non-funded income. We believe that Barclays is an attractive play on the Zimbabwean economy. Operating in the black The bank reported attributable earnings of US$ 1.4m as funded incomes contribution increased to 21% of total income. Superior asset quality The quality of the advances book remained solid with impairments less than 1% of the book. The coverage ratio improved to 552% from 250%. Cost to income ratio to recede Post the restructuring management believe that the banks cost structures have been optimised and focus will be on growing income. The banks long term target cost to income ratio is 50%. The banks opex is covered 86.8% by the fee income, hence Barclays is well poised for significant earnings growth once the advances book starts to grow. Valuations are demanding Current ratings are demanding versus the sector average PBV of 0.8x and PER of 7.7x. Nonetheless, valuations based on earnings are fraught with high risk due to the significant uncertainties prevailing in the local financial sector. Traditionally, Barclays trades at a premium as it offers a perceived safe haven and due to its conservative approach to business. We believe that Barclays is an attractive play on the recovery of the Zimbabwean economy. HOLD.

BLOOMBERG: BARC:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

Hold 3.7 5.5 48.6 79.6 2,152.6 20.7 244.1 (26.0) (17.6) (20.0) (17.6) 2011 6.7 2.1 1.4 0.1 1.6 0.6 4.4 2.4 56.7 93.5 27.4 1.8 3.3 1.0 2012F 11.0 6.6 5.0 0.2 1.8 1.8 13.8 2.1 16.0 81.8 27.7 6.2 4.5 1.5 2013F 15.8 12.2 9.1 0.4 2.2 2.8 21.2 1.7 8.7 73.3 30.5 11.5 5.6 2.1

Financials (US$m) - 31 Dec Net Interest income Profit before tax Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Ratios RoaA % RoaE % PBV (x) PER (x) Cost/Income (%) Advances/Deposits (%) Earnings Yield (%) Net Interest margin (%) Cost of funds (%)

STRENGTHS Strong management team Strong parent company


Barclays - volume vs price
9 6 3 May-11 Sep-11 Volume (m) RHS Jan-12 5 4 3 2 1 0 May-12

WEAKNESSES High cost base Breakdown in credit histories No scope to expand regionally Less flexible/agile THREATS New entrants into the market High credit risk Indegenisation Domestic disintermediation

Access to lines of credit Extensive network/clientele Extensive skills pool OPPORTUNITIES Technology transfer Recapitalisation of industry and commerce sector

Huge credit appetite from pvt Systemic risk

Price (USc) LHS


Source:IES

18

Nature of business Barclays is a world-class bank and one of the leading commercial banks in Zimbabwe. The bank operates 43 ATMs from an installed capacity of 76 and, 36 branches which are located in the large commercial centres, with the other branches dotted around the country. Barclays commands approximately 8% and 3% market share, in terms of deposits and total lending respectively, employing a total of 619 employees. Overview of FY 2011 results Operating in the black Barclays Bank turned the corner to post attributable earnings of US$ 1.4m from a loss of US$ 1.3m. This was on the back of improved efficiencies following the two restructuring exercises as well as growth in both funded and non-funded income. The total cost of the restructuring amounted to approximately US$ 14.0m and total savings are estimated at approximately US$ 3.3m per year. Strong improvement in margins NII surged by a healthy 140.3%, albeit off a low base to US$ 6.7m supported by a 36% increase in advances and expansion in net interest margin to 3.5% from 1.7%, mainly triggered by the low funding costs. We estimate that Barclays loan spreads hovered around the 5%15% region. The NII contribution to total income improved to 21.0% from 10.9% in FY 2010. Traction in multiple fee income streams Adjusted non-funded income accelerated 11.3% to US$ 25.8m on increased transactional volumes and comprised ledger fees of 33.3% (vs 26.8% in the prior period), cash withdrawal fees 30.0% (31.3%), other fee & commission income 23.5% (26.6%) and forex income 10.3% (13.0%). Transaction volumes increased to over 4.0m, from 3.3m in FY 2010 on the back of a 19.2% increase in accounts to 155,000 as well as the launch of new products. Cost to income ratio declined The adjusted cost to income ratio improved to 92.9% from 105.7%. Although the bank remained very conservative, adjusted opex was covered 86.8% by non-funded income. Staff costs comprised 54% of total opex. Post the restructuring the banks opex has been optimised. Superior asset quality maintained The balance sheet increased 13.6% to US$ 260.0m on the back of a 35.6% and 16.7% growth in advances and deposits, respectively. The quality of the advances book remained solid with impairments less than 1% of the book. The coverage ratio improved 552% from 250%. The capital adequacy ratio was 19% against a regulatory minimum of 10%. Liquidity was also high with a liquidity ratio of 69%. Return on shareholder funds was low at 4.0% reflecting the banks reluctance to take on risk assets. Outlook Cost to income ratio to continue to improve Post the restructuring, management believes that the banks cost structures have been optimised and focus will be on growing income. We estimate that the banks CIR will ease to approximately 75% in FY 2012 before receding further to about 60% in FY 2013. The banks long term target cost to income ratio is 50%. The banks opex is 86.8% covered by fee income, hence Barclays is well poised for significant earnings growth once the advances book starts to grow.

Barclays shareholding - 31 December 2011 Shareholder 1 2 3 4 5 6 7 8 9 Afcarme Zimbabwe Holdings Old Mutual Life Assurance A/ Stanbic Nominees P/L- NNR A Old Mutual Zimbabwe Ltd Barclays Zimbabwe Nominees Barclays Zimbabwe Nominees Fed Nominees (Pvt) Ltd Mining Industry Pension Fund Communication and Allied Pe # of shares (m) 1,457.3 173.3 113.5 76.0 63.6 52.9 27.1 14.8 8.4 8.0 % 67.7% 8.0% 5.3% 3.5% 3.0% 2.5% 1.3% 0.3% 0.4% 0.4%

10 Guramatunhu Family Trust

Loan book
Transport & Distribution 9% Trade & services 16% Personal loans 7%

Light & Heavy Industry 41%

Agriculture 27%

Source: IES, Company

19

Management is targeting a 14% growth in total income in FY 2012. We believe that the income growth can be accelerated once the bank moves from the restructuring and rationalisation phase. The drive to E-channel is expected to result in improved efficiencies enabling the bank to ramp up income on the launch of profitable products. Valuation and Recommendation Barclays remains expensive from a valuation point of view despite the improved performance recorded in 2011 as it is trades at significant premiums to the
BARCLAY S - 5 Y EAR CGR COMPARISON

sector average PBV of 0.8x and PER of 7.7x. Nonetheless, investors should note that valuations based on earnings are fraught with high risk due to the significant uncertainties prevailing in the local financial sector. In our view, the valuations can quickly unwind if the operating environment changes substantially. Key attractions for Barclays include the superior asset quality, extensive low cost deposit base, which will generate substantial funded revenue streams in the years to come. We recommend a HOLD for long-term investors.

31 DECEMBER (US$m) Balance Sheet Shareholders' equity Deposits and current accounts Current and other liabilities Total Liabilities Liabilities and shareholders' funds Fixed assets Total cash and short term funds Total advances and acceptances Total operating assets Total assets Income Statement Net interest income Non funded income Total operating income Total Expenses Operating profit Associate income Profit before Tax Taxation Profit after Tax Adj.Attributable Income Weighted shares Adj. EPS (USc) DPS (USc) NAV/share (USc) Growth Ratios NII growth (%) Op exp growth (%) PBT growth (%) Eps growth (%) Deposit growth (%) Advances growth (%) Net Asset Growth (%) Profitability/Efficiency (% ) Adj. Non-interest income:total income Net Interest Income/Assets Return on ave Assets Return on Equity Costs/Income Costs/Assets Asset Management Measures (% ) Net Interest Margin Cost of funds Loan/Deposit ratio Shareholder Equity:Advances Equity/Assets

2006 13.8 52.4 7.1 59.6 73.3 7.7 37.5 9.7 65.5 73.3 44.5 6.2 50.7 19.0 31.8 31.8 11.7 20.2 20.2

2007 4.6 20.9 2.4 23.4 27.9 5.0 16.2 6.4 22.9 27.9 22.1 1.6 23.8 10.1 13.6 13.6 5.0 8.6 8.6

2008 26.2 116.8 22.6 139.4 165.6 18.4 67.3 2.8 132.0 165.6 0.4 5.1 5.5 0.9 4.6 19.6 6.9 12.7 3.0

2009 32.2 122.3 14.9 137.1 169.3 21.2 46.5 20.3 131.8 169.3 1.2 16.4 17.5 16.9 0.6 0.6 (0.9) 1.5 1.5

2010 30.9 183.2 14.8 198.0 228.9 21.9 61.0 43.1 190.9 228.9 2.8 29.7 32.5 34.3 (1.9) (1.9) (0.6) (1.3) (1.9)

2011 33.5 213.7 12.8 226.5 260.0 21.1 78.2 58.5 222.3 260.0 6.7 33.5 40.2 38.1 2.1 2.1 0.7 1.4 1.4 2,152

2012F 38.5 253.2 12.4 265.6 304.1 22.8 98.2 70.2 264.4 304.1 11.0 29.5 40.5 33.9 6.6 6.6 1.7 5.0 5.0 2,152 0.2 -

2013F 47.6 287.4 12.1 299.6 347.2 25.1 103.5 87.8 305.0 347.2 15.8 33.2 49.0 36.8 12.2 12.2 3.0 9.1 9.1 2,152 0.4 2.2 43.4 8.6 84.0 84.0 13.5 25.0 23.7 67.7 4.6 2.8 21.2 73.3 11.0 5.6 2.1 30.5 54.2 13.7

0.9 0.2 0.6 (34.1) (34.0) (42.2) (41.3) (52.0) (56.9) (25.5) 12.3 60.7 18.7 125.2 35.7 16.8 43.1 35.5 18.4 142.4 18.8

0.4 0.0 0.2 (50.3) (46.6) (57.2) (57.3) (60.1) (33.5) (66.7) 6.8 79.3 17.0 93.9 39.9 18.7 50.1 17.5 30.7 71.3 16.4 -

0.1 1.2 (98.0) (90.7) 43.7 48.0 458.5 (56.8) 471.9 92.1 0.3 13.2 82.8 16.8 1.0 0.6 0.0 2.4 943.0 15.8

0.1 1.5 164.3 1,701.7 (96.9) (88.5) 4.7 632.5 22.8 93.4 0.7 0.9 5.0 98.4 10.3 0.9 0.9 16.6 158.1 19.0

(0.1) 1.4 143.1 102.9 (403.0) (187.2) 49.9 112.1 (3.9) 91.4 1.2 (0.6) (4.0) 104.7 17.1 1.7 1.0 23.6 71.6 13.5

0.1 1.6 140.3 10.9 (214.3) (210.1) 16.7 35.6 8.4 83.3 2.6 0.6 4.4 93.5 15.4 3.3 1.0 27.4 57.3 12.9

1.8 64.1 (10.9) 212.5 253.5 18.5 20.0 14.8 72.8 3.6 1.8 13.8 81.8 11.8 4.5 1.5 27.7 54.8 12.7

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

20

EQUITY RESEARCH ZIMBABWE TOBACCO/FMCG


A strong puff of smoke

BLOOMBERG: BATZL:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 215.0 250.0 16.3 37.4 17.4 17.4 2.7 34.4 49.6 19.4 49.2 2011 39.8 6.4 (0.4) 4.9 28.1 48.8 26.0 2012F 54.7 8.8 (0.5) 7.3 41.8 51.9 38.7 2013F 67.0 8.9 (0.4) 7.5 43.4 55.1 40.2 1,595.0 5.0 3.9 4.6 20.2 18.7 16.5 18.0 81.1

BATZ is the dominant cigarettes distributor in


Zimbabwe with a market share of 73% of the smoking population in a market estimated to consume approximately 2.5 billion sticks a year. The companys flagship brand, Madison, continues to record strong growth. We believe that BATZ is well placed to benefit from the steady increase in consumption expenditure likely to emanate from a young population in a growing economy. Dominant market share BATZ holds a dominant market share estimated at 73% of the Zimbabwean market. This is largely due to the prohibitive set-up costs of production, marketing and distribution functions. Smokers are notorious for their strong brand loyalties and new players would incur significant advertising costs. Strong cash generation Cash generation was strong with net operating cash flow of US$ 5.1m, implying a cash interest cover of 12.5x. Net gearing significantly improved to 43% from 90%. Strong distribution network BATZ has a strong countrywide distribution network operating out of five depots in Harare, Bulawayo, Gweru, Mutare and Masvingo, with outlying areas being serviced by third parties. Generous dividend policy The companys dividend policy of paying out 100% of net earnings and a high dividend yield (c14% in FY 12) provides attractive returns to investment. Ratings are undemanding Ratings are undemanding at a historic PER of 6.4x and PBV of 3.7x. Return on shareholder funds (RoaE) and asset utilization (RoaA) are impressive at 71% and 15%, respectively. The company has a generous dividend policy. BUY.
BAT - volume vs price
250 200 150 100 50 May-11 Se p-11 Vo lu me RHS Jan -12 125,000 100,000 75,000 50,000 25,000 May-12

Financials (US$m) - FY 31 Dec Turnover EBITDA Net finance income Attributable earnings EPS (USc) NAV/share (USc) DPS (USc) Valuation Ratios Volume (m) PER (X) PBV (X) EV/EBITDA (x) Earnings Yield (%) Dividend Yield (%) Gearing (%) RoaA (%) RoaE (%)

1,650.0 1,450.0 7.7 4.4 6.4 13.1 12.1 42.6 15.3 70.6 5.1 4.1 4.7 19.4 18.0 30.5 19.5 83.0

STRENGTHS Market leader Strong brand Strong cash generation Strong distribution network Strong management OPPORTUNITIES New products Economic recovery

WEAKNESSES Low disposable incomes Energy disruptions Commodities driven

THREATS Commodity price shocks Not a dominant manufacture locally Well established competition

Price (USc) LHS

Source: IES

21

Nature of business BAT processes tobacco products mainly for the domestic market with exports being cut rag tobacco to Mozambique. The company manufactures approximately 1.8bn cigarettes. BATZs main competitor, Savvanna is the largest manufacturer of cigarettes although the bulk of its production is exported. The company markets both Global Drive Brands (e.g. Dunhill & Newbury) and local brands like Madison, Everest, Kingsgate and Berkleley. Madison is the flagship brand contributing about 67% of volumes. Overview of FY 2011 results A stellar performance In FY 2011, BAT reported a stellar set of financials on the back of a strong growth in volumes (+41% y-o-y to 1.7 billion sticks) and improved margins. Sales volumes for the main stream brand, Madison grew strongly at 61%. Good margin business Improved production efficiencies, cost management and the change in the sales mix aided margins as GP margins surged to 46% from 31% and operating margins widened to 18.5% from 0.8%, resulting in operating profits increasing 40x. A generous final dividend of US$ 0.16 was declared, implying a cover of 1.1x and dividend yield of 15.6%. Solid balance sheet Cash generation was strong with net operating cash flow of US$ 5.1m, implying a cash interest cover of 12.5x. Net gearing significantly improved to 43% from 90%. Trade debtors were significantly down to US$ 4.9m from US$ 12.8m. In addition, stock turnover reduced significantly from 90 days to only 20 days reflecting an efficient inventory management system. Outlook While margins in the cigarette manufacturing business are relatively high, the market is very price sensitive. Excise duties in Zimbabwe are high for a developing country, and with the Government revenue inflows remaining under pressure, are unlikely to be reduced in the foreseeable future. For FY 2012 volumes are expected to decline by approximately 12% due to the price increases effected in December 2011. The increase in awareness of the health risks associated with smoking has resulted in a decline in cigarette consumption in the developed world while statistics from W.H.O have shown that the opposite is true for most developing nations in Southern Africa. The tolerant attitude of Zimbabweans in general towards smoking, brand loyalty, considerable barriers to entry and the habit-forming nature of cigarette smoking are all factors that help insulate the industry. Input cost increases are a particular concern. Leaf tobacco makes up 40% of the non-excise cost of production. Worldwide shortages have seen prices on the local auction floors rising strongly by xx%. The full effects of this have not yet been felt by BATZ, as this leaf will only come into production during FY 2013. Valuation and Recommendation Cigarette demand is closely linked to GDP levels, and BATZs long term growth is therefore dependent on economic growth. BATZ has strong brands and a solid distribution network. Margins are set to expand on improved production efficiencies and effective
BATZ Shareholding - Jan 2011 Shareholding 1 B.A.T International Holdings (UK) Limited 2 Old Mutual Life Assurance Co Zim Ltd 3 FED Nominees (Private) Limited 4 Barclays Zimbabwe Nominees (Pvt) NNR 5 Barclays Zimbabwe Nominees (Pvt) Ltd NNR 6 Old Mutual Zimbabwe Limited 7 RM Insurance Company Limited 8 Barclays Zimbabwe Nominees (Pvt) NNR 9 Delta Beverages Pension Fund 10 Stanbic Nominees (Pvt) Ltd No. shares % 9.9 57.0% 3.1 17.6% 1.1 0.4 0.3 0.3 0.1 0.1 0.1 0.1 6.6% 2.5% 1.5% 1.5% 0.7% 0.4% 0.4% 0.4%

22

distribution. Ratings are undemanding at a historic PER of 6.4x and PBV of 3.7x. Return on shareholder funds (RoaE) and asset utilisation (RoaA) are impressive at 71% and 15%, respectively. The company has a generous dividend policy.
BATZ - 5 YEAR CGR COMPARISON 28 FEBRUARY (US$m) Balance Sheet Shareholders' equity Minority interests Total shareholders' equity Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover PBIT Other income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 95.8 49.4 n/a 64.7 94.2 2.9 n/a 15.0 100.0 47.1 n/a 2,769.5 53.7 -3.0 -1.8 1.6 30.6 -1.0 -0.5 -1.3 46.2 16.0 15.7 17.4 46.2 16.0 18.4 17.1 43.5 13.3 22.8 14.5 (22.7) 22.7 (9.4) (71.1) (98.3) (92.5) (100.0) (100.0) (99.8) 40,592.8 50.9 74.1 37.5 37.5 48.8 22.5 1.7 3.9 (48.5) (2,822.2) (266.3) (1,078.6) 33.6 33.6 31.6 12.1 2.5 2.5 2.4 0.4 0.0 0.0 0.0 305.1 1.7 1.7 0.0 35.4 -2.9 -2.9 0.0 30.8 28.1 28.1 26.0 48.8 14.7 7.3 0.1 9.5 3.7 5.8 0.0 5.8 4.3 0.1 0.3 0.6 0.2 0.4 0.0 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15.1 -0.5 0.9 0.2 -0.1 0.3 0.0 0.3 22.9 -0.2 0.4 -0.3 0.2 -0.5 0.0 -0.5 39.8 6.4 1.0 6.9 2.1 4.9 0.0 4.9 54.7 8.8 1.1 9.4 2.1 7.3 0.0 7.3 41.8 41.8 38.7 51.9 67.0 8.9 1.2 9.7 2.2 7.5 0.0 7.5 43.4 43.4 40.2 55.1 2006 2.1 0.0 2.1 0.0 2.3 3.9 6.0 0.2 0.8 1.0 3.7 0.3 5.0 6.0 2007 0.1 0.0 0.1 0.0 0.7 0.9 0.9 0.0 0.3 0.1 0.4 0.0 0.6 0.9 2008 53.0 0.0 66.1 0.0 0.1 0.5 66.6 0.0 65.3 0.0 0.0 1.3 1.3 66.6 2009 6.2 0.0 8.3 3.9 8.2 8.7 20.9 9.3 0.3 2.9 8.0 0.5 11.3 20.9 2010 5.4 0.0 7.6 5.9 10.1 19.9 33.4 8.8 0.2 10.5 12.8 1.1 24.4 33.4 2011 8.5 0.0 10.6 5.9 14.1 15.5 31.9 9.6 0.6 14.6 4.9 2.2 21.7 31.9 2012F 9.0 0.0 10.9 5.3 19.4 21.1 37.3 9.6 0.6 19.1 5.5 2.5 27.1 37.3 2013F 9.6 0.0 11.3 4.5 24.0 26.1 41.8 9.6 0.6 22.0 6.8 2.9 31.7 41.8

BATZ is a well managed, strong cash generating company operating in one of the most profitable sectors in the economy. Its growth record and strong balance sheet warrant above average ratings. BUY.

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a tr account due to variability of exchange rates during that period.

23

EQUITY RESEARCH ZIMBABWE FINANCIAL

Bruised, not broken - remains on even keel In FY 2011, Zimbabwes banking behemoth, CBZH, posted strong net profit growth of 61% to US$ 30.2m despite the bank having faced tight liquidity constraints in the last quarter. Strong performance of NII, and an improvement in fee and commission income coupled with cost containment were the major profit drivers. Despite a 25% plus RoaE, the bank trades at significant discounts (10%30%) to its peers, mainly due to the poor perception of its asset quality. In our view, CBZH, as the largest bank in the country by all matrices should re-rate accordingly. Dominant position The group has the largest depositor base in the country at over US$ 830.0m and an advances book of US$ 790.0m, controlling 22% of total system assets, 28% of deposits and 31% of advances. The group operates 58 branches, 89 installed ATMs and 419 POS machines. Group rationalisation to improve efficiencies The future prospects of the group are highly dependent on its ability to curb costs. The group is targeting a cost to income ratio of approximately 50%. Fee income a core focus area CBZ Holdings is diversifying and improving its fee income streams. CBZH views insurance products as an area of significant future growth for the group and the ability to cross-sell non-banking products to its large customer base can aid future profitability. Remains undervalued On a sum of the parts valuation we estimate a fair value for CBZ Holdings of US 26c per share, implying 41% upside potential on the current price. In our view, the discount is likely to narrow in the near term. We believe that CBZHs operations are in better shape than the market has given it credit for. BUY.
CBZ Holdings - volume vs price 20 15 10 5 May-11 Sep-11 Vo lume (m) RHS Jan-12 2 0 May-12 6 4

BLOOMBERG: CBZ:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 7.0 26.0 271.4 47.9 684.1 30.4 245.1 (46.2) (40.0) (60.9) (51.1) 2011 2012F 2013F 75.1 48.0 38.2 30.2 4.4 0.3 17.4 0.4 1.6 3.5 29.4 57.0 95.2 5.9 4.6 63.1 3.6 90.2 55.7 58.0 37.1 5.4 1.1 21.7 0.3 1.3 3.1 27.8 49.8 74.6 5.2 4.0 77.5 15.5 107.6 63.3 76.1 48.8 7.1 2.0 26.8 0.3 1.0 3.4 29.4 44.9 77.8 5.2 5.1 101.8 29.1

Financials (US$m) - FY 31 Dec Net Interest income Non-interest income Profit before tax Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Ratios PBV (x) PER (x) RoaA % RoaE % Cost/income ratio % Advances/Deposits % Net Interest margin (%) Cost of funds (%) Earnings Yield (%) Dividend Yield (%)

STRENGTHS Large depositor base banker to the government Diversified income stream Access to external credit lines Well capitalised with large branch ntwk OPPORTUNITIES Growth in local market on recap Improving macro env. For Zimbabwe Recovery of public sector Foreign lines of credit

WEAKNESSES Exposure to government High cost/income ratio hist.

THREATS High cost platform for the local economy

Established presence in Invest. Bnking Prolonged stretch to recapitalisation

Price (USc) LHS


Source: IES

24

Nature of business CBZ Holdings is a diversified financial holding company with operations spanning commercial banking, asset management, shortterm insurance, life insurance and property. The banking and principal subsidiary, CBZ Bank, is the countrys largest bank with 22% of total system assets, 28% of deposits and 31% of advances. The group operates 58 branches, 89 installed ATMs (39 are active) and 419 POS machines. Overview of FY 2011 results CBZ Holdings posted a strong set of numbers, showing attributable earnings of US$ 30.2m, up 61% y-o-y for eps of 4.83 US cents a share. The strong performance was driven by a strong NII performance from the bank and cost containment on improved efficiencies. CBZH reported an expansion in NIMs to 5.9% from 5.2% in the prior period on reduced cost of funds. Total income increased 51% to US$ 123.1m propelled by a 70% jump in funded income making a 61% contribution to total income from 54%. The growth in non-interest income was attributed to the increase in commission and fees up 17% to US$ 20,6m and forex earnings +252% to US$ 6.3m. The CIR improved to 56% from 67% as opex grew 28%. The growth in opex was on the back of a 41% increase in staff costs to US$ 38.0m to make a 55% contribution to total opex versus 50% the prior period. A final dividend of 0.13 cents was declared implying a dividend yield of 3.3% and cover of 19x. Manageable asset quality The groups balance sheet strengthened increasing 54% to US$ 1.1bn as advances and deposits grew 78% and 35%, respectively. FuM grew 17% to US$ 88.2m. The liquidity ratio averaged 26% for the period. NPLs grew 27.5 times in absolute terms to US$ 48.0m, representing 6% of advances up from 0.4%. Provisions to total advances worsened to 2.3% from 1.2%. The groups provisioning coverage ratio eased to 128% from 294% y-o-y. Management says it is comfortable with a loan to deposit ratio of between 70% and 75%, in the current environment. Only 3% of the loan book is to government and related institutions. Return on shareholders funds improved to 25% from 22%, while assets utilisation (RoaA) was flat at 3.6%. The banks capital adequacy ratio was 11% with tier-1 capital at 7%. Outlook Loan growth to be curtailed The bank managed to weather the liquidity crunch it faced in late 2011 and early 2012. The liquidity crisis can be attributed to the use of hot money for long term advances. Management guided for a 10% growth in total income for FY 2012 and a CIR of 50%. The balance sheet is expected to grow by 32% driven by a 48% and 5% growth in deposits and advances, respectively. The increase in the lines of credit by an additional US$ 120.0m is expected to propel deposits growth and improve liquidity. However, the additional funds will be channelled towards restructuring existing facilities. Ratings are undemanding and the bank appears to be in better shape than the market has given it credit for. FuM are forecast to increase by 40% with the insurance assets expected to grow by 124%. Group rationalisation to improve efficiencies Management anticipates saving approximately 35% of combined group operating expenditure, following the rationalisation of the bank and building society. The groups long term CIR is 50%.
CBZH Shareholding - Dec 2011 Shareholder 1 Government of Zimbabwe 2 Libyan Foreign Bank(NNR) 3 Africa Investments Sub 2 Ltd 4 National Social Security Authority 5 CBZ Holdings Ltd 6 Stanbic Nominees (Pvt) Ltd NNR 7 Stanbic Nominees NNR 8 Datvest Nominees (Pvt) Ltd 9 Stanbic Nominees (Pvt) Ltd NNR 10 Bethel Nominees No. 2 # of shares (m) 110.0 96.6 92.6 73.0 55.7 16.1 15.1 15.1 13.8 13.7 % 16.1% 14.1% 13.5% 10.7% 8.1% 2.4% 2.2% 2.2% 2.0% 2.0%

Communications 2% Services 10% Private 11% Transport 3% Construction 3% Agriculture 26%

CBZHAdvances split

Other 2% Distribution 26% Manufacturing 16%

Source: Company, IES

CBZHDeposits
Banks13% Moneymarket19%

Customers68%
Source: Company, IES

PBTsplit
143% 93% 43% (4%)
Commercial Banking

111%

0.4%
Shortterm Insurance

8%
Property

(7%)
Other

8%

Asset Management

Source: Company, IES

25

Valuation and Recommendation Strong earnings growth is expected from CBZ Holdings. As the largest bank in the country, CBZ has and is likely to continue benefiting from its size. The group is concentrating on consolidating its position through quality and efficiency enhancements. Furthermore, CBZH anticipates unlocking value entrenched in its property portfolio. CBZH is currently trading on a forward PER of 1.5x, a 76%

discount to the ZSE. We believe CBZH will grow earnings faster than the ZSE over the next four years. We believe that the share price can easily recover to above 10 US cents. BUY.

CBZ HOLDINGS - 5 YEAR CGR COM PARISON


31 DECEMBER (US$m) Balance Sheet Shareholders' equity Deposits and current accounts Current and other liabilities Total Liabilities Liabilities and shareholders' funds Fixed assets Total cash and short term funds Total advances and acceptances Total operating assets Total assets Income Statement Net interest income Non funded income Total operating income Total Expenses Operating profit Associate income Profit before Tax Taxation Profit after Tax Minorities Adj. Attributable Income W eighted shares Adj. EPS (USc) DPS (USc) NAV/share (USc) Growth Ratios NII growth (%) Op exp growth (%) PBT growth (%) Eps growth (%) Deposit growth (%) Advances growth (%) Net Asset Growth (%) Profitability/Efficiency Adj. Non-interest income:total income (%) Net Interest Income/Assets (%) Return on ave Assets (%) Return on Equity (%) Adj. Costs/Income (%) Costs/Assets (%) Asset Management Measures (% ) Net Interest Margin (%) Cost of funds (%) Loan/Deposit ratio (%) Shareholder Equity:Advances (%) Equity/Assets (%) 21.5 30.3 79.0 24.0 13.1 26.8 14.2 34.8 321.8 41.2 2.3 0.0 22.8 315.0 39.8 3.8 1.8 67.9 25.8 14.0 5.4 4.5 76.9 19.5 12.6 5.9 4.6 95.2 15.0 11.3 5.2 4.0 74.6 17.7 11.0 5.2 5.1 77.8 18.6 11.9 45.2 17.9 153.3 29.9 10.8 36.3 82.2 341.2 54.2 20.7 1.7 15.1 37.5 8.5 0.3 3.7 2.9 15.0 69.7 9.2 6.4 3.3 25.0 68.6 9.5 7.1 3.5 29.4 57.0 8.0 6.7 3.1 27.8 49.8 6.0 7.0 3.4 29.4 44.9 5.3 (59.8) (49.2) (55.7) (57.0) (51.5) (35.9) (48.4) (48.4) (4.0) 95.5 128.7 (65.8) (84.9) 102.1 (87.7) (96.9) (73.0) (74.0) 293.9 158.3 152.8 738.7 7,461.0 (27.7) (31.9) 465.1 1,581.6 37.7 167.3 89.3 110.4 128.7 60.3 81.5 37.1 69.9 50.0 49.6 61.4 43.5 77.8 37.2 20.2 4.7 51.7 22.9 35.7 6.2 25.0 19.3 7.8 31.3 31.3 12.7 17.6 23.4 2.5 0.2 1.3 1.1 1.5 2.7 0.3 0.0 6.7 0.5 0.0 9.2 2.7 0.0 12.7 4.4 0.3 17.4 5.4 1.1 21.7 7.1 2.0 26.8 31.0 14.1 45.1 13.3 31.8 0.0 31.8 11.6 20.2 0.0 17.4 16.0 59.0 74.9 12.8 62.2 0.0 62.2 15.7 46.6 0.3 7.6 2.0 15.2 17.2 0.4 16.8 0.0 16.8 4.8 12.0 0.0 2.0 16.5 25.2 41.7 29.6 12.2 0.0 12.1 4.0 8.1 (0.1) 3.4 44.2 37.4 81.6 56.0 25.6 0.0 25.5 6.8 18.8 0.1 18.7 75.1 48.0 123.1 84.0 39.1 (0.9) 38.2 7.9 30.3 0.1 30.2 90.2 55.7 145.9 87.9 58.0 0.0 58.0 20.7 37.3 0.2 37.1 107.6 63.3 170.9 94.8 76.1 0.0 76.1 27.2 49.0 0.2 48.8 9.0 47.3 11.9 59.2 68.6 2.8 26.2 37.4 63.6 68.6 18.1 16.2 4.2 20.4 44.1 16.2 14.1 5.6 19.7 44.1 45.9 63.9 2.1 65.9 115.1 37.4 50.3 14.6 64.9 115.1 63.2 360.8 24.2 385.0 452.5 54.9 134.5 245.0 379.5 452.5 86.6 578.4 17.7 596.1 118.9 829.9 103.5 933.3 148.6 1,126.1 76.0 1,202.1 183.4 1,269.2 87.8 1,357.1 1,542.3 75.0 429.4 987.5 1,416.9 1,542.3 2006 2007 2008 2009 2010 2011 2012F 2013F

686.8 1,055.7 1,353.0 57.8 153.2 444.6 597.8 69.0 150.4 790.3 940.8 71.5 391.9 839.6 1,231.5

686.8 1,055.7 1,353.0

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

26

EQUITY RESEARCH

ZIMBABWE FOOD

Staying ahead of the pack In the face of increasing competition in the local market, high operating costs, uncompetitive cost of capital and inconsistencies in government policy pronouncements relating to import duty and the Zim dollar, Dairibord has managed to defend its position, with market share across its product portfolio ranging above 50%. In Malawi, which management emphasised is a strategic investment, the company is successfully dealing with constraints including forex shortages and strikes which are disrupting business. Lowest milk consumption in the region Zimbabwe's consumption is still to recover to its peak of 25 litres per capita with current consumption at 8 litres. It ranks at the bottom along with Malawis 5 litres per capita. Consumption in other regional countries is much higher with Kenya at 100 litres, Uganda at 50 litres, South Africa at 56 litres and Zambia 10 litres. New products expected to make a significant contribution Nutriplus and Froot Scoop which were introduced on the market towards the end of 2011 are expected to increase their contribution in FY 2012. Targeted output and revenue for Nutriplus amounts to 400,000 litres and US$ 460,000 per month respectively. Froot Scoop volume target amounts 40,000 litres per month against monthly revenues of US$ 116,000. Buy recommendation maintained We remain long terms bulls on Dairibord, given its substantial asset base, aggressive management and the potentially compelling consumer story. We thus maintain our BUY call.

BLOOMBERG: DZHL:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 17.0 35.2 107.1 60.5 356.0 57.7 304.6 2,100.0 0.0 2,100.0 0.0 2011 96.0 13.4 (0.4) 7.1 2.0 0.4 7.5 2.3 8.6 4.8 14.5 2.6 11.7 9.2 12.4 16.4 2012F 118.1 16.6 (0.5) 9.5 2.7 0.6 8.2 2.1 6.3 3.8 13.9 3.6 15.8 7.3 11.9 16.0 2013F 139.3 21.8 (0.5) 13.0 3.6 0.8 10.4 1.6 4.7 2.9 14.1 4.8 21.5 5.3 14.0 19.3

Financials (US$m) - FY 31 Dec Turnover EBITDA Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EV/EBITDA (x) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%)

Dairibord-Price vs Volume 35 30 25 20 15 10 5 0 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 STRENGTHS Value added products Regional presence, Malawi Strong management team OPPORTUNITIES Continued regional expansion Growing domestic milk volumes Recovery of farming sector THREATS Cheap imports from SA Exchange rate risk in Malawi High stockfeed prices WEAKNESSES Capacity utilisation levels still low at 40%

Quasi monopoly with strong brands Milk is a basic good and price sensitive

Recovery of domestic consumption Prolonged time to recovery

Middle Price(US c)-LHS

Total Volume(m)-RHS
Source: IES

27

Nature of business Dairibord Holdings specialises in the production of a range of products including beverages, milk and milk products, cordials, condiments, canned and processed foods, sauces, spreads and confectionery, which are marketed to the domestic and foreign markets. At its peak, Dairibord produced in the region of 80-100m litres of milk. Fully owned subsidiaries include a transport company, NFB Logistics. In Malawi, it has a 60:40 JV in Dairibord Malawi Limited which produces 4.5m litres of milk per annum. Overview of FY 2011 results Top line short of target but shows strong volume growth Revenue went up 28% to US$ 96.0m, falling short of the anticipated 39% growth on FY 2010. The top line was backed by a 20% growth in volumes to 65.2m litres while higher average prices were realised driven by an improvement in the proportion of high value added products. Improved efficiencies drove a one percentage point increase in the operating profit margin to 11%, dispersing fears of a decline due to higher operating costs (fuel, utilities, labour). A loss from the associate, Charhons, amounting to US$ 512,000 was made as the unit continued to suffer from undercapitalisation. Net finance costs were limited to US$ 367,000, indicating a strong interest cover ratio of 29.6x up from 26.9x. PBT went up 22% to US$ 10.0m, although a higher tax charge led to a lower increase of 14% in the PAT to US$ 7.2m. Strong balance sheet On the balance sheet, total assets increased by 19% to US$ 64.5m. The gearing ratio was well contained, declining from 10% in the prior period to 8%. From US$ 5.4m for FY 2010, total borrowings increased to US$ 5.7m comprising US$ 1.4m in long term loans and US$ 4.3m in short term loans. The average all in cost of the loans is 10.6%. The group also accessed a US$ 4.0m 5 year facility with the PTA at an all in cost of 11%. Net cash flows generated from operations amounted to US$ 5.4m whilst the closing cash flow position was US$ 2.3m. High value added lines support outperformance of liquid milks and foods division over the beverages division In terms of divisional performance, the liquid milks registered 26% volume growth compared to a 32% revenue growth due to an increase in sales volumes of higher value added lines. The foods also registered a similar performance as volumes went up by 19% against a 38% growth in revenue. The late commissioning of the Cascade plant affected the performance of the beverages, which registered the least volume and revenue growth of 15% and 16% respectively. The logistics company registered a 31% volume growth against a 30% growth in revenue although it only accounted for 1% of group revenue. Milk supply shortage continues unabated Milk supply shortages remain a hurdle as current supply stands at 4.5m litres against an estimated demand of 7.5m litres. 1,816 tonnes of milk powder were imported for FY 2011 to supplement local supply, at landed prices of US$ 3,963/tonne. 755 tonnes were used at DZPL whilst 420 tonnes were used at Lyons, leaving a surplus of 641 tonnes. The group is carrying out several strategies to try and boost milk supply including a heifer importation scheme, resuscitation of dairy co-operatives and extension services to farmers. Funding options for these initiatives are being considered. Since 1980 the group has helped to set up 10 dairy co-operatives which are currently not in full production but the infrastructure is still in place. It is hoped that the planned strategies will succeed in boosting milk supply. Outlook For FY 2012, the group is targeting volume growth of 20%, revenue growth of at least 23% and a further growth in the operating profit margin to 12%. Management also expects its raw milk intake to grow by 6% against the NADF


DZL Shareholding - 31/12/10 Shareholder 1 Serrapin Investments P/L 2 Old Mutual Life Assurance Co. Zim Ltd 3 Remo Nominees P/L 4 Scrimpton Investments P/L 5 Fed Nominees P/L 6 National Social Security Authority WICF 7 Remo Nominees P/L NNR 8 DZL Holdings Employee Share Trust 9 Barclays Zimbabwe Nominees P/L-NNR 10 Stanbic Nominees P/L # of Shares (m) 59.4 52.1 20.3 15.0 11.9 10.0 10.0 10.0 10.0 9.9 % 17.1% 15.0% 5.9% 4.3% 3.4% 2.9% 2.9% 2.9% 2.9% 2.9%

Divisional Volume Contribution(%)


60% 50% 40% 30% 20% 10% 0% Liquid Milks 2009 Foods 2010 2011F Beverages 14% 16% 16% 36% 35% 31% 50% 49% 53%

28

national forecast increase of 5%. The group will, however, continue to import milk powders to compliment local raw milk supply. US$ 10.0m is targeted for capital expenditure for the current year in order to increase production capacity for value added lines, enhance distribution capacity and efficiencies, invest in cold chain facilities and milk supply development. Valuation and recommendation In valuing the counter, we used a DCF valuation. Our

assumptions include an after tax cost of debt of 8%, risk free rate of 12%, risk premium of 19% and beta of 0.9x. We arrive at an enterprise value of US$ 127.4m and implied equity value of US$ 123.9m, which translates to a US$ 0.35 share price. We remain long term bulls on Dairibord, given its substantial asset base, aggressive management and the compelling consumer story. BUY

DZHL- 5 YEAR CGR COMPARISON


31 DEC (US$m) Balance sheet Shareholders' equity Minority interests Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 35.7 28.2 27.1 n/a 30.1 35.7 29.6 27.0 n/a 27.7 35.7 27.0 27.0 n/a 35.9 32.0 14.7 10.7 10.6 9.2 31.8 14.5 11.5 21.3 10.7 32.0 13.9 11.3 29.6 10.3 32.0 14.1 11.7 26.7 11.3 33.0 15.6 13.3 39.2 13.0 (34.24) (33.40) (38.82) (49.93) (50.09) (58.54) (38.97) (38.97) (28.23) 257.00 41.01 29.07 73.14 85.89 96.81 27.66 25.79 15.18 23.00 27.42 34.98 18.00 34.31 35.98 39.8 14.2 11.2 0.1 12.0 3.8 8.1 0.0 8.1 311.2 2.3 2.4 0.4 0.8 19.9 7.1 5.9 5.5 2.1 3.4 0.0 3.4 311.2 0.9 1.1 0.0 0.2 12.2 4.3 3.3 0.0 4.4 2.0 2.4 0.0 2.4 311.2 0.7 0.7 0.2 43.4 13.9 6.4 (0.4) 4.0 0.9 3.1 (0.0) 3.1 356.0 0.9 1.4 3.4 75.2 23.9 10.9 (0.4) 8.0 1.9 6.1 6.1 353.9 1.7 2.4 5.5 96.0 30.7 13.4 (0.4) 9.9 2.8 7.1 7.1 353.9 2.0 2.7 0.4 7.5 118.1 37.8 16.6 (0.5) 13.3 3.8 9.5 9.5 353.9 2.7 3.5 0.6 8.2 139.3 46.0 21.8 (0.5) 18.1 5.1 13.0 13.0 353.9 3.6 4.6 0.8 10.4 3.6 0.1 3.6 0.0 3.9 4.6 8.2 0.7 0.9 2.8 3.0 0.8 6.6 8.2 30.6 0.6 30.6 0.3 2.1 2.5 33.4 28.8 1.7 1.5 1.0 0.4 2.9 33.4 25.4 1.2 25.4 1.7 5.0 5.5 32.6 27.0 0.6 3.0 1.8 0.2 5.0 32.6 34.5 1.1 34.5 4.1 6.6 6.6 45.2 32.8 1.4 5.6 4.5 1.0 11.1 45.2 40.4 1.2 40.4 5.4 8.1 8.5 54.2 34.5 0.8 9.9 7.3 1.7 18.9 54.2 47.8 0.9 47.8 5.7 9.8 11.0 64.5 37.2 0.2 11.9 11.4 2.3 25.5 64.5 51.1 0.9 51.1 5.5 11.9 15.4 71.9 40.3 0.3 14.6 14.0 2.7 31.3 71.9 55.5 0.9 55.5 5.0 14.0 18.5 79.0 45.9 0.3 17.2 11.9 3.7 32.8 79.0 2006 2007 2008 2009 2010 2011 2012F 2013F

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

29

EQUITY RESEARCH ZIMBABWE BREWERIES/BEVERAGES

Stronger growth emerging Delta continues to post a strong operating performance propelled by sturdy volume recovery across the group and margin expansion. The volume growth is on the back of strong economic growth underscoring the fundamental macro-economic changes which have taken place. Delta plans to disinvest from the remaining non-core businesses namely Megapak (51%) and Food & Industrial (49%) by end 2012. Dominant position Delta enjoys a dominant position in Zimbabwe, commanding approximately 96% of the beer market and about 92% of the sparkling beverages market. Management estimates that imported lagers constitute approximately 5% of which Delta brings in 2%. The group aggressively markets its brands, and in so doing stimulates volume growth. Marketing costs are approximately 2% of revenues. Progressive margin expansion Operational efficiencies have been enhanced with investment in new equipment setting the scene for sustained growth. Margins are expected to further expand on improved efficiencies, reduced maintenance costs, supply chain savings and an enhanced product mix. Pristine balance sheet and strong cash generation Delta generates excellent cash flow, with approximately 60% of sales being for cash. As a consequence, the balance sheet continues to strengthen. Robust profit growth at low risk The outlook for the group remains closely aligned with that of the country at large. Our two valuation methodologies, DCF and EV/Hl production point to a fair value for the group of US$ 1.3bn. BUY.
Delta volume vsprice
100 80 60 40 20 May11 Aug11 Nov11 Feb12 Price(USc)LHS
Source: IES

Bloomberg: DELTA:ZH Current price (USc) Target price (USc) Upside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 70.0 110.0 57.2

836.6 1,195.1 39.5 554.1 2.2 1.4 56.2 22.9 2012 554.8 118.7 (2.0) 73.7 4.4 1.5 17.4 4.0 7.3 15.7 124.8 17.6 28.9 21.4 6.4 2.1 2013F 676.3 150.0 (2.7) 94.3 6.2 2.1 22.1 3.2 5.7 11.3 109.0 20.4 34.9 22.2 8.8 3.0 2014F 813.8 186.8 (2.9) 119.6 7.9 3.2 28.8 2.4 4.5 8.9 95.8 20.8 34.2 23.0 11.3 4.5

Financials (US$m) - FY 31 Mar Turnover EBITDA Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) EV/EBITDA (x) PER (x) EV/Hl (US$) RoaA (%) RoaE (%) EBITDA Margin (%) Earnings Yield (%) Dividend Yield (%)

30 25 20 15 10 5 0 May12
STRENGTHS Dominant position No exchange risk Resurging volumes Strong parent company Leading brands, volumes up OPPORTUNITIES Stabilising economy Recovery in public finances Aid inflows THREATS Increase in excise taxes Commodity price shocks Disruptions to utilities WEAKNESSES Low disposable incomes Weak macro economy Frequent energy disruptions

Volume(m)RHS

Growth in local premium brands More aggressive competition

30

Nature of business Delta is the largest manufacturer, distributor and marketer of beverages in Zimbabwe. The operating divisions within the group are: beverages (comprising Lager beer, sorghum (traditional) beer, sparkling beverages (SBs) and a related transport operation), a maltings business and Megapak (a 51-49 venture with South Africas Nampak. The group also has a 30% shareholding in Afdis (a manufacturer, importer, distributor and marketer of branded wines and spirits), and a 49% holding in Schweppes Zimbabwe. The lager business has two breweries (in Harare and Bulawayo), which have a market share of 96%. Lion and Castle account for 65% to 70% of its production, but it also has its own brands: Zambezi, Bohlingers and Pilsener. The unit has an installed brewing capacity of 3.0m hl. Due to years of under utilisation and limited maintenance, current available capacity is 2.0m hl pa. The traditional beer has 15 traditional sorghum breweries, which have a combined available capacity of 5.0m hl. Capacity utilisation averaged approximately 68% in FY 2012 and demand has remained strong. Sparkling beverages (SBs) capacity utilisation averaged 75% on the available capacity of 1.5m hl pa (total installed of 2.2m hl pa). The PET market is estimated at 5% and is expected to grow as the economy recovers. Overview of FY 2012 results Delta posted a robust set of results showing attributable earnings of US$ 73.7m, up 39% y-o-y for eps of US 6.03c. The strong performance was driven by solid volume growth, margin expansion and a stronger performance by associates. Overall beverage volume grew 19% to 6.9m hl, supported by growth in lager (+23% to 2.0m hl), sparkling beverages (+26% to 1.5m hl), sorghum (+15% to 3.4m hl) and maheu (+4%). Plastic tonnage increased by 24% to 7,196 tonnes anchored by the strong beverage volume growth. The strong volume growth was supported by investments in machinery, brands and capacity. Sales value grew ahead of volume growth at 36%. Operating margins widened to 20.5% from 19.5% driving EBITDA growth of 45%. This was on the back of improved efficiencies, competitive pricing, and improved product mix and supply chain management. Nonetheless, margins were dragged by the repairs and maintenance on re-commissioning of some decommissioned machinery due to the strong volume growth. A final dividend of US 1.25c a share was declared implying a dividend yield of 3.0% and cover of 3x. Cash generation remained strong with cash generated from operations of US$ 121.4m. Net cash inflow of US$ 90.2m represented a cash interest cover of 34x. The balance sheet strengthened through this very strong operating performance. Capital expenditure of US$ 74.0m (mainly for capacity enhancement) resulted in a significantly expanded balance sheet, with shareholders funds up 27%. Delta closed the period with debt of US$ 81.4m of which US$ 60.0m was long term at an all in cost of approximately 7.4%. Net gearing remained manageable at 9.8% (FY 2011: 9.1%). Outlook Strong fundamentals to sustain sturdy operating performance Per capita consumption of circa 40 litres p.a. (including sorghum beer) is low in Zimbabwe by developing world standards suggesting tremendous growth potential off a low base. Stripping out sorghum based beers, the figure is approximately 11 litres p.a. Management anticipates volumes to reach 7.3m hl in FY 2013. As the group increases the total volume sold it further increases its efficiencies allowing it to keep competitive pricing on its products. The company states that for every 1% growth in GDP the companys volumes can grow by a factor of 2.5x. According to the Ministry of Finance GDP is expected to grow at 9.4% in 2012.
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

Delta Shareholding - Dec 2011 Shareholder 1 SABMiller Zimbabwe B.V 2 Rainier Incorporated 3 Old Mutual Life Assurance 4 Barclays Zimbabw Nomine 5 Stanbic Nominees P/L NN 6 Old Mutual Zimbabwe Lim 7 Delta Employee Participat 8 Browning Investments NV 9 Fed Nominees P/L 10 Stanbic Nominees P/L NN No. shares (m) % 234.0 18.1% 193.1 16.4% 139.4 10.4% 157.9 118.4 84.6 27.5 22.2 17.4 15.9 9.1% 5.2% 4.2% 2.4% 1.9% 1.8% 1.6%

Delta revenue split


Sorghum 25% SBs 28%

Lagers 47%
Source: Company, IES

Vol '000 Hl

2005

2007

2009

2011

2013F

Sorghum

Lager Beer

Soft Drinks

31

Margin expansion We believe the company has solid opportunities to expand the operating margin as a result of the combination of a favorable mix shift to high end products, improved efficiencies, competitive pricing, reduced maintenance costs and supply chain savings. Strong cash flow Delta generates excellent cash flows. The strong cash flow provides management flexibility, as cash can be used for working capital, capital expenditure, cash dividends or share-buy backs. Capex for FY 2013 is expected at US$ 79.0m and capex/EBITDA is anticipated to recede to between 30% and 50% in the medium to long term. In our
D EL T A - 5 Y EA R C G R C O M P A R IS O N 3 1 M ARC H (U S $ m ) B a la n c e S h eet S h a re h o lde rs ' e qu ity M ino rity in te re s ts T ota l s h a r eh old er s ' eq u ity In te re s t Be a rin g D e bt T ra de cre dito rs C u rre n t L ia bilitie s T ota l L ia b ilities a n d eq u ity F ix e d A s s e ts In v e s tm e n ts S to ck - T ra de n e t D e bto rs C a s h a t ba n k C u rre n t A s s e ts T ota l A s s ets In c om e S ta tem en t T u r n ov er EB IT D A A s s o cia te in co m e P r of it b efor e T a x T a x a tio n P r of it a f ter T a x M in o ritie s A ttr ib u ta b le In c om e W e ig h te d s h a re s E PS (U S c) C a s h E PS (U S c) D PS (U S c) N A V pe r s h a re ( US c) D iv ide n d yie ld ( % ) G r ow th R a tios S a le s g ro wth (% ) Pre -in te re s t pro fit g ro wth (% ) E a rn in g s g ro wth ( % ) M a r g in s G ro s s m a rg in in cl fin a n ce ch g s ( E BIT D A m a rg in (% ) Pre -in te re s t m a rg in (% ) In te re s t co v e r ( tim e s ) Pre -ta x pro fit m a rg in ( % ) 6 0 .0 3 8 .7 3 8 .7 n/a 7 2 .0 6 2 .0 5 0 .9 5 0 .9 8 .6 1 3 2 .0 6 0 .0 3 9 .6 1 1 .8 2 .7 7 .5 (3 6 .2 ) 4 .8 5 9 .4 1 .6 3 3 .8 8 2 .1 (1 4 .5 ) (8 0 .1 ) (9 4 .7 ) 4 .4 4 .8 0 .4 0 .7 0 .5 8 .1 1 0 .6 0 .4 0 .8 0 .6 0 .4 2 .9 0 .0 9 .2 0 .0 1 2 0 .0 4 6 .5 1 .0 8 6 .3 2 5 .8 6 0 .6 7 .6 5 3 .0 1 2 1 .9 6 2 .1 0 .6 1 6 1 .0 4 9 .0 1 1 2 .0 1 5 .5 9 6 .5 1 0 4 .2 4 1 .3 -0 .1 7 .8 2 .4 5 .4 0 .3 5 .1 8 .1 1 .2 1 0 .1 0 .2 8 .0 8 .0 1 8 .3 1 .3 0 .6 0 .0 1 4 .5 0 .0 1 6 .4 1 8 .3 1 0 .0 1 .6 1 3 .5 0 .0 1 0 .4 1 0 .4 2 4 .0 0 .1 0 .6 0 .0 1 8 .5 1 .6 2 3 .3 2 4 .0 1 1 0 .0 8 .4 1 5 5 .7 0 .5 2 2 .8 2 5 .2 1 8 1 .3 1 3 0 .7 1 1 .5 2 8 .5 4 .6 2 .9 3 9 .1 1 8 1 .3 2007 2008 2009

view, the declining capex will enable the company to increase its dividend payout. The capex programmes will not only increase capacity but also improve production facilities and reduce costs. Valuation and Recommendation In our view, Delta has a compelling story with its pristine balance sheet, strong cashflows, and solid brands. There are high barriers to entry in this industry and Delta enjoys a dominant position with a solid distribution network. Ratings are undemanding at PER+1 of 9.0x and EV/production of US$ 124 versus PER of 20.0x and EV/production of US$ 250 for our comparative sample. We maintain our BUY rating.

2010 1 5 9 .2 2 .7 1 8 4 .7 1 5 .0 3 6 .3 5 5 .3 2 5 5 .0 1 6 2 .4 1 1 .0 5 1 .4 1 4 .3 7 .3 8 1 .6 2 5 5 .0 2 8 1 .3 4 9 .1 -0 .6 4 1 .9 2 .2 3 9 .7 0 .7 3 9 .0

2011 2 0 7 .9 3 .8 2 3 4 .4 2 4 .2 8 8 .5 8 8 .5 3 4 7 .1 2 2 7 .0 2 0 .7 6 7 .9 2 6 .4 5 .2 9 9 .4 3 4 7 .1 4 0 8 .0 8 1 .7 0 .9 7 0 .1 1 5 .9 5 4 .1 1 .1 5 3 .0

2012 263.9 5.1 2 9 6 .3 81.4 89.4 89.4 4 6 7 .1 268.5 28.1 77.6 37.3 55.6 170.5 4 6 7 .1 5 5 4 .8 1 1 8 .7 1.7 9 9 .3 24.1 7 5 .2 1.5 7 3 .7

2013F 3 4 3 .3 7 .1 3 8 3 .1 7 9 .1 9 6 .4 9 6 .4 5 5 8 .6 3 3 3 .5 2 9 .5 8 5 .2 5 0 .1 6 2 .8 1 9 8 .1 5 6 1 .1 6 7 6 .3 1 5 0 .0 2 .4 1 2 4 .2 2 7 .9 9 6 .2 2 .0 9 4 .3

2014F 4 2 5 .2 9 .5 4 7 5 .5 7 5 .9 9 9 .0 9 9 .0 6 5 0 .4 3 9 8 .5 3 2 .1 9 2 .2 6 3 .3 7 4 .3 2 2 9 .8 6 6 0 .4 8 1 3 .8 1 8 6 .8 3 .4 1 5 7 .4 3 5 .4 1 2 2 .0 2 .4 1 1 9 .6

3 .3 3 .4 0 .0 1 3 .4 0 .0

4 .4 5 .6 1 .5 1 7 .4 2 .1

6.2 7.9 2.1 22.1 3.0

7 .9 1 0 .0 3 .2 2 8 .8 4 .5

1 0 .0 1 2 .6 4 .8 3 5 .7 6 .8

169.9 214.8 665.4

45.0 75.8 36.1

3 6 .0 4 4 .0 3 9 .1

2 1 .9 2 6 .8 2 7 .8

20.3 25.6 26.9

0 .0 1 7 .5 1 3 .8 4 9 .5 1 4 .9

0 .0 2 0 .0 1 6 .7 3 4 .4 1 7 .2

0.0 21.4 17.7 37.1 17.9

0 .0 2 2 .2 1 8 .4 4 3 .6 1 8 .4

0 .0 2 3 .0 1 9 .2 6 1 .5 1 9 .3

* N ote: F in a n c ia l fig u r es f or 2 0 0 7 to 2 0 0 9 w er e d er iv ed u s in g th e O ld M u tu a l Im p lied R a te (O M IR ) , w h ic h m a y n ot r eflec t a tr u e a c c ou n t d u e to v a r ia b ility of ex c h a n g e r a tes d u r in g th a t p er iod .

32

EQUITY RESEARCH ZIMBABWE TELECOMS

Virtually compelling Econet is the dominant player in the domestic telecoms market, commanding 70% of the mobile telecoms industry with a subscriber base of 6.4m. Econet has a head start over other players, in terms of penetration in data, which is expected to be the next growth avenue. To us, this secures high revenue visibility. In our view, the weak competition provides excellent growth prospects for Econet. Strong cash generation Cash generation was solid with EBITDA/OCF of 97%. Given the high cash generation, Econet will fund most of its capex requirements from internal resources and increase dividend pay outs post peak capex funding. Margins and ARPUs remain healthy Although EBITDA margins eased to 47% from 49%, negatively impacted by the increased cost of the network and fuel, they remain healthy and higher than regional peers of approximately 45%. ARPUs increased 6% to US$ 10.33. Nonetheless, as the expansion unfolds we expect EBITDA margins to ease as ARPUs decrease and costs increase. Furthermore, Econet has also entered into the handset sale market. Solid infrastructure to support future growth In our view, Econet has a robust transmission backbone given its access to optic fibre. The company has invested a total of approximately US$ 614.0m in capex since 2009. The introduction of new products should continue to attract revenues for the company as well as increasing its subscriber base. Valuations remain compelling We have valued Econet at US 664c a share and believe that the market is ignoring the companys dominant market share and the tremendous potential in the sector. We believe that the share has been oversold and current levels provide a good entry point. Buy into current weakness.

BLOOMBERG: ECWH:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 400.0 604.0 51.0 677.7 169.4 17.6 105.8 2.1 (13.1) 0.2 (11.9) 2012 611.1 290.9 (4.4) 165.7 97.8 183.1 11.9 2013F 693.6 328.3 (7.2) 196.2 115.8 260.3 38.6 2014F 780.3 366.2 (8.1) 225.1 132.9 348.9 44.3 7,539.9 3.0 1.1 2.2 8.6 109.3 46.9 33.2 11.1 11.4 22.6 38.2

Financials (US$m) - FY 28 Feb Turnover EBITDA Net finance income Attributable earnings EPS (USc) NAV/share (USc) DPS (USc) Valuation Ratios Subscribers' 000 PER (X) PBV (X) EV/EBITDA (x) ARPU (US$) EV/Subscriber (US$) EBITDA margin (%) Earnings Yield (%) Dividend Yield (%) Gearing (%) RoaA (%) RoaE (%)

6,409.0 7,063.9 4.1 2.2 2.8 7.9 128.6 47.6 24.5 3.0 38.5 22.9 49.7 3.5 1.5 2.5 8.2 116.6 47.3 28.9 9.6 31.9 22.2 43.9

Econet - volume vs price 600 500 400 300 200 100 May-11 Sep-11 Volume (m) RHS Jan-12

STRENGTHS Market leader Strong brand locally and regionally High tarriffs

WEAKNESSES Low disposable incomes Energy disruptions High gearing

Economies of scale 3G network in place OPPORTUNITIES New products/services THREATS Entry of stronger players eg. MTN Resurgence of beer market as a percent of wallet

0 May-12
Source: IES m

Weak competition: Telecel/NetOne Price wars Mobile banking Expansion of data services Economic recovery

Price (USc) LHS

33

Nature of business Econet Wireless (Private) Limited is a communications and technology company. It is the largest GSM mobile operator in Zimbabwe with a market share of over 69% and more than 5.0m subscribers and 400 base stations. Econet offers a unique blend of branded subscriber and pre-paid mobile phone services. Econet also owns Data Control and Systems (51%) trading as Ecoweb, one of the largest ISPs in Zimbabwe. This is supported by Econets wireless infrastructure and earth station, which also provides direct international dial access to more than 244 countries and territories worldwide. The company also has a 51% stake in Transaction Processing Systems (Pvt) Ltd, a provider of financial transaction switching, point of sale and other value added services that look to exploit the convergence of banking, IT and telecoms. Econet also owns 69% of Mutare Bottling Company. Overview of FY 2012 results For FY 2012, Econet released a solid set of results which were broadly in line with our expectations. The 24% revenue growth was supported by a 16% increase in subscribers to 6.4m and strong growth in voice and data. ARPU increased 6% to US$ 10.33 on increased usage. Econet maintained its dominant position commanding a market share of over 70%. Local mobile penetration improved to 74%. Subscribers connected to broadband were in excess of 2.0m while the new service EcoCash closed the period with approximately 1.4m subscribers. Healthy margins maintained EBITDA margins eased to 47.6% from 49.0% negatively impacted by the increased network expenses. No final dividend was declared as the company is in the final stages of concluding a syndicated US$ 307.0m loan facility. The company bought back approximately 6.8m shares at US$ 28.5m during the year. Non payment of interconnet fees negatively impacted cash flows Cash generation remained strong with EBITDA/OCF of 115%. Capex was US$ 184.0m and gearing improved to 65% from 86%. EBITDA interest coverage was high at 35.9x, although finance charges increased 12% as the company reached peak funding. Management state that future expansion shall be funded mostly from internally generated cashflows. The nonpayment of interconnect fees also negatively impacted Econet as outstanding interconnect fees increased to approximately US$ 85.0m. Included in the current liabilities is a short-term loan (vendor financing facility, which we estimate to be approximately US$ 144.0m) that is due to be restructured as part of the US$ 307.0m syndicated loan facility. Outlook Demand for voice remains strong and there is immense potential for data. National penetration is expected to reach 100% by 2015 from the current 74%. Econet is well positioned given its dominant position and weak competition. The focus for Econet will be on innovation, improving the quality of service and cost containment. We anticipate increased dividend payouts once the company is post its peak funding. Management state that ARPUs and margins will be defended at U$ 10 and 49%, respectively. Valuation and Recommendation Econet remains a great company and EV/Subscriber of US$ 123 against a approximately US$ 214, EV/EBITDA 2.7x regional average of 10.7x. We maintain our ratings are undemanding at regional peer average of and PER+1 of 3.9x versus a BUY recommendation.
Econet Shareholding - Jan 2011 Shareholding 1 2 3 4 5 6 7 8 9 Stanbic Nominees (Pvt) Ltd ( Austin ECO Holdings Limited Old Mutual Life Assurance Lif Econet Wireless Holdings, Barclays Zimbabwe Nominees Old Mutual Zimbabwe Ltd Barclays Zimbabwe Nominees Barclays Zimbabwe Nominees Northunderland Investments * excluding class A shares No. shares 9.0 9.0 8.5 7.2 6.1 3.6 3.2 2.4 2.2 2.0 % 10.7% 7.8% 5.3% 4.7% 3.3% 3.1% 2.6% 2.4% 2.4% 2.4%

10 Barclays Zimbabwe Nominees

Revenue contribution

Interconnet & Roaming 15%

Other 4%

Data & SMS 13%

Airtime & Supscriptions 68%

Total Econet subscribers' 000 9,000 7,500 6,000 4,500 3,000 1,500 0

Subscribers and penetration

Penetration 100% 80% 60% 40% 20% 0%

2007 2008 2009 2010 2011 2012 2013F 2014F


Econet Subscribers Penetration

Source: IES, company reports

34


ECONET - 5 YEAR CGR COMPARISON 28 FEBRUARY (US$m) Balance Sheet Shareholders' equity Minority interests Total shareholders' equity Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover EBITDA Associate income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin incl finance chgs (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 76.6 46.5 43.9 n/a 64.5 84.0 28.2 26.2 1.2 272.0 78.6 30.2 9.2 9.1 3.5 80.0 49.4 43.6 35.7 40.8 80.0 49.2 41.3 28.1 39.8 80.8 47.6 40.0 30.2 39.1 80.8 47.3 40.2 13.8 37.7 80.8 46.9 40.1 18.6 38.5 8.7 (3.4) 32.8 (38.1) (63.1) 184.5 310.4 44.6 (104.7) 312.5 1,850.5 (5,282.6) 36.0 28.8 22.5 23.8 20.0 18.0 13.5 13.9 18.4 12.5 12.4 14.7 9.7 10.2 3.2 1.0 27.5 27.8 0.8 3.0 (1.3) 9.6 0.0 (1.3) 67.7 78.3 22.6 73.9 82.9 105.9 12.0 126.1 34.6 16.1 2.5 22.3 5.9 16.4 0.0 16.4 21.4 6.1 8.4 58.3 11.7 46.6 0.0 46.6 87.9 26.6 (1.1) 3.1 5.1 (2.1) 0.1 (2.2) 362.8 179.3 1.9 148.1 34.9 113.2 (1.4) 114.6 493.5 242.7 0.0 196.5 55.5 141.0 0.5 140.4 611.1 290.9 2.8 239.1 73.4 165.7 0.0 165.7 169.4 97.8 125.3 11.9 183.1 693.6 328.3 3.3 261.6 65.4 196.2 0.0 196.2 169.4 115.8 145.2 38.6 260.3 780.3 366.2 3.9 300.2 75.0 225.1 0.0 225.1 169.4 132.9 164.2 44.3 348.9 2007 49.2 0.0 69.7 0.6 1.3 3.1 73.4 54.2 15.7 0.1 1.2 0.2 3.0 73.4 2008 61.3 0.2 81.1 0.0 1.7 1.8 82.9 38.5 42.8 0.2 1.2 0.1 1.5 82.9 2009 81.2 5.7 127.2 9.1 40.0 40.1 176.4 134.4 13.3 25.3 0.1 0.1 25.6 176.4 2010 163.2 2.3 201.2 138.7 14.4 52.8 392.7 267.5 0.0 8.7 30.5 13.9 53.2 392.7 2011 286.7 2.8 335.1 240.9 53.9 60.7 636.6 498.9 31.1 33.6 0.5 34.7 68.9 636.6 2012 379.9 2.8 453.5 247.0 101.9 112.0 812.4 561.7 9.0 110.0 0.8 100.8 211.9 812.4 2013F 513.6 2.9 562.4 291.5 92.5 101.6 955.4 601.7 9.4 168.5 0.9 127.4 297.4 955.4 2014F 663.7 2.9 703.3 240.9 83.3 93.6 1,037.9 641.7 10.4 189.6 1.3 165.2 357.3 1,037.9

*Note: Financial figures for 2007 to 2009 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a account due to variability of exchange rates during that period.

35

EQUITY RESEARCH

ZIMBABWE AGRICULTURE

Adding on to its sweetness The USDA estimates that Zimbabwes sugar output in 2012/13 will increase by 16% to 430,000mt from 372,000mt in the 2011/12 season on the back of an expected 6% increase in the area harvested to 37,500ha, improvement in sugarcane yields and enhanced efficiencies following significant investments. Hippo Valley, a significant player in the countrys sugar industry, is poised to contribute significantly to this increase as it recently undertook several initiatives to boost production. Still on positive growth trajectory Hippo has undertaken projects including mill refurbishment, to re-establish cane supply and sugar milling capacity utilisation. We expect this to significantly improve its total sugar output and yield per hectare beyond 300,000 tonnes and 110 tonnes/ha respectively. Recapitalisation of out growers a booster We expect cane deliveries to the mill from out growers to improve in the long term on the back of the European Union National Sugar Adaptation Strategy (NSAS). The increased deliveries are likely to be coupled with improved quality due to availability and early application of all necessary fertilisers and herbicides. Valuation In valuing Hippo we used a relative comparison, by taking an average of the P/NAV and P/Sales ratios for regional sugar companies against FY 2012 forecasts for Hippo. We derive a target price of US$ 1.23 and recommend investors. HOLD.
Hippo - volume vs price 200
150 100 50 0 Mar-09 Mar-10 Mar-11 Mar-12

BLOOMBERG: HIPPO:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

HOLD 95.0 122.5 29.0 183.4 193.0 19.7 29.6

33.3 39.4 (13.8) 0.7 2011 101.5 12.2 3.7 8.8 4.6 0.0 91.4 1.0 20.9 8.7 28.3 na 4.8 7.8 9.4 11.2
WEAKNESSES Dependent on favourable weather patterns Susceptible to commodities price movement Low quality sugar production Power disruptions THREATS The land scenario still remains a contentious issue Slow economic growth Low disposable incomes Lack of adequate liquidity in the market

Financials (US$m) - FY 30 Mar Turnover EBITDA Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EV/EBITDA (x) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%)
STRENGTHS European Union support of the local sugar industry High sugar recoveries

2012F 150.3 21.0 2.8 18.7 9.7 0.0 101.1 0.9 9.8 5.0 12.0 na 10.2 16.4 3.0 3.9

2013F 165.3 29.8 1.3 29.3 15.2 0.0 116.3 0.8 6.3 3.5 14.0 na 16.0 8.6 5.8 7.8

6.0 5.0 4.0 3.0 2.0 1.0 -

Historically a low cost producer A return to pricing based on fundamentals OPPORTUNITIES Successful relaunch of outgrower scheme will boost prod Improved quality of sugar to fetch higher prices Increase in sugar production Increased production of by-products

Vo lume (m) RHS

Middle Price (US c)-LHS

Source: IES

36

Nature of business Hippo Valley grows sugar cane on 12,300ha of arable land and has a 50% stake in the 442ha Mkwasine Sugar Estates, which engages in the growing of sugar cane and other agricultural operations. Cane production normally totals in the region of 1.4m tonnes per annum at an average yield of 112t per hectare. Hippo also has a 33.3% stake in Sugar Industries Ltd, the sole packer and distributor of refined sugar in Botswana and a 49% stake in NCP Distillers, which is engaged in the conversion of molasses into alcohol. The distillery uses up to 17,000 tonnes of the 70,000 tonnes of molasses produced annually by the mill. Other interests include a 50% stake in Zimbabwe Sugar Sales Ltd a sugar broking entity and Chiredzi Township Ltd that develops and sells township stands. Overview of H1 2012 results An improved set of results For H1 2012, Hippo Valley posted a solid set of results propelled by improved margins and increased sugar production. Sugar production increased 80% to 118,654 tonnes and sugar recoveries were 85.6% at a cane-to-sugar ratio of 8.0x. We estimate that EBITDA margins widened to approximately 37.7% from 18.4% on improved efficiencies as a result of the extensive mill maintenance and refurbishment programme undertaken over the last two off-crops. Cash flows were strong as the company generated US$ 17.1m from operations. Net gearing improved to 13.4% from 21.2% at year-end. Sugar recoveries to go beyond 90% Historically, cane production totalled in the region of 1.3m tonnes per annum at an average yield of 112 tonnes per ha, whilst the highest sugar production was 297,000 tonnes achieved in 1997. Following the refurbishment, the mill is now crushing 400 tonnes of cane per hour, which should see greater throughput and sugar recoveries. We expect sugar recoveries to go beyond 90%. Outlook Sugar production expected to increase The company continues to provide inputs and extension services to third party cane growers so as to enhance cane production and deliveries to the mill. Sugar production is expected to improve and the company aims to restore production levels to the installed capacity of 300,000 tonnes. For FY 2012, sugar production is expected to increase by 26% y-o-y to 165,000 tonnes. Longer-term, the completion of the Tokwe Mukosi dam will result in increased production of sugarcane, raw & refined sugar, and maximise beneficiation to by products. Domestic consumption on the rise Domestic demand is also increasing, the USDA estimates that total local sugar consumption in 2011/12 season reached 280,000mt and is forecast to remain firm at 285,000mt in the 2012/13 marketing season. Per capita consumption is estimated at 24.6kg, with the consumption pattern influenced by availability rather than price. Valuation and recommendation In valuing Hippo we used relative comparison, by taking an average of the P/NAV and P/Sales ratios for regional sugar companies against FY 2012 forecasts for Hippo. We derive a target price of US$ 1.23 and recommend investors HOLD.


Hippo Shareholding - 30/12/11 Shareholder 1 Triangle Sugar Corporation Limited, 2 Old Mutual Life Assurance Co. Zim Ltd 3 Tate and Lyle Holland BV 4 NSSA 5 Old Mutual Zimbabwe Limited 6 Stanbic Nominees (Pvt) Ltd 7 Barclays Zimbabwe Nominees (Pvt) Ltd 8 Datvest Nominees (Pvt) Ltd 9 Barclays Zimbabwe Nominees (Pvt) Ltd 10 Mining Industry Pension Fund # of Shares (m) of Total 97.1 29.3 19.3 5.0 4.1 3.9 3.5 1.7 1.3 1.2 50.3% 15.2% 10.0% 2.6% 2.1% 2.0% 1.8% 0.9% 0.7% 0.6%

Hippo Valley H1 2012 results


Income Statement (US$ '000) Turnover EBITDA PBIT Net finance income Share of associate PBT Attributable earnings EPS (USc) Balance Sheet (US$ '000) Total Assets NAV Current Assets Current Liabilities Current ratio Cash flow (US$ '000) Operating activities Investing activities Financing activities H1 2011 39,000.0 7,182.0 8,847.0 (1,812.0) 615.0 7,650.0 7,690.0 4.00 FY 2011 310,295.0 350,143.0 176,431.0 189,849.0 83,108.0 121,135.0 69,230.0 1.2 H1 2011 (2,151.0) (13,783.0) 32,751.0 17,097.0 (5,043.0) 5,867.0 (894.8) (63.4) (82.1) 91,629.0 1.3 12.8 7.6 45.8 32.4 10.1 H1 2012 70,015.0 26,412.0 21,152.0 (3,578.0) 843.0 18,417.0 13,712.0 7.10 % change 79.5 267.8 139.1 97.5 37.1 140.7 78.3 77.5

37

HIPPO - 5 YEAR CGR COMPARISON


31 MAR (US$m) Balance sheet Shareholders' equity Deffered tax Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 4.6 34.2 30.3 9.4 30.3 5.3 68.8 64.8 36.9 64.8 32.6 81.0 83.3 115.6 83.3 67.7 42.2 29.2 32.5 29.2 28.3 28.3 29.0 24.5 29.0 40.6 12.0 9.5 3.3 9.5 43.6 14.0 13.4 8.3 13.4 46.2 18.0 18.6 26.6 18.6 (51.68) (73.38) (73.38) (52.39) (1.70) (1.70) (53.84) (43.80) (43.80) 418.37 243.07 243.07 10.12 11.59 11.59 56.45 (62.81) (62.81) 48.04 113.17 113.17 10.00 56.25 56.25 51.7 (2.4) 17.7 1.8 15.7 1.0 11.2 n/a 11.2 192.9 5.8 8.1 59.5 24.6 (1.3) 17.0 0.4 16.0 1.0 11.0 n/a 11.0 193.0 5.7 8.1 19.0 11.4 (3.7) 9.2 0.1 9.5 3.3 6.2 n/a 6.2 193.0 3.2 3.2 74.2 58.9 39.9 24.9 0.5 17.2 0.5 21.2 n/a 21.2 193.0 11.0 12.9 74.5 64.9 18.4 18.4 0.8 18.8 0.3 23.6 n/a 23.6 193.0 12.3 14.9 86.8 101.5 41.3 12.2 3.7 9.6 0.9 8.8 n/a 8.8 193.0 4.6 4.6 91.4 150.3 65.6 21.0 2.8 20.1 1.3 18.7 n/a 18.7 193.0 9.7 9.7 101.1 165.3 76.3 29.8 1.3 30.8 1.5 29.3 n/a 29.3 193.0 15.2 15.2 116.3 114.9 42.2 157.1 1.5 2.3 3.0 161.6 150.7 2.6 2.5 1.1 0.5 8.1 161.6 36.8 13.7 50.4 0.6 0.8 1.5 52.5 48.1 2.5 0.7 0.2 4.2 52.5 143.1 57.0 200.1 2.8 10.1 22.4 225.3 189.6 18.5 1.5 3.7 34.1 225.3 143.8 57.8 201.6 3.5 9.3 24.3 229.5 193.1 18.5 1.5 3.7 15.6 229.5 167.5 52.5 219.9 19.7 21.6 36.0 275.6 183.2 53.7 11.0 2.4 36.2 275.6 176.4 53.1 229.5 44.9 24.9 35.8 310.3 194.4 29.5 37.3 11.0 7.4 83.5 310.3 195.2 53.1 248.3 34.2 30.9 48.3 330.8 196.9 63.4 16.3 12.9 131.0 330.8 224.5 53.1 277.6 12.6 34.0 48.7 338.9 199.4 69.7 17.9 7.2 136.6 338.9 2006 2007 2008 2009 2010 2011 2012F 2013F

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

38

EQUITY RESEARCH

ZIMBABWE FMCG/LEISURE
BLOOMBERG: INAF:ZH BUY 58.0 92.4 59.3 314.0 541.3 34.4 178.4 (10.8) 1.3 (14.7) 1.5 2011 2012F 2013F 516.1 47.7 26.1 4.8 1.2 18.8 3.1 12.0 7.0 9.2 2.1 8.3 21.5 12.2 25.7 637.4 77.5 38.6 7.1 2.4 24.2 2.4 8.1 4.3 12.2 4.1 12.3 19.3 14.8 31.6 777.7 101.9 52.1 9.6 3.2 31.3 1.9 6.0 3.3 13.1 5.5 16.6 11.3 16.8 38.4

Full steam ahead Due to its orientation towards FMCGs, Innscors business is generally not very capital intensive. As a result, cash generation is strong and return on assets and capital employed high. Increased efficiencies and tight working capital management continue to drive profitability. In our view, the stable environment provides an opportunity for the group to unbundle and unlock value to shareholders. Robust performance Innscor reported an impressive set of interims showing attributable earnings of US$ 22.5m (FY 2011 US$ 26.1m), up 59% y-o-y. The strong performance was anchored by increased volumes and efficiencies which resulted in enhanced margins. Strong cash generation Innscor has unparalleled cash generation abilities in fast foods and retail, which provide capacity for growth, through organic expansion, acquisitions, adding new brands and entering new markets. Earnings leverage from franchise system Fast Foods and retail outlets operate as franchise units, although the majority are owned by Innscor. Earnings leveraged on a strong franchise system can provide significant earnings momentum as franchise income outstrips the fixed nature of the franchise support system. Valuation attractive In our view, Innscors valuation is attractive considering its impressive growth prospects and the defensive nature of its earnings. Innscor is dominant in its businesses and we expect the earnings growth rate to improve substantially with the improved economic climate. Buy.

Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

Financials (US$m) - FY 30 Jun Turnover EBITDA Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EV/EBITDA (x) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%)

STRENGTHS

WEAKNESSES Strong competitive environment Conglomerate feel

Innscor - volume vs price 80 70 60 50 40 30 20 10 May-11 Sep-11


Volume (m) RHS

Uncorrelated portfolio of

2.0 1.5 1.0 0.5 0.0 Jan-12


Price (USc) LHS

defensive businesses Strong brands Vertical integration Geographical diversification OPPORTUNITIES continued regional growth Franchise expansion Growth in disposable incomes Stronger retail presence with Spar franchise

THREATS Cheap imports from SA Prolonged time to recovery

May-12

Source: IES

39

Overview of H1 2012 results Stellar results Innscor reported a robust set of financials showing attributable earnings of US$ 22.5m, up 59.3% y-o-y for eps of 4.2 US cents a share. The attributable earnings were just shy of the FY 2011 reported earnings of US$ 26.1m. The strong performance was anchored by strong volume growth, increased efficiencies and tight working capital management. EBITDA margins expanded 181bps to 12.0% resulting in EBITDA growing faster than turnover growth. PBT was enhanced by a US$ 5.1m profit on the disposal of National Foods shares as Innscor reduced its stake to 37.8% through a disposal to Tiger Brands. Pristine balance sheet and solid cash generation Cash generation remained strong with 70.5% of EBITDA converted into cash, despite the significant growth of the debtors book at TV Sales & Home which grew by approximately US$ 4.2m. The balance sheet remained in pristine condition and net gearing improved to 8.5% from 21.5% at year-end. An interim dividend of 0.75 US o cents a share was declared, implying a dividend cover of 5.5x and an annualised yield of 2.2%. BAKERIES & FAST FOODS Volumes for Bakeries accelerated by 60% y-o-y on improved capacity and efficiencies. Installed capacity increased to 400,000 loaves a day after the commissioning of a 3rd line in Harare and the upgrade of the Bulawayo plant. Fast Foods customer counts for Zimbabwe increased by 8% y-o-y. An additional 11 new counters were opened in Zimbabwe. Regional customer counts grew by 13%. DISTRIBUTION GROUP AFRICA Volumes grew by 19% y-o-y for the Zimbabwe business. GP margins were squeezed although costs were well contained resulting in improved profitability. The Snack Food division returned to profitability. Volumes increased by 19% for the regional business. SPAR The Zimbabwe Corporate Stores reported a 24% growth in revenue and a small trading profit of US$ 0.3m. The unit posted a PBT loss of US$ 1.4m due to high interest and depreciation charges. Further rationalisation of the store network to focus on larger stores is likely. SPAR Distribution Centre supported 40 SPAR member stores, 2 SPAR Express Stores, 10 SaveMor branded stores and 2 TOPS bottle stores. Zambia Corporate stores recorded a 12% increase in revenue on a same store basis. However, profitability declined on lower margins and new store reopening costs. The unit operated six corporate stores and five franchised outlets. PROTEIN Colcom reported volume growth of 8% (underpinned by entry level products) and modest growth in both revenue (+4%) and profitability (PAT, up 10%). EBITDA margins expanded to 17.4% from 13.0% in the prior period. Cash generation remained strong as US$ 2.9m was generated from operations. A number of capital projects were completed with US$ 2.0m spent on capex. Irvines posted volume growth of 32%, 21% and 10% for chicken, day old chicks and table eggs, respectively. Focus is on improving production, factory and distribution efficiencies. NATIONAL FOODS Volumes grew 18% y-o-y to 194,000 metric tonnes translating to a 24% growth in the topline to US$ 116.1m. Realisations were maintained at US$ 598 per tonne. Efficiencies improved on better procurement, line automation and enhanced logistics. EBITDA margins were maintained at approximately 5.0%, despite an


Innscor Shareholding - 31 Jan 2011 Shareholding 1 ZMD Investments P/L 2 H M Barbour P/L 3 Old Mutual Group 4 Sarcor Investments P/L 5 Fed Nominees P/L 6 Pharaoh Limited NNR 7 Barclays Zimbabwe Nominees P/L-NNR 8 Stanbic Nominees P/L 9 Muzika Rubi Holdings (Pvt) Ltd 10 Barclays Zimbabwe Nominees No. shares (m) 102.8 100.0 36.8 22.5 18.1 16.2 15.0 11.3 11.3 11.0 % 19.0% 18.5% 6.8% 4.2% 3.3% 3.0% 2.8% 2.1% 2.1% 2.0%

INNSCOR AFRICA LIMITED Bakeries&FastFoods Bakeries


230,000loavesperday

FastFoods
172 Fastfood outlets

Regional Fast Foods


200 counters spanning Kenya, Ghana, Zambia, Senegal franchised

Distribution Group Africa DistributionGroup Africa(Zimbabwe, Zambia&Malawi) Snacks(Zapsnaks,IrisBiscuits,


Herbies

SPAR SPAR Corporate


11 Stores (Zimbabwe) Xx stores (Zambia)

SPAR Distribution
40 SPAR, 14 Savemor

Protein Colcom (listed)


80% , food processing

Irvines
49% chicken producer

NatFoods (listed)
38%

TVsalesandHome
12TVsales&home2SPARgood living,1YourSpace

Capri
Appliance manufacturerri (fridges),

Other Associates Shearwater Natpak

40

investment of US$ 1.1m in repairs and maintenance. TV SALES & HOME Exceptional results were reported as units sold increased by 45% y-o-y. The debtors book increased to over US$ 9.0m by 31 December 2011. CAPRI Volumes grew 64% y-o-y on improved manufacturing quality and increased range of products and finishes. New lines included microwaves, washing machines and driers. OTHER ASSOCIATES Shearwater contributed positively while Natpak posted a small loss.

also improve production facilities and reduce costs.

Innscor management expects group revenues for FY 2012 to grow by between 20% and 25% and margins to continue to expand boosting bottom-line growth which is likely to exceed the FY 2011 growth rate. A PBT margin of approximately 10% is anticipated. Valuation and Recommendation Our SOP valuation ascribes a value of US$ 500.0m i.e. US 92c per share. Innscors fundamental strength is that it is the perfect blend of defensive and complementary businesses. As well as being dominant in its sectors. In our view, most of the sectors in which the group is invested are currently exuding growth rates in excess of that of the economy. Furthermore, the company generates significant free cash flow, which creates financial flexibility (for dividends, acquisitions, stock repurchase, among other applications). We think that the earnings per share growth rate can improve substantially as the economic environment recovers, making Innscor an excellent early economic recovery cycle candidate. Buy.

Outlook
The group continues to invest in its brands Rationalisation, restructuring and upgrades of production facilities are part of the groups strategy to become a low cost producer and to enhance competitiveness. For FY 2012 the group plans to spend US$ 42.0m (H1 2012 US$ 21.6m) on capex. The capex will not only increase capacity, but
INNSCOR - 5 YEAR CGR COM PARISON
30 JUNE (US$m) Balance sheet Shareholders' equity Minority interests Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBIT Profit before Tax Taxation Profit after Tax Minorities Attributable Income W eighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 41.9 41.9 41.3 n/a 51.3 53.5 32.1 31.8 14.4 33.5 (21.17) 61.53 38.61 0.07 (23.08) (93.17) 9.6 9.8 1.1 3.8 0.7 0.8 1.8 3.0 166.4 69.8 68.8 85.3 23.2 62.2 10.0 52.1 166.5 89.1 52.9 55.8 38.3 17.4 13.9 3.6 20.7 4.1 29.0 1.0 11.0 14.3 44.3 9.2 9.7 7.2 4.3 35.1 44.3 16.1 3.6 23.0 4.9 16.9 17.7 45.6 7.4 2.3 8.2 27.7 38.2 45.6 2006 2007

2008 96.3 17.3 120.2 3.3 20.3 22.0 145.4 54.4 31.2 48.6 11.3 59.9 145.4 228.3 138.6 112.7 189.7 37.0 152.7 97.3 55.4

2009 101.4 16.5 125.2 13.9 25.5 43.7 182.8 57.4 33.5 25.0 30.6 14.2 91.9 182.8 254.8 87.6 8.1 9.7 (1.2) 10.9 1.8 9.1

2010 113.7 19.0 137.2 15.2 29.0 60.3 212.6 53.0 36.4 27.0 38.2 16.3 123.2 212.6 403.5 138.0 22.5 26.6 5.0 21.6 5.8 15.8 541.3

2011 101.7 22.8 133.4 39.6 44.6 73.0 246.1 84.4 50.2 35.1 49.2 17.8 111.5 246.1 516.1 184.6 38.7 41.3 8.6 32.7 6.6 26.1 541.3 4.8 6.5 1.2 18.8 27.92 71.79 65.12

2012F 130.9 32.3 170.8 46.9 55.1 91.1 308.8 114.4 59.5 42.6 59.6 21.6 134.9 308.8 637.4 228.0 65.4 65.0 16.6 48.4 9.8 38.6 541.3 7.1 9.4 2.4 24.2 23.50 68.77 47.82

2013F 169.4 45.2 221.1 42.1 67.2 111.5 374.8 142.4 70.5 54.5 71.5 22.9 161.8 374.8 777.7 278.2 86.8 87.7 22.4 65.4 13.2 52.1 541.3 9.6 12.4 3.2 31.3 22.00 32.78 35.07

10.2 10.5 17.8 37.07 112.99 1,456.70

1.7 1.6 18.7 11.63 (92.80) (83.58)

2.9 3.9 0.8 21.0 58.33 177.75 73.82

60.7 50.0 49.4 n/a 83.1

34.4 5.4 3.2 22.2 3.8

34.2 7.2 5.6 50.7 6.6

35.8 9.2 7.5 13.8 8.0

35.8 12.2 10.3 15.7 10.2

35.8 13.1 11.2 23.9 11.3

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

41

EQUITY RESEARCH

ZIMBABWE INVESTMENT HOLDING

Banking on growth Masawara listed on LSEs AIM, is an investment company focussed on acquiring interests in companies and projects based in Zimbabwe and the southern Africa region. The company targets investments that can generate a minimum project IRR of 25%. The targeted investee companies should be cash generative with clear growth potential. Masawara invests in entities where it has the ability to influence the business at board level. The company proposes to invest in real estate assets, equity, quasi-equity or debt instruments that may or may not provide shareholding or management control. Investments may be made directly, through special purpose vehicles or trusts. It is envisaged that exits from investments will primarily take the form of trade sales or through listings on an appropriate exchange, although the company will consider and evaluate other forms of exit. Robust portfolio The portfolio includes an effective 57.3% in Joina Centre, a 24 storey retail/office building in Harare. The property has a total gross area of approximately 64,000m2 and lettable space of approximately 26,851m2 (15,415m2 of lettable retail space and 11,436m2 of lettable office space) and approximately 600 parking bays. Joina City is valued at US$ 49.4m million, assuming full capacity and annual gross rents of US$ 3.9m per annum. The office tower was 29% occupied as at 31 December 2011, while the retail section was 90% occupied (2010: 63%), leading to an increase in the groups share of revenue from US$ 0.5m in 2010 to US$ 1.2m in 2011. However, the unit recorded a loss of US$ 117,000 due to higher operating costs and bad debts provisioning. Masawara also controls a 37.7% stake in TA Holdings, a Zimbabwean investment company listed on the ZSE with investments in sub-Saharan Africa focusing on the insurance, agro-chemical and hospitality industries. Masawara owns 100% of BP and Shell Marketing Services (Private) Limited (BPSMS), which was renamed Zuva Petroleum and was acquired for a consideration of US$ 30.0m financed through a US$ 8.2m cash and debt funding arrangements. The equity investment will be diluted through a combination of the following measures: i) introduction of financial and technical partners ii) the introduction of an employee share ownership scheme iii). implementation of other economic empowerment initiatives.

BLOOMBERG: MASA:LN Current price (USc) Liquidity Market Cap (US$m) Shares (m) Share price performance 52 Wk High (USc) 52 Wk Low Financials (US$m) - FY 31 Dec Turnover Operating Profit Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%) 0.0 na na 294.7 (6.3) (25.7) na na na (9.5) (5.7) (9.3) na 0.1 723.0 (1.3) 7.7 9.0 2009 0.0 (0.7) 0.1 (2.9) (96.4) 0.0 379.3 2010 0.5 1.8 3.0 (3.3) (9.0) 0.0 0.0 1.0 0.8 2011 1.2 (1.0) 10.1 6.7 6.0 0.0 0.0 99.0 119.3 0.8

Nonetheless, Masawara will retain a minimum 51% stake in the company. BPSMS is a long established importer and distributor of petroleum products with the largest storage capacity and widest distribution network comprising, 70 retail sites. Performance in FY 2011 disappointed. Since acquisition, Zuva incurred a loss after tax of US$ 1.6m (Masawara Plcs effective share of loss of Zuva was US$ 0.8m) The company also acquired a 50% stake in Telerix Communications (Private) Limited (Telerix) in November 2010 for a consideration of US$ 5.0m through a private placement and invested a further US$ 2.0m in February 2011 through a subscription for preference shares. The preference shares carry a coupon of 8% per annum and mature on 30 November 2012. Telerix is as an Internet Service Provider (ISP) in Zimbabwe. The company can legally construct, operate, develop and maintain a public data internet access and Voice over IP network in Zimbabwe as its subsidiary has an Internet Access Provider Class A Licence. Telerix has a 20 year Capacity Purchase Agreement contract with a local long distance dark fibre operator, to connect its network operations centre to the SEACOM. The future

42

for Telerix is in; the wholesaling of international bandwidth to corporate customers and other Internet Service Providers in Zimbabwe the establishment of fixed, nomadic and ultimately fully mobile broadband services via fibre optic and WiMAX network architecture the roll-out of a Fourth Generation network to provide a "last mile" solution for Internet customers A loss of US$ 3.2m was incurred in FY 2011(groups share US$ 1.6m). The loss was attributable to the costs being incurred and fixed operating expenses relating to the ongoing development and testing of the network, which, was yet to publicly launch the WiMAX product. During FY 2011 Masawara acquired a 15.03% interest in iWayAfrica two months before year end and the groups share of iWayAfricas was a loss of US$ 8,373.

MASAWARA - 3 YEAR COMPARISON


31 MAR (US$m) Balance sheet Shareholders' equity Minority interests Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Deposits Other receivables Cash at bank Current Assets Total Assets Income Statement Turnover Share of associates Fair value gains Operating profit Net finance income PBT Taxation PAT Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) 0.0 (0.7) 0.1 -0.7 (3.0) (3.5) 0.0 -3.5 (0.8) -2.9 0.0 -96.4 7.1 379.3 0.5 1.8 3.0 -0.3 (1.8) (2.1) -0.1 -2.2 1.1 -3.3 38.3 -9.0 6.0 1.2 -1.0 10.1 7.2 (0.2) 7.0 0.0 7.0 0.2 6.7 11.3 0.1 11.4 33.5 0.1 0.1 46.3 0.0 43.3 0.0 0.0 0.2 0.5 46.3 59.9 1.1 61.0 5.8 1.2 1.6 69.4 0.0 49.6 8.0 0.3 11.5 11.8 69.4 88.6 1.4 90.0 13.9 0.5 8.9 105.8 0.4 85.9 0.0 4.5 15.0 19.5 105.8 2009 2010 2011

43

EQUITY RESEARCH

ZIMBABWE PROPERTY
Steady as she goes As the gap between local average rentals and the regional rentals per square metre is narrowing, Mashonaland Holdings management have decided to actively seek ways to diversify the groups income streams through the exploitation of new development opportunities. Open market values remain lower than replacement costs A liquidity shortage in the economy is suppressing the increase in the open market values of properties. For Mash, the property portfolio is currently valued at US$ 82.5m against a gross replacement cost of US$ 139.0m. Management sees room for further growth in real estate values if fundamentals such as liquidity for mortgage finance and interest rates improve. Tenant ability to pay rentals affected by sluggish economic growth Tenants are currently struggling to pay competitive rents with high default risks being a major threat. Rental reviews supported FY 2011 performance whilst occupancy levels were also noted to have improved The vacancy rate at 9% is still manageable as the company is working on renovation and improvement of its property portfolio. Valuation indicates the counter is worth holding Using EV/EBITDA and PBV valuation methods, we derive a target price of US 2.9 cents, indicating significant upside. BUY.
Mash Holdings-Price vs Volume 6.0 5.0 4.0 3.0 2.0 1.0 Feb-09 Oct-09 Jun-10 Feb-11 Oct-11 20.0 15.0 10.0 5.0 BLOOMBERG: MASH:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 1.9 4.1 113.9 34.6 1,819.4 19.9 580.6 -21% -11% -5% 16% 2011 2012F 5.6 3.5 0.2 2.8 0.2 0.1 4.3 0.4 12.5 11.0 63.1 5.8 8.0 0.0 3.2 3.3 7.0 4.2 0.1 3.0 0.2 0.1 6.4 0.3 11.5 12.8 59.0 7.6 8.7 0.0 2.7 2.8 2013F 8.3 4.9 0.2 3.5 0.2 0.0 4.9 2013F 0.4 9.9 15.0 58.4 1.5 10.1 0.0 2.5 2.6

Financials - 31 DEC (US$m) Turnover EBITDA Net Finance Income Adj Attributable earnings Adj EPS DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EBITDA/EV (%) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) Adj RoaA (%) Adj RoaE (%)

2011 2012F

STRENGTHS Well managed Diversified property portfolio Sizeable land bank Internal property management skills OPPORTUNITIES Improving economic fundamentals Operating costs stabilising Increasing availability of funding for new projects

WEAKNESSES Limited funding for capex projects

THREATS Protracted economic recovery Political uncertainities

Middle Price (US c)-LHS

Total Volume (m)-RHS


Source: IES

44

Overview of FY 2011 results Revenue up backed by rental reviews and occupancy levels For FY 2011, revenue went up by 39% to US$ 5.6m supported by successful rental reviews and increased occupancy levels. The average rent per square increased to US$ 4.47 from US$ 3.20 in the prior period. Fair value adjustment boosts the PBT The office sector contributed approximately 80% to rental income. Arrears improved to 8% of revenue from 9% in the corresponding period. A fair value adjustment of US$ 20.2m boosted the PBT to US$ 24.0m. Stripping out the fair value adjustment, we estimate an adjusted attributable profit of US$ 2.8m, up 59% y-o-y, translating to an adj. eps of US 0.15 cents. A final dividend of US 0.026 cents per share was declared implying a dividend yield of 1.0%. Average rentals remain firm although there is limited upside. Despite the increase in the average rent per square metre the rental yields for the year eased to 7.28% from 8.5% as the property values increased. We see limited room for growth in the average rental per square metre, as other operating costs such as utilities are also weighing down on tenants. The office sector is the groups flagship Occupancy levels improved to 92% from 90%. The office sector contributed approximately 80% to rental income of US$ 5.6m (FY 2010: US$ 4.1m). Outlook Performing ahead of budget Revenue for Q1 2012 amounted to US$ 2.3m averaging US$ 570,000 per month, which was 15% ahead of budget and 26% up on the prior quarter. Operating expenses stood at 34% of income and were in line with the budget. The profit for the period was 29% ahead of budget and 27% up for last year Property development plans on the board The group has plans for two property developments, an office park in Avondale and a residential housing project in Westgate. The projects will be funded from the companys cashflow and from borrowings. Valuation and Recommendation Valuations indicate the counter is worth buying. Using EV/EBITDA and PBV valuation methods, we derive a target price of US 2.9 cents, indicating significant upside. We expect Mashs quality property portfolio and stable tenant base to continue driving rental income growth and the groups profitability. The property development projects especially with the diversification to the residential sector are an additional plus. Accordingly we maintain our BUY recommendation.
Portfolio by value
Residential Retail 3% 6% Industrial 14% Office/retail 70% Specialised 2% Development land 5%

Mashonaland Shareholding - 30/12/11


Shareholder 1 ZB Life Assurance Limited 2 Africa Enterprise Network Trust 3 Turner Roy 4 Fed Nominees P/L 5 Mashonaland Holdings Limited 6 Datvest Nominees P/L 7 Old Mutual Life Ass. Co. Zim Ltd 8 ZB Life Staff Pension Fund 9 L.E.S Nominees (Pvt) Ltd 10 Barclays Zimbabwe Nominees P/L # of Shares (m) % of Total 505.0 349.0 143.4 127.3 125.1 66.5 58.1 57.7 29.5 27.5 27.2% 18.8% 7.7% 6.8% 6.7% 3.6% 3.1% 3.1% 1.6% 1.5%

Gross lettable space


Residential 3% Retail 4%

Office/retail 46% Industrial 45%

Specialised 2% Source: IES, company

Source: IES, company

45

MASH- 5 YR CGR COMPARISON


31 DEC (US$m) Balance sheet Shareholders' equity Deffered tax Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Adj Attributable Income Weighted shares Adj EPS DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) 78.3 31.4 17,589.7 n/a n/a 83.6 0.7 81.5 (1,468.0) (1,467.4) n/a 92.9 64.4 (954.4) n/a 83.4 56.8 326.1 n/a 88.8 63.1 426.1 n/a 89.3 59.0 492.2 n/a 89.9 58.4 71.8 n/a (68.5) (25.0) (98.4) 408.7 (99.3) (81.9) 7,313.4 (420.0) (325.2) 69.2 45.9 61.7 38.6 54.7 59.3 25.0 17.5 9.1 18.5 24.1 15.5 0.2 0.2 0.1 0.1 (12.6) 1,819.4 (0.7) 0.0 0.9 0.2 0.1 0.0 0.0 (64.3) 1,819.4 (3.5) 0.1 1.3 0.0 0.0 (0.5) 0.0 (0.5) 1,819.4 (0.0) 2.8 2.4 2.2 1.5 0.0 1.1 1,819.4 0.1 2.3 4.1 3.4 2.3 0.1 1.7 1,819.4 0.1 0.0 2.5 5.6 5.0 3.5 0.2 2.8 1,819.4 0.2 0.1 4.3 7.0 5.6 4.2 0.1 3.0 1,819.4 0.2 0.1 6.4 8.3 6.4 4.9 0.2 3.5 1,819.4 0.2 0.0 4.9 16.8 7.4 24.2 0.0 0.0 24.3 0.0 23.9 0.0 0.1 0.4 24.3 23.7 10.5 34.2 0.0 0.0 34.3 34.2 0.0 0.0 34.3 51.8 23.1 74.9 0.0 0.0 74.9 0.0 74.9 0.0 0.0 0.0 74.9 42.1 9.0 51.1 0.2 0.5 51.6 0.3 50.5 0.3 0.4 0.8 51.6 47.3 15.4 62.7 0.4 0.9 63.7 0.5 61.7 0.6 0.9 1.5 63.7 80.7 4.1 84.8 0.4 0.5 85.4 0.5 82.0 0.7 2.2 2.9 85.4 118.4 (10.7) 107.8 0.5 4.2 112.0 0.5 105.9 1.2 4.0 5.6 112.0 163.7 (28.8) 134.9 0.5 4.6 139.6 0.5 129.2 2.2 7.2 9.9 139.6 2006 2007 2008 2009 2010 2011 2012F 2013F

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

46

EQUITY RESEARCH

ZIMBABWE INDUSTRIAL HOLDING


Show me the money Dogged by shareholder squabbles, Meikles share price plummeted 76% to lows of US13c. In our view, execution missteps have hurt the company, but we believe they can be fixed and we are watching closely for signs of healing. Investors also remain wary about the weak corporate governance issues. We expect a lot of value unlocking in its subsidiaries, namely supermarkets, departmental stores, hotels and Tanganda in the long term. The group has strong defensive characteristics, solid market positioning and excellent growth potential. Margins remained under pressure For H1 2012, Meikles posted a weak set of financials showing an attributable loss of US$ 5.3m, negatively impacted by the high finance charges and weak performances by Tanganda and Head Office. Gross margins eased to 20.4% from 22.6% in the prior period. Changed environment less appealing for conglomerates The unbundling of retail operations and the agriculture concern, Tanganda can unlock value to shareholders. We believe that any unbundling can be accelerated as the group plans to introduce new investors into the units to facilitate substantial growth. Improving business visibility will gradually reduce valuation discount Our sum of parts valuation ascribes a fair value of 59.8 US cents a share, representing 232% upside potential. As investors witness the scaling up of business and profitability, we expect the market to reassess its perception. Spec BUY.
BLOOMBERG: KMAL:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

SPEC BUY 14.0 59.8 327.1 33.7 240.8 37.0 628.2 (30.0) (22.1) (66.7) (58.4) 2011* 330.4 (0.7) (7.6) 6.7 2.8 0.0 55.8 0.3 5.0 na (0.2) na 19.8 36.8 2.5 4.9 2012F 396.5 12.9 (6.2) (1.2) -0.5 0.0 56.1 0.2 na 6.5 3.2 na na 35.2 (0.5) (0.9) 2013F 485.7 15.7 (4.5) 1.3 0.6 0.0 56.6 0.2 25.2 5.3 3.2 na 4.0 30.1 0.5 1.0

Financials (US$m) - FY 31 Mar Turnover EBITDA Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EV/EBITDA (x) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%) *15 Months

Meikles - volume vs price 80

150 100

STRENGTHS Diversified income streams Domestic and regional presence Highly rated brands Significant asset base (Properties) OPPORTUNITIES Regional expansion Unlocking value through the floatation of subsidiaries such as Tanganda and TM Supermarkets
Source:IES

WEAKNESSES High operating cost structure Poor image in terms of corporate Weak IT Systems-Supermarkets and Stores THREATS Intense local competition can exert pressure on margins Indigenisation laws can stall progress on potential deals

40 50 May-11 Sep-11 Volume (m) RHS Jan-12 0 May-12

Strategic Partners (Pick n Pay; TN Bank) governance failures

Price (USc) LHS

47

Overview of H1 2012 results High costs adversely impacted profitability For H1 2012, Meikles posted a weak set of financials showing an attributable loss of US$ 5.3m, negatively impacted by the high finance charges and weak performances by Tanganda and Head Office. Gross margins eased to 20.4% from 22.6% the prior period. Revenue growth was mainly driven by Supermarkets which contributed 82.5% from 84.0%, followed by Departmental Stores 7.4% vs 4.8%, Tanganda 5.5% vs 6.6% and Hotels flat at 4.8%. Cash generation improved as the net operating cash flow turned positive at US$ 4.0m from a negative US$ 40.4m. Nonetheless, net gearing deteriorated to 41.7% from 36.8% at year end. Total debt was approximately US$ 57.4m at an average cost of 15% p.a. The Cape Grace remains an asset for disposal by the Cape Grace Group to Mentor. The disposal is expected to be concluded in the second half of the year. The group is still owed approximately US$ 37.0m by the RBZ. Supermarkets remained the crown jewel Revenue grew 36.4% to US$ 136.6m and EBITDA margins improved to 2.5% from 1.4%. The supermarkets largely operated from 48 branches during the period and opened a 50th store in September 2011. High utility charges and reduced rains impacted on tea production EBITDA losses deteriorated to US$ 2.3m from US$ 0.2m in the prior period as bulk tea production eased by 3% to 2,415 tonnes. High power and labour costs continue to impact returns on tea, hence the planned diversification into coffee, macadamia and avocados. A total of 200ha of coffee, 600ha of macadamia and 400ha of avocados are planned in the next 18 months. Departmental stores turned the corner Turnover grew 114.9% y-o-y as the number of credit customers increased to 37,000 from 27,500 at year end. Credit sales accounted for 76% of sales. Gross margins eased to 32% from 33%. EBITDA was US$ 234,000 from a loss of US$ 579,000. Focus on business traveller The local hotels clocked revenue growth of 25% to US$ 7.9m as tourist arrivals into Zimbabwe grew 16%. Cape Grace revenues declined by 4% to US$ 6.8m. EBITDA margins for local hotels jumped to 12.5% from 11.3% whilst EBITDA margins for Cape Grace shrunk to 5.2% from 9.6%. Occupancy levels improved to 56% from 44% for Victoria Falls, 63% from 59% for Cape Grace and 52% from 38% for Meikles Hotel. RevPAR increased to US$ 154 from US$ 136 and US$ 62 from US$ 52 for the Victoria Falls and Meikles, respectively. RevPAR for Cape Grace declined to ZAR 1,616 from ZAR 1,837. Outlook Pick n Pay acquisition of TM concluded Pick n Pay is investing US$ 13.0m into TM Supermarkets and will increase its shareholding in TM Supermarkets from 25% to 49%. The investment received all the regulatory requirements. The US$ 13.0m will be used to update and refurbish existing stores. The TM brand will be retained as it is a key brand in the market although some strategic stores will be rebranded Pick n Pay. TM Supermarkets is expected to benefit through stocking and supplier arrangements, staff training and technology transfer. The groups core debt is largely in the form of short term borrowings. Meikles is therefore looking into ways of replacing short term debt with a long-term loan. The group plans to introduce new investors into the units to facilitate substantial growth. Nonetheless, if there are prolonged delays in the capital raising initiatives growth would wane.
Meikles Shareholding - 31/12/11 Shareholder 1 JRTM Investments P/L 2 Ash Investments P/L 3 FPS Investments P/L 4 ACM Investments P/L 5 APWM Investments P/L 6 Old Mutual Life Assurance Company Zi 7 L.E.S Nominees (Pvt) Ltd 8 Clayway Investments (Pvt) Ltd 9 Datvest Nominees (Pvt) Ltd 10 Stanbic Nominees P/L-NNR # of Shares (m) 21.3 21.1 21.0 21.0 21.0 16.4 12.8 12.6 5.8 5.3 % 8.7% 8.6% 8.6% 8.5% 8.5% 6.7% 5.2% 5.1% 2.4% 2.2%

Meikles H1 2012 results


Income Statement (US$' 000) Turnover EBITDA Net finance income PBT Attributable earnings EPS (USc) Balance Sheet (US$' 000) Total Assets NAV Current Assets Current Liabilities Current ratio Cash flow (US$' 000) Operating activities Investing activities Financing activities H1 2011 119,319.0 1,147.0 (2,889.0) (2,442.0) (694.0) (1.2) FY 2011 249,480.0 134,369.0 60,152.0 79,523.0 0.8 H1 2011 (40,390.0) (5,783.0) 23,109.0 4,070.0 (2,461.0) 285.0 -57.4% -98.8% 249,455.0 126,240.0 63,975.0 92,603.0 0.7 0.0% -6.0% 6.4% 16.4% -8.7% H1 2012 % change 165,591.0 (357.0) (4,253.0) (7,040.0) (5,349.0) (2.4) 47.2% 188.3% 670.7% 101.7% 38.8%

EBITDA contribution
780% 580% 380% 180% 20%
Stores Supermarkets Agriculture

549%

156% 37%)
Corporate Hotels

220%

(361%)

(282%)

48

Valuation and Recommendation Based on our sum of parts valuation for Meikles, we value the group at US$ 0.60 per share. There is no doubt that there is political and economic uncertainty hence investors should be prepared to wait. Overall we believe Meikles is a positioning Therefore, acquiring a Buy solid company with impressive market and excellent growth potential. we recommend investors begin core position at current levels. Spec

M EIKLES LIMITED - 5 YEAR CGR COMPARISON


31 MAR (US$m) Balance sheet Shareholders' equity Minority interests Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 82.0 36.0 15.7 18.2 35.2 90.0 66.9 22.3 n/a 367.0 82.1 (230.7) 18.3 9.3 (241.6) 20.0 (4.6) (7.0) n/a (7.4) 22.0 (0.2) (1.8) (0.8) 0.9 25.9 3.2 1.8 1.2 0.5 25.9 3.2 2.1 2.3 1.2 (35.3) 10.9 97.5 (32.9) (4.9) 808.5 (51.2) (59.8) (134.9) 166.9 (202.1) (96.2) 122.0 (42.1) (238.9) 20.0 (221.0) (118.2) 22.5 37.9 (210.1) 16.9 3.0 3.0 17.9 151.6 131.5 3.5 25.1 51.4 7.3 9.0 (2.0) (2.1) 58.3 55.8 170.1 139.6 26.7 (1.5) 59.8 15.7 44.1 3.9 40.2 114.2 102.8 25.6 1.5 419.0 53.9 365.0 2.9 365.0 55.8 45.8 15.2 (1.1) (134.7) (7.1) (127.7) -0.2 (127.5) 148.8 29.8 (6.0) 0.3 (11.0) (5.4) (5.5) (0.7) (4.8) 330.4 72.8 (0.7) (7.6) 2.9 (0.8) 3.7 (0.6) 6.7 240.8 2.8 (2.2) 56.1 396.5 102.8 12.9 (6.2) 2.0 0.4 1.5 2.8 -1.2 240.8 -0.5 1.5 56.6 485.7 125.9 15.7 (4.5) 6.0 1.3 4.6 3.3 1.3 240.8 0.6 2.7 43.0 1.6 3.9 6.6 25.7 25.7 80.8 14.0 14.4 19.4 5.5 27.6 52.5 80.8 60.5 0.4 5.1 3.6 9.0 22.1 91.8 17.8 23.5 6.9 4.5 39.2 50.5 91.8 123.7 1.7 20.5 0.2 0.8 35.3 187.8 81.5 22.5 29.8 42.8 10.9 83.5 187.8 140.3 1.3 15.3 7.8 22.9 111.9 276.7 80.5 23.5 17.1 7.3 2.5 172.4 276.7 134.4 0.8 16.0 52.8 30.0 45.6 249.5 84.3 63.5 40.7 16.2 3.3 101.6 249.5 135.1 3.5 16.0 52.4 38.9 39.3 246.3 86.8 86.3 48.9 19.4 4.8 73.0 246.3 136.4 6.8 16.0 46.0 47.6 48.4 253.7 87.3 83.8 53.9 23.7 4.9 82.5 253.7 2006 2007 2008** 2009 2011* 2012F 2013F

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period. *15 months ** 9 months

49

EQUITY RESEARCH

ZIMBABWE RETAIL
Xxx Galloping high on promotions heels!!!!!!! A steadily improving macro-economic environment and a stable inflationary environment have supported the growth in OK Zims performance with revenue moving up by more than the current GDP growth rate. Significant sales growth backed by adequate stock All the companys stores were adequately stocked throughout H1 2012, which combined with effective sales and marketing programmes generated significant growth in sales. Recent refurbishments have also resulted in noticeable increases in business activity. Shrinkage has been controlled Shrinkage is the main setback for most retailers, and OK has managed to reduce its shrinkage to 1% against international standards of 1.5%. Improving economic fundamentals a plus In 2012, Zimbabwes GDP is forecast to grow by 9.4%, up from 9.3% in 2011 and 8.1% in 2010, whilst inflation is expected to end the year at 4.8%. This positive trend will obviously trickle through to the household level, thus boosting disposable incomes. Valuation shows upside Although current ratings are demanding, we expect the counter to rerate favourably driven by the growth in earnings. The new look stores, OKs brand equity and extensive branch network, should ensure volume growth and retain the groups position as the nations top retailer. BUY.

BLOOMBERG:OKZIM:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 10.0 15.9 59.1 102.1 1,020.9 24.8 556.8 10.5 18.4 40.0 57.3 2011 257.4 8.1 -0.1 4.3 0.4 0.2 3.8 2.6 25.7 11.7 2.6 2.1 3.9 -15.6 3.6 6.5 2012F 370.2 18.4 -0.6 11.9 1.0 0.2 4.8 2.1 9.9 5.2 3.2 2.3 10.1 -4.8 7.9 13.9 2013F 436.8 22.7 -0.6 14.8 1.2 0.3 5.9 1.7 8.5 4.2 5.0 2.9 11.7 -2.0 15.3 25.7

Financials (US$m) - FY 30 Mar Turnover EBITDA Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EV/EBITDA (x) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%)

OK Zim-Price vs Volume 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 60.00 50.00 40.00 30.00 20.00 10.00 STRENGTHS Defensive food/FMCG business Expansive retail network Key locations with high traffic Strong cash generator OPPORTUNITIES Increasing disposable incomes Resurgence of public sector spend Recovery in local income Franchising WEAKNESSES Weak consumer incomes No credit available for white goods Weak banking sector results in self financing THREATS Competition from locals Entry of regional players Protracted economic recovery

Middle Price USc

Total Volume (m)

Source: IES

50

Nature of business OK Zimbabwe is the countrys largest retailer with over 69 years experience in retailing. From the companys first branch which opened in Harare in 1942, the stores portfolio has increased to 51, comprising 37 OK Stores, 6 Bon Marche, 6 OK Express and 2 OK Mart stores. The latter were acquired recently after the group took over Makros stores in Harare and Bulawayo. The Pax Cash and Carry was discontinued in the last financial period and the shops were converted to OK and OK Express respectively according to size. Substantial lettable space The groups retail space amounts to 66,000m2 with an additional 13,000m2 from the recently acquired OK Mart stores. The companys offering borders three major categories, groceries, basic clothing and textiles and house ware products. The target market ranges from the low income earners (OK Express Stores), middle income (OK Stores) and high income (Bon Marche). Aside from offering local and imported goods, the company has developed its own brands through the OK Pot 'O' Gold, OK Value and Bon Marche' Premier Choice labels. Overview of H1 2012 results Impressive set of financials as both sales and revenue grew ahead of budget. The successful recapitalization enabled the company to clear its short term borrowings and reduce finance cost to just above US$ 1,000. Revenue for the period shot up 61% to US$ 185.6m with gross margins increasing from 16% to 17.1%. PBT for the period amounted to US$ 5.1m up from US$ 0.6m for the prior period indicating a profit before tax margin of 2.7% up from 0.53%. Attributable profit, on the other hand, stood at US$ 3.8m and translated to an EPS of US 0.38 cents, which compares favourably to US 0.03c for H1 2010. The company declared an interim dividend of US 0.15c, which works out to an interim dividend yield of 1.61%. Strong cash position As the company cleared its borrowings it was able to register an impressive current ratio of 1.8x up from 1.4x in the prior period. Cash ended the period down from US$ 9.5m to US$ 2.26m as the company forged ahead with its expansion and branch refurbishment drive. Outlook Refurbishments still on the cards The company had planned a US$ 16.0m capex budget for FY 2012. A number of new store sights were also being negotiated, whilst major refurbishment was planned for four more stores and face lifting for another four branches. Valuation and Recommendation We forecast FY 2012 revenue of US$ 370.2m whilst margins are likely to improve given the declining shrinkage; we forecast a gross profit margin of 17.9% for FY 2012 and 18.6% for FY 2013. Our forecast operating profit margin is 4.0% for FY 2012 up from 2.1% for FY 2011. Using an EV/EBITDA valuation, we derive a price of US 15.7c, by multiplying our forecast EBITDA of US$ 18.4m by the average EV/EBITDA for OK and its South African peers. BUY


OK Zim Shareholding - 30/12/11 Shareholder 1 Old Mutual Life Assurance Co. Zim Ltd 2 Old Mutual Zimbabwe Ltd 3 National Social Security Authority 4 Barclays Zimbabwe Nominees P/L NNR 5 IAFPEF OKZL Limited NNR 6 Lasmid Investments (Pvt) Ltd 7 National Social Security Authority 8 Ractor Investments (Pvt) Ltd 9 IAFPEF OKZL Management Partnership 10 Mining Industry Pension Fund # of Shares (m) of Total 160.0 105.7 105.6 83.4 82.9 62.1 55.7 54.9 27.1 25.9 15.3% 10.1% 10.1% 8.0% 7.9% 6.0% 5.3% 5.3% 2.6% 2.5%

OK Zimbabwe H1 2012 results


Income Statement (US$) Revenue Net operating expense Profit/(Loss) before tax Attributable Profit/(Loss) HEPS (USc) Balance Sheet (US$) Total Assets NAV Current Assets Current Liabilities Current ratio Cash flow (US$) C/f from operating activities C/f from investing activities C/Financing activities Closing cash and cash equiv 3,221,361 (4,299,591) 6,942,292 9,536,942 2,729,510 (7,010,898) 2,100 2,264,991 -15% 63% -100% -76% 52,667,957 31,612,196 31,724,238 17,893,909 1.8 75,688,375 41,005,970 42,313,328 31,114,884 1.4 44% 30% 33% 74% -23% H1 2011 115,061,283 1,546,033 614,951 322,151 0.04 H1 2012 185,609,258 7,037,745 5,151,350 3,826,861 0.38 % 61% 355% 738% 1088% 762%

51

OK ZIM - 5 YEAR CGR COMPARISON


31 MAR (US$m) Balance sheet Shareholders' equity Deffered tax Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 0.4 12.0 12.0 2.9 16.1 0.4 15.7 15.7 5.1 18.8 0.5 12.0 12.0 12.8 13.0 41.9 6.4 6.4 9.5 7.1 26.7 2.6 1.4 1.9 0.7 16.9 3.2 2.1 53.4 2.1 17.9 5.0 4.1 4.0 18.6 5.2 4.4 4.2 (39.96) 35.28 5.83 (32.12) (11.40) (22.29) (45.48) (58.20) (65.41) (46.94) (71.75) (70.93) 823.76 95.28 23.12 37.28 113.56 249.78 43.80 183.27 176.92 18.00 24.16 24.32 103.4 0.4 12.4 4.2 16.7 3.9 12.7 12.7 3,518.0 1.2 1.2 0.6 0.6 70.2 0.3 11.0 2.2 13.2 3.3 9.9 9.9 3,518.0 1.0 1.0 0.5 0.7 38.3 0.2 4.6 0.4 5.0 1.5 3.4 3.4 3,518.0 0.3 0.3 0.7 20.3 8.5 1.3 0.1 1.4 0.4 1.0 1.0 1,020.9 0.1 0.1 1.4 187.5 50.1 4.9 (1.3) 1.2 0.0 1.2 1.2 1,020.9 0.1 0.3 1.6 257.4 43.5 8.1 (0.1) 5.3 1.0 4.3 4.3 1,060.5 0.4 0.6 0.2 3.8 370.2 66.3 18.4 (0.6) 14.7 2.9 11.9 11.9 1,120.1 1.0 1.3 0.2 4.8 436.8 81.1 22.7 (0.6) 18.4 3.7 14.8 14.8 1,189.5 1.2 1.5 0.3 5.9 5.7 5.7 5.7 7.5 13.2 0.9 0.3 8.2 3.1 12.0 13.2 7.2 7.2 3.4 3.6 10.9 6.0 0.1 3.0 1.5 4.8 10.9 7.5 7.5 0.1 1.7 1.8 9.4 7.1 0.1 1.6 0.0 0.4 2.2 9.4 14.2 3.6 17.8 1.3 6.5 8.6 27.7 17.5 0.1 8.6 0.2 1.2 10.0 27.7 16.7 3.0 19.7 7.1 10.9 13.0 39.8 17.8 0.1 17.3 0.8 3.7 21.8 39.8 38.8 3.3 42.1 26.0 26.7 68.8 27.3 0.4 31.3 2.8 6.5 40.7 68.8 48.5 1.8 50.3 5.0 28.1 31.0 86.2 31.0 1.7 41.5 4.6 7.4 53.5 86.2 60.7 1.0 61.7 5.0 19.9 23.6 90.2 36.1 2.3 43.7 1.9 6.2 51.8 90.2 2006 2007 2008 2009 2010 2011 2012F 2013F

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

52

EQUITY RESEARCH ZIMBABWE

MINING
The ramp-up story continues Despite the fact that New Dawn Mining is listed on the Toronto Stock Exchange (TSX) and has access to international capital markets, we think that capital raising initiatives are likely to remain thwarted given the issue of indigenisation in Zimbabwe (at least in the short to medium term). Management has already indicated that the group will require a total sum of US$ 40.0m in capex funding so as to grow the mining operation beyond the 100,000oz annualised gold production target. Moving towards low grade mass mining New Dawn is unique in the sense that it is one of the few stocks that offers a pure direct-exposure in Zimbabwes gold mining sector. The group has been injecting some funds into CAG assets with the aim of stabilising operations, settling liabilities and undertaking some refurbishments. The company is now ensuring that its mining assets move towards lowermedium grade mass mining to achieve its production targets. Grossly undervalued We have derived a theoretical valuation for New Dawn of US$ 2.22 per share, which implies 141.1% upside potential on the current price. We think an EV/Resource oz of US$ 24.63 points to gross undervaluation given an average EV/resource oz of cUS$ 80.00 for other African gold producers. We maintain our call that investors BUY.

BLOOMBERG:ND:CN Current price (CAD) Current price (USD) Target price (USD) Upside/Downside Liquidity Market Cap (USDm) Shares (m) Free float (%) Ave. daily vol ('000) Share Price Performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to MSCI Frontier Market Index

BUY 0.92 0.92 2.22 141% 39.6 42.9 15.0 30.0 1.20 1.25 -23.3% -20.3% -26.4% -9.7% 2011 38.3 6.3 4.2 10.02 88.2 2011 5.4% 8.0% 13.4% 6.3 1,566 1.0 9.2 10.9% 0.0% 16.4% 2012F 60.3 6.3 9.8 23.28 93.7 2012F 5.1% 15.6% 25.6% 2.4 1,124 1.0 4.0 25.3% 0.0% 26.8% 2013F 77.9 22.3 16.1 38.24 98.4 2013F 6.1% 23.6% 39.8% 1.8 887 0.9 2.4 41.5% 0.0% 28.6%

Financials (USDm)-FY 30 Sept Revenue EBITDA Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Ratios Gearing RoaA RoaE EV/EBITDA (x) EV/oz produced (USD) PBV (x) PER (x) Earnings Yield Dividend Yield EBITDA Margin

New Dawn - volume vs price 2.50 2.00 1.50 1.00 0.50 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Volume-RHS Price-LHS

2,500,000 2,000,000 1,500,000 1,000,000 500,000 -

STRENGTHS Balance sheet has negligible debt (Gearring of 5.4%) Fully funded capex 20+ years mine life at max output Significant gold assets around the country through its three gold camps ( Kadoma, Bulawayo & Kwekwe) TSX Listing enables group to access international capital markets OPPORTUNITIES First mover advantages in Zimbabwe

WEAKNESSES Over reliance on gold- Limited diversification. Power constraints and mining labour wages leading to higher production costs thereby increasing cash costs.

THREATS Production disruption due to ZESA power outages

Exploration upside- There is scope to expand Turk mine Indigenisation regulations may threaten capital (SRK discovery of an additional 1.5-2.0m oz of resources) raising initiatives especially on foreign Potential for Bulk mining at the Kadoma and Gweru Camp markets such as the TSX. Potential of 1.2m tonnes per annum tailings retreatment plant Lack of skilled labour due to brain drain

Source: IES

53

Nature of business A pure gold play New Dawn Mining is a Zimbabwe-focused junior gold miner engaged in the production, exploration, development, mining and processing of gold. New Dawn has an objective to reach a consolidated annualised gold production of 50,000-60,000oz of gold by 2013 and 100,000oz of gold by 2015. We note that the miners ultimate goal is to become a mid-tier gold producer (250,000oz per annum). The recent acquisition of CAG (Central African Gold) has enabled New Dawn to increase its gold resource base and associated mining capability to support its production targets. These production targets are premised, in part, on accessing adequate financing. Furthermore, production targets may also be impacted by more restrictive and expensive environmental regulations in the country which could require revisions to New Dawns capital allocation budget and expansion plans. Three Main Gold Camps (Bulawayo, Gweru and Kadoma) identified As part of its efforts to integrate and consolidate mining activities, New Dawn has identified three main gold camps making up its core portfolio of mining assets. Turk, Old Nic and Dalny form two of the three gold camp areas while potential near term opportunities at some of its other properties form the third gold camp. Management has highlighted that the projected expansion at Turk Mine and planned production at Old Nic and Dalny as well as the potential near term projects, place New Dawn at a firm position to meet its target of annualised consolidated production of 38,000 to 40,000oz by FY 2012. Exploration activity is gathering momentum New Dawn is actively exploring on highly prospective ground employing modern exploration techniques in Zimbabwe, a country that is proven to be geologically rich, highly prospective, and significantly under explored. More recently, New Dawn initiated an 8,000m exploration project at its Camperdown mine, which is part of the company's Gweru Gold Camp located in the Shurugwi District of Zimbabwe. The program aims to test the down-dip extent of the known mineralised zones within the claims area. To provide efficient drill rig positioning, initial drilling will be sited around the areas of previous underground operations. While drilling is occurring, extensive geological mapping and structural analysis will also be conducted. Also, approximately 650.0m to the SW of Camperdown, within the claims area, there is another small open pit, known as the Redhill deposit, where a small amount of mining has taken place in the past with recovered grades on the order of 1.5 g/t of gold. The exact geological relationship and stratigraphic position of Redhill relative to Camperdown is not fully understood and therefore will be investigated during this exploration program. Overview of Q1 2012 results Revenue at US$ 15.4m for Q1 2012 was 139.0% ahead of Q1 2011. The growth was driven mainly by consolidated gold production that reached a record of 9,095oz of gold for the quarter, compared to 4,808oz of gold for the quarter ended Q1 2011. This represented an increase of 89.2% (y-o-y). We note that the production increase was achieved through a continued focus on the CAG mines that were acquired in June 2010. We also note that the average sales price per oz of gold sold increased by 23.0% from US$ 1,370/oz in Q1 2011 to US$ 1,684/oz. This was a direct effect of the increase in the international gold price. Margins expanded despite the increased cash costs The cash cost for all the gold produced by the company's mines was US$ 1,029/oz for Q1 2012 (Q1 2011: US$ 821/oz). Cash costs per oz increased primarily as a result of significant increases in various base costs such as labour, power and mine supplies. New Dawn expects continuing upward pressure on these costs in 2012, as well as a potential increase in Group structure

Note: New Dawn Mining has since increased its stake in CAG from 89% to 96%

Three main gold camps

Income Statement (USD) Revenue Operating Expenses EBIT EBITDA PBT Tax PAT EPS (USD) Margins EBIT margin EBITDA margin PBT Margin PAT Margin Balance Sheet (USD) Current Assets Other Assets Total Assets Current Liabilities Other Liabilities Total Liabilities Equity Total Equity & Liabilities Other Measures Gold produced (oz) Gold sold (oz) Cash cost/oz Revenue/oz

Q1 2011 6,458,735 (6,046,682) 412,053 1,010,375 586,826 (374,165) 212,661 0.01 Q1 2011 6.4% 15.6% 9.1% 3.3% FY 2011 13,823,487 43,783,067 57,606,554 8,776,016 10,980,773 19,756,789 37,849,765 57,606,554 Q1 2011 4,808 4,715 821 1,370

Q1 2012 15,440,766 (12,276,410) 3,164,356 3,583,788 3,005,592 (706,712) 2,298,880 0.05 Q1 2012 20.5% 23.2% 19.5% 14.9% Q1 2012 15,270,884 47,664,842 62,935,726 9,413,876 13,283,145 22,697,021 40,238,705 62,935,726 Q1 2012 9,095 9,171 1,029 1,684

% 139% 103% 668% 255% 412% 89% 981% 400%

% 10% 9% 9% 7% 21% 15% 6% 9% % 89% 95% 25% 23%

54

environmental costs. However, as gold production moves toward higher normalised levels and refurbishment programs are completed, increased operating efficiencies, with a corresponding expected downward trend in cash costs per ounce can be realised. Despite an increase in cash costs, New Dawn registered a significant improvement in margins. EBIT increased 668.0% to US$ 3.2m, giving an EBIT margin of 20.5%. (Q1 2011: 6.4%). Likewise, EBITDA increased 255% to US$ 3.6m giving an EBITDA margin of 23.2% and PAT was up 981% to US$ 2.3m. Outlook The Ramp-up trend expected to continue Despite the fact that capital raising efforts may be hamstrung by the aforementioned indigenisation laws, management remains committed to ramping up production at the mine in line with set production targets. We also note the fact that as the group moves towards mass mining, cash costs are likely to decrease as production rises due to economies of scale. Using a

conservative average gold selling price of US$ 1,742/oz and a production estimate of 45,647oz for FY 2013, we expect revenues to be around US$ 77.9m. Applying a PAT margin of 20.6% implies after tax earnings of about US$ 16.1m. Valuation and Recommendation We have modelled New Dawn earnings outlook in line with is companys gold production ramp-up project. However, we consider our estimates conservative as we think production numbers will reach c100,000oz by FY 2019. We have derived a theoretical valuation for New Dawn of US$ 2.22 per share, which implies 141.1% upside potential on the current price. We have also carried out a comparative analysis for New Dawn. We think an EV/Resource oz of US$ 24.63 points to gross undervaluation given an average EV/resource oz of cUS$ 80.00 for other African gold producers. We maintain our call that investors BUY.

NEW DAWN MINING - 5 YEAR CGR COMPARISON 30 SEPTEMBER (USDm) Income Statement Sales Operating Expenses Operating Income (loss) EBITDA Other Income Income (loss) before tax Tax provision Share of loss /profit to minority interests Net income (loss) for the year Balance Sheet Assets Current Assets Fixed Assets Total Assets Liabilities and Shareholders' Equity Total Liabilities Shareholders' Equity Total Equity & Liabilities Ratios EPS (USc) NAV (USc) Gearing RoaA RoaE EV/EBITDA EV/Oz (produced) Current Ratio DPS Dividend Yield Margins OP Margin PBT Margin PAT Margin EBITDA Margin 10.8% 18.4% 10.7% 23.7% -3.1% 21.6% 14.0% 8.4% -14.1% -32.4% -33.0% 0.8% -19.3% -64.4% -66.2% -7.2% 8.7% 8.0% -4.8% 14.5% 12.6% 12.4% 11.0% 16.4% 23.3% 22.7% 16.2% 26.8% 25.2% 24.7% 20.6% 28.6% 2.8 43.5 6.0% 7.9% 20.0 7,266 4.5 4.4 50.0 7.3% 9.3% 48.7 7,351 5.6 (8.5) 59.4 -12.4% -15.6% 547.5 4,023 5.8 (12.9) 46.8 -18.4% -24.3% (90.3) 6,113 3.2 (2.5) 80.6 5.9% -2.5% -4.0% 16.2 2,733 1.2 10.0 88.2 5.4% 8.0% 13.4% 6.3 1,566 1.6 23.3 93.7 5.1% 15.6% 25.6% 2.4 1,124 1.5 38.2 98.4 6.1% 23.6% 39.8% 1.8 887 1.3 3.6 12.6 16.2 4.1 14.5 18.6 4.2 17.2 21.4 5.6 13.6 19.2 19.2 25.6 44.8 22.8 37.0 59.9 25.9 39.3 65.5 29.1 41.3 70.7 45% 24% 30% 5.3 10.0 16.2 6.7 9.8 18.6 7.2 9.2 21.4 9.6 9.5 19.2 8.9 32.9 44.8 13.8 39.9 59.9 15.4 44.1 65.5 16.3 47.9 70.7 21% 32% 30% 7.7 6.8 0.8 1.8 0.6 1.4 (0.6) 0.8 9.0 9.3 (0.3) 0.8 2.2 1.9 (0.7) 1.3 7.5 8.5 (1.1) 0.1 (1.4) (2.4) (0.0) (2.5) 5.6 6.7 (1.1) (0.4) (2.5) (3.6) (0.1) (3.7) 16.4 15.0 1.4 2.4 (0.1) 1.3 (2.3) 0.2 (0.8) 38.3 33.5 4.8 6.3 (0.1) 4.7 (0.7) 0.1 4.2 60.3 46.2 14.1 16.1 (0.4) 13.7 (2.8) (1.1) 9.8 77.9 58.3 19.6 22.3 (0.4) 19.3 (5.8) 2.6 16.1 39% 27% 3% 38% 37% 42% 28% 2006 2007 2008 2009 2010 2011 2012F 2013F 5yr CAGR

55

EQUITY RESEARCH

ZIMBABWE

AGRICULTURE

A huge catch for the day Padenga Holdings operates, three farms, located on the shores of Lake Kariba in Zimbabwe. The company produces crocodile skins and meat for export to Europe and Asia. Padenga is one of the largest Nile crocodile farming operations in Africa, supplying about 33% of the worlds demand. Better quality skin on fewer animals Padengas emphasis is on producing large crocodile skins. In 2009, the company decided to reduce the number of its skins produced from 60,000 skins a year to 42,000 skins. This strategy has paid off, as they are now producing better skin quality, with fewer bite marks which reduce the value of the skin. Average skin price expected to improve For FY 2012, expected capacity increases by two premier luxury brand manufacturers are expected to increase demand for the companys products. Culling commenced on the 1st of March, and the group is confident of culling and selling its targeted 42,800 skins. The average skin price achieved for FY 2011 was approximately US$ 300 per skin and this is expected to improve in FY 2012. Luxury goods market demand to double Growth in the luxury branded goods market is expected to double in the next decade led by demand from emerging markets. Padenga is thus prioritising value addition to the skins where possible in a manner that will not compete with existing customers. Valuation We have valued Padenga using a combination of the EV/EBITDA and NAV valuation techniques, deriving a target of US 9.9c. Forward ratings are undemanding at PER+1 of 4.1x and PBV of 0.9x. BUY.
Padenga - volume vs price 10

BLOOMBERG: PADENGA:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 5.5 8.5 54.4 29.8 541.6 37.8 370.8 10.0 18.0 10.0 28.9 2011 19.7 6.3 (1.0) 3.7 0.7 0.2 5.7 1.0 8.0 5.8 32.1 3.0 12.4 9.4 9.4 12.2 2012F 21.3 11.2 (0.6) 7.2 1.3 0.3 6.4 0.9 4.1 3.3 52.4 5.9 24.2 5.6 15.4 22.1 2013F 23.0 12.3 (0.3) 8.1 1.5 0.4 7.5 0.7 3.7 3.0 53.4 6.6 27.2 2.4 15.4 21.6

Financials (US$m) - FY 30 Jun Turnover EBITDA Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EV/EBITDA (x) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%)

STRENGTHS Group synergies

WEAKNESSES Strong competitive environment Conglomerate feel Advances to farmers at a cost to the company THREATS Cheap imports Drought

10 8

Branded products Strong marketing Diversified operations OPPORTUNITIES Franchise expansion New product development

6 4 2

Growth in disposable incomes Prolonged time to recovery

0 Dec-10 Jul-11 Volume (m) RHS Feb-12 Middle Price USc

Source: IES

56

Nature of business Padenga Holdings is a wholly owned Zimbabwe holding company for businesses engaged in the rearing, slaughter and processing of crocodiles with the end products being meat and skins. Padenga supplies approximately 33% of the worlds demand for large, high quality skins making it one of the largest single exporters of crocodile skins in the world. Between eight and nine kilogrammes of exportable meat is produced per animal, based on a slaughter size of 2.1 metres. The group currently operates three farms on Lake Kariba, producing the Nile crocodile Crocodylus Niloticus, and also has an abattoir which slaughters the animals on behalf of the farms. The production of crocodiles incorporates both ranched stock raised from wild eggs collected on permit and incubated on-farm, and stock produced from captive domestic breeders. Overview of H1 2012 results Depressed H1 performance in line with the seasonal nature of the business Padengas interim results obviously showed a loss position given the seasonal nature of the business, in which the first half is a cost accumulation period. However it is consoling to note that the results were consistent with budget with the company still expecting to achieve its full year profit target of US$ 7.1m. Revenue was minimal at US$ 7,235, whilst an EBITDA loss of US$ 4.3m was registered against a loss of US$ 409,578 for the prior period. A fair value adjustment of US$ 1.3m was allowed for from a fair value loss of US$ 1.2m. A net interest payment of US$ 162,004 was realised on borrowings of US$ 3.0m (average borrowing cost was 7%). The attributable loss for the period totalled US$ 2.9m (H1 2011: US$ 1.9m). The balance sheet remained pristine as gearing remained unchanged at 11%, whilst the current ratio remained strong at 8.0x against 8.3x for the prior period. The group is cash positive with US$ 877,516 raised from operating activities. Stable trading environment and depreciation of Rand supported lower input costs The stable trading environment and depreciation of the Rand by 21% benefitted the company in terms of lower input costs as the majority of the feed input is imported from South Africa and Namibia. Annual egg collection and the incubation exercise during the period yielded 50,163 hatchlings, which were inducted into hatchling pens consistent with production requirements. The total grower stock grew to 159,761 animals with an additional 5,034 breeders in pens across the three farms. The group is moving towards self-sufficiency in egg production, 69% of eggs collected in 2011 were from domestic breeders. Nine breeder pens and four rearing pens were completed during the period and a further two rearing pens and six at Nyanyana Farm are still under construction. Outlook Global market conditions improving The global market for crocodile skins has improved and the demand for big, high quality skins is strong. Management reports that the group is on target to achieve the FY 2011 off-take target of 43,305 skins and attributable profits of approximately US$ 4.4m. The company intends to produce 42,000 skins per annum thereafter and from FY 2013 will achieve this entirely from domestic stock.

Padenga Holdings Shareholding - 30/12/11 Shareholder 1 ZMD Investments P/L 2 H M Barbour P/L 3 Old Mutual group 4 Sarco Investments P/L 5 Fed Nominees P/L 6 Datvest Nominees (Pvt) Ltd 7 Pharaoh Limited NNR 8 Stanbic Nominees P/L 9 Muzika Rubi Holdings (Pvt) Ltd 10 City & General Holdings (Pvt) Ltd # of Shares (m) % of Total 102.8 100.2 37.7 22.5 18.7 14.8 14.6 14.5 11.3 9.8 19.0% 18.5% 7.0% 4.2% 3.5% 2.7% 2.7% 2.7% 2.1% 1.8%

Padenga Holdings H1 2012 results


Income Statement (US$) Revenue Operating profit Fair value adjustment Profit/(Loss) before tax Attributable Profit/(Loss) HEPS (USc) Balance Sheet (US$) Total Assets NAV Current Assets Current Liabilities Current ratio Cashflow (US$) C/f from operating activities 3,236,888 C/f from investing activities C/Financing activities Closing cash and cash equiv 877,516 -73% -195% 34,524,086 26,392,249 19,266,591 2,322,802 8.3 35,995,061 27,009,814 21,195,170 2,654,119 8.0 4% 2% 10% 14% -4% H1 2011 4,082,336 (1,184,144) H1 2012 7,235 1,319,192 % -100% 957% -211% 53% 53% 56% (409,578) (4,329,268) (2,508,759) (3,848,945) (1,867,085) (2,851,136) (0.3) (0.5)

588043
(4,894,090) (1,069,158)

559864
114,050 158,824

57

Luxury goods market demand expected to double The company hopes to pursue joint venture projects with suitable partners so as to access technology, increase value creation, secure market access and enhance returns to shareholders. Ultimately a diversified agro-business Padenga aims to establish itself as a diversified agrobusiness involved in the primary production of crocodiles and their derivatives, freshwater fish and related animal proteins. The company could also venture into production of crocodile oils and related by-products for use in the pharmaceutical and cosmetics industries. Commercial fish production is also a natural progression for Padenga given the similarities in the operational and production systems, raw feed ingredients, abattoir and processing plant technology, export markets and end customers Valuation and recommendation We have valued Padenga using a combination of the EV/EBITDA and NAV valuation techniques, deriving a target of US 9.9c. Forward ratings are undemanding at PER+1 of 4.1x and PBV of 0.9x. BUY.

PADENGA- 5 YEAR CGR COMPARISON


30 JUNE (US$m) Balance sheet Shareholders' equity Deffered Tax Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 100.0 0.7 (7.73) (5.77) 5.4 100.0 11.0 0.4 0.1 (13.73) 65.9 32.1 26.2 5.4 25.2 74.4 52.4 47.1 15.6 45.3 74.9 53.4 48.6 34.8 47.2 77.7 55.4 49.3 n/a 49.9 81.7 59.4 54.1 n/a 54.6 15.22 (106.56) (140.61) 67.16 9,836.85 (490.05) 8.36 94.98 94.73 7.99 11.43 12.38 9.97 11.65 15.81 14.99 26.19 26.04 10.2 10.2 0.1 (0.1) 0.5 (1.8) 2.3 2.3 541.6 0.1 6.0 11.8 11.8 1.3 (0.6) (1.6) (0.7) (0.9) (0.9) 192.3 (0.3) 0.3 3.3 19.7 13.0 6.3 (1.0) 5.0 3.7 3.7 192.3 0.7 (0.1) 0.2 5.7 21.3 15.9 11.2 (0.6) 9.7 7.2 7.2 541.6 1.3 0.9 0.3 6.4 23.0 17.3 12.3 (0.3) 10.9 8.1 8.1 541.6 1.5 1.5 0.4 7.5 25.3 19.7 14.0 12.6 9.4 9.4 541.6 1.7 1.7 0.4 8.8 29.1 23.8 17.3 15.9 11.8 11.8 541.6 2.2 2.0 0.5 10.5 32.4 3.0 35.4 1.4 1.3 (0.2) 36.7 14.5 0.9 1.8 1.8 0.5 21.3 36.7 30.1 3.6 33.7 7.8 0.7 (1.9) 39.6 14.4 1.2 0.7 5.6 1.0 24.0 39.6 30.8 4.3 35.1 2.9 1.1 1.3 39.3 13.6 1.3 1.0 7.1 0.6 24.4 39.3 34.5 3.7 38.2 1.9 2.4 6.8 46.9 14.6 1.3 1.1 8.0 1.2 31.0 46.9 40.6 3.5 44.1 1.0 2.5 7.5 52.5 14.6 1.3 2.7 8.7 1.3 36.6 52.5 47.8 3.3 51.1 2.8 8.6 59.6 21.6 1.3 2.9 10.8 1.4 36.8 59.6 56.7 2.6 59.3 3.2 10.8 70.1 26.6 1.6 3.4 12.9 1.6 41.9 70.1 2009 2010 2011 2012F 2013F 2014F 2015F

58

EQUITY RESEARCH

ZIMBABWE

PROPERTY
Leveraging on improving the quality of its lettable space The property market has been characterised by limited demand for CBD offices and suburban retail space, yet despite this Pearl Properties expects to grow its rental income and occupancy levels through improving the quality of its lettable space. From one of its suburban retail properties, the group expects the rental yield level to rise from a pre-refurbishment yield of 4.26% to a postrefurbishment yield of 11.35%. New property developments are also expected to attract higher quality tenants and thus improve on rental income and yields. Office parks remain the highest in terms of rental growth and higher occupancy levels, however there is limited upside for continued rental growth. Consequently the group is targeting to grow its lettable area and holds a land bank worth 10% of the total portfolio. During FY 2011 it purchased 52,611m2 of prime residential land. The groups entry into the residential sector is expected to yield a high target return of 25% We are excited about the groups prospective property developments in the lucrative sector. The country has a massive housing backlog, estimated at 1.2m units, which in the short to medium term should support the high rentals. Upward movement on prices for residential properties could however be constrained by limited liquidity and the lack of mortgage finance. Yield on industrial properties improve Industrial properties have been attracting negligible rental and yield levels, due to the continued depressed performance of the manufacturing sector. However, a new trend of increasing demand for retail warehousing space has brought the sector to life. Valuations show significant upside Using an EV/EBITDA valuation method we derive a value of US 4.7c, signifying significant upside, we rate the counter a BUY.
Pearl Properties-Price vs Volume 10.0 8.0 6.0 4.0 2.0 Feb-09 Feb-10 Feb-11 Feb-12 50.00 40.00 30.00 20.00 10.00 -

BLOOMBERG: PEARL:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 2.7 4.7 74.0 33.4 1,238.2 16.3 834.0 -13% -3% -10% 11% 2011 2012F 2013F 9.2 5.0 0.4 4.3 0.3 0.1 8.6 0.3 7.8 15.4 54.7 4.1 12.9 0.0 3.7 3.7 10.5 5.7 -0.8 4.6 0.4 0.0 8.1 0.3 7.3 17.3 54.0 1.8 13.8 7.1 3.8 4.1 11.7 6.2 -0.6 5.3 0.4 0.1 8.7 0.3 6.3 19.0 53.3 2.5 15.8 5.5 4.1 4.3

Financials - 31 DEC (US$m) Turnover EBITDA Net Finance Income Adj Attributable earnings Adj EPS DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EBITDA/EV (%) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) Adj RoaA (%) Adj RoaE (%)

2011 2012F 2013F

STRENGTHS Sizeable land bank Diversified property portfolio Managable arrears levels OPPORTUNITIES Improving economic fundamentals Operating costs stabilising Increased use of project finance

WEAKNESSES projects

Focused and experienced management Limited free cashflow for new

THREATS Increasing debtors Drawnout economic recovery

Middle Price (US c)-LHS

Total Volume (m)-RHS

Source: IES

59

Overview of FY 2012 results Steady performer Pearls final results reflected a steady performance from the group, as it continued to derive significant value from its substantial asset base. Rental income growth was sustained by successful rental reviews, and rose by 15% to US$ 8.1m whilst net property income amounted to US$ 6.9m, rising by about 1.2% as the group continued to carry out several maintenance and refurbishment projects.

Pearl Shareholding - 30/12/11


Shareholder 1 FML Policyholders 2 Barclays Zim Nominees P/L NNR 3 Afre Corporation Limited 4 EW Capital Holdings P/L 5 Fist Mutual Life Managed Funds 6 FML - Shareholders 7 FMRE Property and Casulaty Shareholde 8 Stanbic Nominees (Pvt) Ltd NNR 9 Econet Wireless Hldings Limited 10 Fed Nominees (Pvt) Ltd

# of Shares (m) % of Total 375.0 134.9 98.2 61.9 61.0 59.1 53.0 50.5 49.0 28.5 30.3% 10.9% 7.9% 5.0% 4.9% 4.8% 4.3% 4.1% 4.0% 2.3%

High operating costs, but within budget The group had finance income of US$ 439,271 with US$ 192,076 being interest on overdue tenant accounts and US$ 247,195 interest on investments. Other operating expenses went up by 15.8% as the group pays utility bills for the buildings and recovers the money from its tenants (recoveries are good at between 82% and 85%). Tenant receivables went up by 62% to US$ 1.5m, of this total US$ 751,231 are tenant balances that were handed over for litigation in a bid to recover past amounts due. Provisions for credit losses were also increased by 71% to US$ 658,239. Recoveries from cases handed over for collections have been good at about 98%. Bottom-line boosted by a fair value adjustment A fair value adjustment on property of US$ 19.4m was allowed for, following a valuation by Knight Frank, which raised the PBT to US$ 24.9m (FY 2010: US$ 17.1m) and the attributable profit to US$ 18.6m. Stripping out the fair value adjustment we derive an adjusted attributable profit of US$ 4.3m. Balance sheet remains solid The balance sheet remains solid with total assets up 25% to US$ 117.6m, largely backed by the 26% jump in investment properties to US$ 109.7m. The group has nil gearing and a strong current ratio of 3.9x. Improved average rentals.. Portfolio performance showed improved average rentals/m2 on the back of ongoing refurbishments which have yielded improved quality space. Office parks rentals moved from US$ 9.5/m2 to US$11/m2, as demand remains strong. For CBD offices, average rentals increased from US$ 7.3/m2 to US$ 8.7/m2 and although the sector has been characterised by low demand, the company is realising the fruit of its refurbishment exercise as the recovered space is being let out to quality tenants. Vacancies at 19.5% reflect evictions of non-paying tenants. CBD retail rentals moved up from US$ 5.5/m2 to US$ 7.1/m2 whilst suburban retail rentals averaged US$ 7.2/m2 from US$ 3.7/m2 with a high vacancy rate of 79.9% being driven by major refurbishments. Industrial properties rentals improved from US$ 2.30/m2 to US$ 3.0/m2 as there has been a rise in demand for retail warehousing space. ..at lower rental yields Occupancy levels for FY 2011 stood at 77.5%, lower than the FY 2010 level of 87.4%, attributed by management to ongoing
refurbishments. The overall portfolio yield, although in line with budget, declined from FY 2010s 10.1% to 9.8% due to a decline in the CBD retail, office parks and suburban retail property yields.

Gross Lettable Area Split Retail Retail CBD Suburban 9% 7% Office Parks 20%

Industrial 31%

CBD Office 33%


Source: IES, company

Property Portfolio Review


1.2 0.8 0.4 0 Industrial CBD Office Office Retail Retail Parks Surbaban CBD

$/m2
16 12 8 4 0

Average rental per m2 ($) Rental Yields (%)

Occupancy rate (%) Source: IES, Company

Outlook In a trading update, management reported that revenue for the two months (January and February 2012) amounted to US$ 1.37m, slightly short of the budget of US$ 1.40m, whilst property

60

expenses amounted to US$ 0.26m against a budgeted US$ 0.55m. The group intends to continue improving the quality of its space, acquiring land and existing buildings whilst tenant re-organisation will continue. Two greenfield projects to be undertaken in 2012, are the mixed use development in Borrowdale which is expected to cost US$ 5.0m (project yield of 10%) and 2 Arundel office blocks at a cost of US$ 9.0m at a yield of 10%. The projects are to be funded through long term project structured finance. Valuation and recommendation We expect rental reviews to be limited given the prevailing liquidity strain, however Pearls significant land bank and planned property developments are likely to make the company derive significant growth going forward. Ratings are undemanding, with the PBV ratio at less than the regional average while yield ratios are attractive and in line with the region. Using an EV/EBITDA valuation method we derive a value of US 4.7c, signifying significant upside, we rate the counter a BUY.

PEARL- 5 YR CGR and Forecasts


31 DEC (US$m) Balance sheet Shareholders' equity Deffered tax Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Investment Properties Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Adj Attributable Income Weighted shares Adj EPS DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) n/a 100.0 13.2 13.2 n/a 100.0 95.7 95.7 n/a 100.0 22.0 22.0 n/a 100.0 58.3 56.9 n/a 88.8 57.7 56.5 n/a 87.4 54.7 53.0 86.7 54.0 50.2 6.8 86.0 53.3 48.3 8.9 190.7 2,005.5 994.5 (96.7) (100.8) 323.6 7,254.8 (48.0) 67.9 66.7 577.6 3.5 (2.9) 14.6 13.8 7.8 (66.3) 11.3 7.0 7.7 0.8 0.8 0.5 0.1 0.1 1,238.2 0.0 2.3 2.2 2.2 2.1 0.1 1.1 1,238.2 0.1 2.2 0.1 0.1 (0.0) 0.0 (3.3) 1,238.2 0.3 5.4 5.3 5.3 3.1 0.1 3.4 1,238.2 0.3 6.1 8.9 7.9 5.1 0.3 4.5 1,238.2 0.4 0.1 7.2 9.2 8.0 5.0 0.4 4.3 1,238.2 0.3 0.1 8.6 10.5 9.1 5.7 (0.8) 4.6 1,238.2 0.4 0.0 8.1 11.7 10.0 6.2 (0.6) 5.3 1,238.2 0.4 0.1 8.7 29.1 9.2 38.6 0.0 0.1 38.7 0.0 46.1 0.1 0.1 46.2 27.4 11.2 38.8 0.1 0.1 38.9 0.2 32.7 0.0 6.0 38.9 66.5 27.8 95.0 0.1 0.1 95.1 1.3 4.9 88.8 0.0 0.1 95.1 75.1 3.7 79.5 0.6 0.9 80.4 0.4 6.0 72.4 1.5 0.1 1.6 80.4 89.0 3.7 93.6 0.5 0.7 94.3 0.4 3.5 86.9 1.9 1.6 3.5 94.3 106.5 9.2 116.8 0.8 0.8 117.6 0.6 2.3 109.7 2.3 0.8 3.3 117.6 100.7 11.0 112.8 8.0 0.9 1.2 122.0 1.5 4.0 113.6 1.7 1.0 2.9 122.0 107.7 13.0 121.7 6.7 1.0 1.3 129.7 2.2 5.8 117.6 2.6 1.3 4.1 129.7 2006 2007 2008 2009 2010 2011 2012F 2013F

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

61

EQUITY RESEARCH EQUITY RESEARCH ZIMBABWE ZIMBABWE AGRICULTURE MINING

A definate cash spinner SeedCo, which is 50.86% owned by ZSE listed AICO Africa Limited, is a producer and marketer of certified seeds. The company has a dominant market share in the hybrid maize seed market, controlling around 70% of the Zimbabwean market. Its main products include maize, wheat, barley, cotton, soya, sorghum and groundnut seed. It also owns Quton, a cotton seed growing company. SeedCo has been expanding its operations in the region to Zambia, Malawi, Botswana, DRC, Swaziland, Uganda and Kenya. Fortune favours the group For H1 2012, an improvement in commodity prices buoyed winter cereal sales while demand for cotton seed in Malawi and Tanzania continues to grow. Management is confident that improved stock levels should lower transport and duty costs and improve margins. Production expected to increase for FY 2012 Management estimates overall production volumes of about 94,000mt for FY 2012 up from 55,000mt and is targeting sales of about 66% of total production. Real growth in earnings expected For FY 2012, we expect the earnings yield to rise to 10.6% from 8.7% whilst the ROaE should remain steady at the 27.5% level. Intensified marketing efforts and positive contribution from new businesses should provide a boost. Valuations are undemanding Using a DCF valuation, we derive a value of US$1.43 per share. Ratings are undemanding at PER+1 of 9.5x and PBV of 3.0x. We maintain our Buy recommendation.
SeedCo - volume vs price 160 120 80 40 0 Mar-09 Mar-10 Mar-11 Total Vo lume(m)-RHS 0.0 Mar-12 Middle Price (US c)-LHS
BLOOMBERG: SEEDCO:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

BUY 80.0 143.4 79.3 154.4 193.0 35.3 63.2 45.3 30.4 81.6 61.5 2011 97.8 24.5 (2.1) 17.4 9.0 2.4 27.5 2.9 8.9 7.1 25.0 2.9 11.3 29.2 16.4 27.5 2012F 124.6 29.5 (2.1) 18.4 9.5 3.2 33.8 2.4 8.4 5.9 23.7 4.0 11.9 17.3 14.4 24.2 2013F 148.4 36.3 (2.4) 22.8 11.8 2.6 43.0 1.9 6.8 4.8 24.5 3.3 14.8 12.3 15.9 25.0

Financials (US$m) - FY 31 Mar Turnover EBITDA Net finance income Attributable earnings EPS (USc) DPS (USc) NAV/share (USc) Valuation Ratios PBV (x) PER (x) EV/EBITDA (x) EBITDA margin (%) Dividend Yield (%) Earnings Yield (%) Gearing (%) RoaA (%) RoaE (%)

STRENGTHS
1.0

WEAKNESSES Dependence on reg governments Aggressive competition and imported varities Over reliance on maize THREATS Drought Lower aid inflows and less public input schemes Fertiliser and fuel price shocks

Significant market share Strong brands & Syngenta r/ship Growing presence in SSA Strong research and dev. unit Hybrids protected by patents OPPORTUNITIES Quintessential recovery play on Zimbabwe agric sector Gvt opening up to GMO varieties

Growth in Angola, Malawi & Tanzania spend on small holder farmer

Source: IES

62

SeedCo Shareholding - 31/12/11


# of Shares (m) % 97.5 50.2% 20.5 10.5% 12.5 8.4 5.4 3.7 3.4 2.6 2.3 1.7 6.4% 4.3% 2.8% 1.9% 1.7% 1.3% 1.2% 0.9%

Nature of business SeedCo has a research collaboration agreement with Syngenta, a European based global agribusiness involved in seed and crop protection. Quton Company is the only cotton seed producer in Zimbabwe with a production base of about 10,000 tonnes a year and about 20 seed varieties. Seed production is equally spilt between Zimbabwe and the region. Annual regional production amounts to 50,000 tonnes, and the groups total capacity is about 70,000 tonnes. Overview of H1 2011 results Sales volumes boosted by winter cereals Because of the seasonality of the business, SeedCos first half is a cost only period and as such the company posted a loss for H1 2012. Nonetheless, sales volumes grew 63% y-o-y propelled by a 44% growth in winter cereals to 5,441mt and early seed cotton to Malawi of 3,400mt. Maize seed sales declined 4% to 6,754mt. Profitability margins weaker Gross profit margin eased to 40% from 42%, a result of carryover stock of winter cereals (wheat) which had to be sold at lower prices as it is open pollinated with a shorter life. Opex increased 24% y-o-y driven by a 28% increase in research costs and a 34% jump in sales and marketing expenses as the company has moved from a production based approach to a market oriented approach in order to stimulate increased sales volumes. SeedCo fully provided for doubtful debtors which knocked off approximately US$ 0.7m off the earnings. Finance charges increased as the group financed the seed intake and the carryover borrowings that funded production. Strained cashflows Due to the seasonality of its business, cash flows were strained on high working capital requirements. Gearing deteriorated to 73.1% from 32.8% at year-end. Borrowings were at an average cost of approximately 13% in Zimbabwe (approximately US$ 25.0m) and between 5% and 7% in the regional businesses. Outlook Management anticipates sales volumes to exceed 65,000mt in FY 2012 and the company has adequate stock to meet the firm demand. Revenue is forecast to grow by at least 20% and net margins to be maintained at approximately 20%. In our view, margins might be enhanced given the carryover stock which was produced at lower prices. We estimate that the average seed prices will stay at the same levels of between US$ 1,800/mt and US$ 2,000/mt. Soya bean seed is expected to sell out. The cotton seed business continues to grow especially in Tanzania and Malawi with further opportunities in Zambia. Production in 2011/12 will be scaled down due to carryover stock. SeedCo is likely to have significant cash in FY 2012/3 due to reduced working capital requirements allowing for increased dividend payouts. Valuation and recommendation Using a DCF valuation, we derive a value of US$ 1.43 per share. Ratings are undemanding at PER+1 of 9.5x and PBV of 3.0x. We recommend investors Accumulate.

Shareholder 1 AICO Africa Limited 2 Old Mutual Life Assurance Co. Zim Ltd 3 Barclays Nominees P/L - NNR 4 Stanbic Nominees P/L 5 Fed Nominees (Pvt) Ltd 6 National Social Security Authority 7 Local Authorities Penion Fund 8 Old Mutual Zimbabwe Limited 9 Mining Industry Pension Fund 10 Dekalb Genetics Corporation

SeedCo H1 2012 results


Income Statement (US$ '000) Turnover Gross Profit PBIT Net finance income PBT Attributable earnings EPS (USc) Balance Sheet (US$ '000) Total Assets NAV Current Assets Current Liabilities Current ratio Cash flow (US$ '000) Operating activities Investing activities Financing activities H1 2011 20,350.9 8,504.2 (693.2) (244.6) (937.8) (1,458.8) (0.76) FY 2011 122,567.8 70,014.7 81,625.4 17,239.8 4.7 H1 2011 (13,694.4) (6,549.2) (3,601.7) (13,713.7) (5,395.1) (6,887.5) 0.1 (17.6) 91.2 146,477.6 62,726.8 103,027.7 25,494.3 4.0 19.5 (10.4) 26.2 47.9 (14.6) H1 2012 % change 30,388.8 12,053.5 509.3 (1,075.3) (566.0) (1,404.1) (0.73) 49.3 41.7 (173.5) 339.7 (39.6) (3.7) (3.7)

Source: IES, Company

SeedCo Market Share


80% 60% 40% 20% 0% 20,000 16,000 12,000 8,000 4,000 -

Sales Volumes (Tonnes)-RHS

Market Share-LHS

Source: IES, Company

63

SEEDCO- 5 YEAR CGR COMPARISON


31 MAR (US$m) Balance sheet Shareholders' equity Minority interests Total shareholders' funds Interest Bearing Debt Trade creditors Current Liabilities Total Liabilities and equity Fixed Assets Investments Stock - Trade net Debtors Cash at bank Current Assets Total Assets Income Statement Turnover Gross profit EBITDA Net finance income Profit before Tax Taxation Profit after Tax Minorities Attributable Income Weighted shares EPS (USc) Cash EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (%) Earnings growth (%) Margins Gross margin (%) EBITDA margin (%) Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 41.6 43.8 40.1 7.6 35.1 59.6 32.8 26.7 5.3 19.9 48.8 28.3 27.1 3.9 22.0 51.3 24.0 22.4 19.4 31.1 43.3 22.6 21.4 29.9 23.2 50.8 25.0 22.3 10.5 23.9 49.0 23.7 21.5 12.5 19.8 49.0 24.5 22.3 13.8 20.6 (36.45) 21.16 7.46 15.95 (22.90) (58.97) 34.58 36.87 125.67 1.99 (15.68) 49.43 42.93 36.13 3.56 27.06 32.62 30.12 27.35 23.15 5.58 19.09 22.98 23.97 33.8 14.1 14.8 (1.8) 11.9 0.9 9.8 0.5 9.4 176.1 5.9 3.3 1.4 39.2 23.4 12.9 (2.0) 7.8 3.0 4.7 0.9 3.8 159.2 2.4 5.2 0.5 52.8 25.8 15.0 (3.7) 11.6 1.6 9.2 0.5 8.7 159.2 5.4 7.6 5.0 53.9 27.6 12.9 (0.6) 16.7 2.0 13.9 0.9 12.9 159.2 8.1 7.4 11.7 77.0 33.4 17.4 (0.6) 17.9 4.5 13.4 13.4 192.3 7.0 10.4 1.4 18.6 97.8 49.7 24.5 (2.1) 23.4 6.0 17.4 17.4 193.0 9.0 10.9 2.4 27.5 124.6 61.0 29.5 (2.1) 24.7 6.3 18.4 18.4 193.0 9.5 13.5 3.2 33.8 148.4 72.7 36.3 (2.4) 30.6 7.8 22.8 22.8 193.0 11.8 101.3 2.6 43.0 4.3 1.3 6.4 12.5 2.1 6.7 25.7 3.9 0.0 7.4 8.3 3.5 21.7 25.7 14.1 1.9 19.5 16.3 1.3 3.5 39.3 16.7 0.0 13.8 7.1 0.2 22.6 39.3 29.5 2.3 40.5 13.5 1.6 4.5 58.5 30.1 0.3 11.0 12.9 1.3 28.1 58.5 52.0 2.2 68.9 6.0 3.5 10.6 85.5 46.6 1.2 11.9 17.2 3.5 37.7 85.5 57.0 2.4 70.6 4.4 5.2 14.5 89.5 37.0 1.1 14.6 19.6 9.6 51.3 89.5 70.0 82.4 25.4 11.2 14.7 122.6 40.6 0.3 28.5 40.4 5.0 81.6 122.6 82.3 88.5 20.5 17.2 24.0 133.0 40.6 0.4 30.8 45.7 6.3 92.0 133.0 100.0 103.1 20.2 22.9 31.3 154.6 49.6 0.4 36.7 49.2 7.9 104.6 154.6 2006 2007 2008 2009 2010 2011 2012F 2013F

*Note: Financial figures for 2006 to 2008 were derived using the Old Mutual Implied Rate (OMIR), which may not reflect a true account due to variability of exchange rates during that period.

64

EQUITY RESEARCH ZIMBABWE

Resilince in diversity TA Holdings is a Zimbabwe investment company whose portfolio spans insurance, agro-chemicals and hotels. Having had first hand expertise in virtually every business sector in the country, at one time or another, the company boasts one of the strongest and most experienced board of directors in the country. Diversified earnings base TAs diversified and expansive earnings base stretches across several sectors including agriculture, hotels/tourism, mining, insurance and industrial. Geographical diversity adds to the groups attractiveness with a presence in Botswana, Malawi, Uganda and now Angola, making it a play on SSA. Significant balance sheet outside Zimbabwe The bulk (53%) of the groups balance sheet is outside Zimbabwe, enhancing the groups ability to weather downturns in any of the countries it operates in. Cash generating businesses Generally, the insurance and hotel businesses are cash cows. The free cash generated has been used to invest in new projects and advance both horizontal and vertical integration. Local hotel properties are soon to be refurbished, in a renewed bid to benefit from Zimbabwes improving local eco-political situation Asset base TA has a strong asset base and all its investments have good growth potential. The groups investments are well poised for the recovery in the local economy. We believe that there is limited downside at current levels. Spec Buy.
TA - volume vs price 75

CONGLOMERATE
BLOOMBERG: TAHLDS:ZH Current price (USc) Target price (USc) Upside/Downside (%) Liquidity Market Cap (US$m) Shares (m) Free float (%) Ave. daily vol ('000) Share price performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to ZSE Industrial Index

Spec Buy 12.0 na na 19.8 164.8 31.3 49.9 (40.0) (33.2) (23.8) 0.0 2011 62.1 7.3 4.6 2.8 2012F 77.6 10.8 6.9 4.2 2013F 93.1 11.6 8.1 4.9

Financials (US$m)- FY 31 Dec Turnover EBITDA Attributable earnings EPS (USc) DPS Diversifiedamalgamationof (USc)
uncorrelatedbusinesses NAV/share (USc) marketleadershipinseveralareas EBITDA margin (%) STRENGTHS

Valuation Ratios Strongmanagement PBV OPPORTUNITIES (x)

Regionalfootprint

WEAKNESSES Toodiversifiedconglomeratefeel massiverecapitalisationneeds 31.1 31.1 31.2 Governmentinterferencein 12.4 11.8 13.9 fertilizerpricing

0.4 0.4 THREATS Exchangeraterisk 4.3 2.9 Expansionoffertilizerplantcapacity Competitionininsurance Gearing (%) 5.5 5.6 Increasedinsuranceactivities Slumpinhotelsbusiness RoaA (%) 2.3 3.4 Energypriceshocks PER Continuedregionalexpansion (x) RoaE (%) 0.9 1.1

0.4 2.5 5.7 3.9 1.2

STRENGTHS Diversified amalgamation of uncorrelated businesses

WEAKNESSES Too diversified - conglomerate feel massive recapitalisation needs fertilizer pricing THREATS Exchange rate risk Slump in hotels business Energy price shocks

market leadership in several areas Government interference in

1.75 1.5 1.25 1 0.75 0.5 0.25

Regional footprint Strong management OPPORTUNITIES Continued regional expansion Increased insurance activities

Expansion of fertilizer plant capacitCompetition in insurance

May-11 Oct-11 Volume (m) RHS Mar-12 Price (USc) LHS

0
Source: IES

65

Nature of business


TA Shareholding - Jan 2012 Shareholding 1 2 3 4 5 6 7 8 9 FMI Investments (Pvt Old Mutual Life Assura Edwards Nominees P/ Remo Nominees P/L L.E.S Nominees (Pvt) Old Mutual Zimbabwe Waughco Nominees P Local Authorities Pens Stanbic Nominees P/L shares (m) 49.5 25.6 17.0 14.7 12.7 6.4 4.3 3.5 3.0 2.2 % 30.0% 15.6% 10.3% 8.9% 7.7% 3.9% 2.6% 2.1% 1.8% 1.3%

INSURANCE

Botswana Insurance Company (BIC): A short-term insurer, acquired in 2003 at a total cost of US$ 13.0m. The claims ratio has been in the 53%-57% region over the past couple of years. Lion Assurance of Uganda: A short term insurance arm acquired in January 2004 and is a subsidiary of Botswana Insurance Company. It has an 8% market share in Uganda. Zimnat Life Assurance: The fifth largest life assurance company in Zimbabwe commanding a market share of 6% by gross premium. The long-term portfolio currently stands at approximately US$ 10.3m. Zimnat Lion: A short-term insurer and the second largest insurer by written gross premiums. TA is to recapitalise the short term insurer after having bought out the minorities by way of a share swap for TA shares. Aon: Zimbabwes largest insurance broker. Grand Reinsurance - Purchased the asset/liability book of Swiss Re (Zimbabwe) and rebranded to GrandRe. Its earnings have been dominated by investment income (property revaluation and exchange gains).
MANUFACTURING

10 Triedward Investment

TAHOLDINGSLIMITED INSURANCE Grand Reinsurance ZimnatLifeAss.


100% LifeAssurance

LionAssuranceUganda
58.3% Lifeinsurance

Zimnat AssetMgt
100% AssetMgtco.

Sable Chemicals - A 51% owned operation that has an electrolysis plant (ammonia manufacturing) and an ammonium nitrate (AN) plant. Installed capacity amounts to 240,000 metric tonnes per annum, however it is currently operating at below 40%. Due to aged technology the long term plan is coal gasification and in the interim the importation of ammonia will be scaled up. Zimbabwe Fertiliser Company (ZFC): An associate in which TA own 22.5%, the company manufactures and distributes fertiliser. ZFC sells 135,000 tonnes of fertiliser per annum, though production is dependent on availability of Ammonium Nitrate from Sable. Capacity utilisation is approximately 40%. The operations continue to be negatively impacted by the liquidity constraints as farmers are failing to access finance for the purchase of inputs.
HOTELS

Botswana Insurance Co Zimnat LionInsurance


100% Shortterminsurance

AON(Pvt)Ltd
30.0% Insurancebrokers

HOSPITALITY CrestaHospitality
100% HospitalityandLeisure

CrestaHotels
100% Hospitality and

The group owns and operates hotel investments in Zimbabwe & Botswana and has management contracts in Uganda, Zambia, Malawi and Ghana. Total room nights amount to 475,230 per annum, with approximately 45% being four-star. In Zimbabwe TA operates under the Cresta brand, which has a total of 442 rooms. The local hotels break-even occupancy level is 30%. TA owns 40% of Cresta Marakanelo (Botswana), which owns and operates eight hotels and lodges in Botswana mostly in urban areas. Cresta Marakanelo is listed on the Botswana Stock Exchange. Overview of FY 2012 results TA reported an improved operating result to record an attributable profit of US$ 4.6m from a loss of US$ 6.4m. The turn around was driven by a strong performance from the external operations and fair value adjustments on property in Zimbabwe. Revenue contribution was evenly split between Zimbabwe and external operations. The external operations recorded a phenomenal 12.2 times growth in operating profits to US$ 3.8m while the Zimbabwe operations posted a loss of US$ 2.1m, flat on last year. The investment in PGI was reclassified from associate to a trade investment following the decision to disinvest and the cancellation of the JV with BancABC. Sables posted a reduced loss of US$ 0.1m from a loss of US$ 4.2m, benefiting from a reduced negotiated viable electricity tariff. Cash generation improved with cash generated from operations turning

Cresta Marakanelo
40% - Hospitality and Leisure

AGRO-INDUSTRIAL Sable Chemical industries


51% F tili f

Zimbabwe Fertilizer. Co INVESTMENT TA INVESTMENTS & CONSULTANTS ET AL

66

positive. The gearing ratio was slightly up at 5.5% from 5.1%. The group was streamlined and restructured. Approximately US$ 1.6m was used for retrenchment costs for the Zimbabwean operations. Management stated that the long term solution for the local fertilizer industry is coal gasification and in the interim
TA HOLDINGS - 5 YEAR CGR COMPARISON 31 DECEMBER (US$m) Balance sheet Shareholders' equity Minorities Total shareholders' equity Interest Bearing Debt Current Liabilities Total Liabilities and equity Fixed Assets Investments Cash Current Assets Total Assets Income Statement Turnover Pre-interest profit Interest Income Associate Profit Pre-tax Profit Taxation Minorities Attributable Income Shares in issue (m) EPS (USc) DPS (USc) NAV per share (USc) Growth Ratios Sales growth (%) Pre-interest profit growth (% Earnings growth (%) Margins Pre-interest margin (%) Interest cover (times) Pre-tax profit margin (%) 37.3 20.4 37.4 43.2 22.8 44.4 5.4 (4.3) 45.8 4.5 6.8 (1.2) 0.6 0.7 (8.7) 11.8 12.2 11.6 13.9 24.9 11.1 12.4 26.1 10.1 (34.2) (12.3) 2.5 (1.7) 13.7 5.8 (54.6) (94.4) (48.4) 149.1 107.0 (147.2) 24.8 (82.4) 150.2 19.0 2,145.7 (173.7) 25.0 46.9 48.3 20.0 7.1 17.1 5.9 0.7 13.4 6.3 0.0 22.6 3.2 2.9 16.9 (1.5) 0.0 38.0 (3.8) 0.0 29.1 2.8 0.0 31.0 4.2 0.0 31.1 4.9 0.0 31.1 37.6 14.0 (0.7) 0.7 14.1 1.9 2.3 9.7 36.9 15.9 (0.7) 1.1 16.4 3.3 2.7 10.3 16.8 0.9 0.2 6.6 7.7 2.3 0.0 5.3 41.8 1.9 (0.3) (2.1) (0.5) 0.9 1.1 (2.5) 52.2 0.3 (0.5) (4.4) (4.6) 0.5 1.2 (6.3) 62.1 7.3 (0.6) 0.4 7.2 0.9 1.7 4.6 77.6 10.8 (0.4) (1.8) 8.6 0.9 0.8 6.9 93.1 11.6 (0.4) (1.8) 9.4 0.9 0.4 8.1 2006 22.1 6.5 43.4 4.9 18.5 66.9 8.0 45.8 5.9 13.1 66.9 2007 37.2 11.7 70.6 4.5 36.6 111.7 8.9 73.0 7.9 29.8 111.7 2008 27.8 6.3 39.2 0.8 40.5 80.5 0.1 0.0 0.1 80.4 80.5 2009 62.6 8.7 89.1 3.3 79.2 171.6 15.4 75.7 13.0 80.5 171.6 2010 48.1 10.1 77.2 2.4 47.2 126.9 15.4 62.1 17.1 49.4 126.9 2011 51.2 11.4 85.5 2.8 50.4 138.8 17.8 51.4 69.6 138.8 2012F 51.3 13.1 90.6 2.9 69.6 163.0 20.3 56.5 86.2 163.0 2013F 51.4 15.0 96.3 2.9 85.0 184.2 21.8 59.3 103.1 184.2

the company will increase the importation of ammonia. TAs Botswana operations remain profitable and in our view, good investments. Local hotel and insurance operations performances continue to improve. Valuation and Recommendation We believe that there is limited downside at current levels. Spec Buy.

*Note: Historic financials are from Company annual reports

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EQUITY RESEARCH ZIMBABWE MINING

A season to re-build

All sharks want a bite of the value In recent years, we have witnessed Implats going full steam ahead with its expansion at Zimplats in the face of looming indigenisation demands. Most analysts (including ourselves) were of the opinion that Implats was managing this threat through various agreements that were entered into with the government of Zimbabwe in yester-years. However, what seemingly began as a threat is now being executed. Besides demanding a 51.0% stake in foreign owned mines, Zimbabwean authorities have also raised taxation and royalty fees. Simply put, Zimbabwes indigenisation legislations imply that its shareholders (Implats and other minorities) must reduce their stakes to a combined 49.0%. The share price has suffered Clearly, Zimplats has been tainted by the countrys political problems. Of course, political actors and the media can be held accountable here. The share price has de-rated to about AUD 10.00 from historic highs of AUD 13.00. Uncertainty persists but the stock remains fundamentally undervalued We have valued Zimplats using a DCF approach which yielded a target price of USD 15.00, indicating 46.1% potential upside. On the other hand, our comparative analysis shows that Zimplats is trading on a stand-out mark to market 5.7x 2013 PER. This represents a significant discount to peers (average of 20.7x). We are still convinced that Zimplats has the potential to create material additional value for shareholders in the long term. BUY.

BLOOMBERG:ZIM:AU Current price (AUD) Current price (USD) Target price (USD) Upside/Downside Liquidity Market Cap (USDm) Shares (m) Free float (%) Ave. daily vol ('000) Share Price Performance 6 Months (%) Relative change (%)* 12 Months (%) Relative change (%)*
*Relative to MSCI Frontier Market Index

BUY 10.27 10.41 15.0 46.1% 1,120.4 107.6 11% 14.0 11.40 12.45 -9.9% -6.9% -17.5% -0.8% 2011 527.4 278.2 200.4 1.9 6.9 2011 5.1% 22.4% 31.4% 3.1 2,351.8 1.5 5.6 18% 52.8% 49.2% 2012F 515.0 253.4 159.6 1.5 8.7 2012F 4.1% 14.7% 19.0% 3.1 2,102.3 1.2 7.0 14% 48.9% 2013F 631.5 309.0 197.2 1.8 10.2 2013F 3.5% 15.3% 19.3% 2.3 1,531.5 1.0 5.7 18%

Financials (USDm)-FY 30 June Revenue EBITDA Attributable earnings EPS (USD) DPS (USD) NAV/share (USD) Ratios Gearing RoaA RoaE EV/EBITDA (x) EV/4E oz(USD) PBV (x) PER (x) Earnings Yield Dividend Yield EBITDA Margin

Zimplats - volume vs price 20.00 16.00 12.00 8.00 4.00 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Volume-RHS Price-LHS

STRENGTHS Low gearing of 5.4% enables the group to fund

WEAKNESSES Weak PGM prices directly impact revenues- Eurozone Crisis presents a stumbling block. Low grade ore (3.4g/ tonne of ore)

300,000 250,000 200,000 150,000 100,000 50,000 -

future expansion projects through debt. Defensive - PGMs core business Technical & strategic support from parent company, Impala Platinum eg Refining through Impala Refineries Shallow depth of ore (100-1,500m max-depth) The underground mines are operating at full capacity OPPORTUNITIES Ngezi Phase II and III Expansion Projects may drive PGM prices up.

THREATS Slump in PGM prices as a result of slow global economic Indigenisation issues leading to weak share price. Regulatory environment i.e. APT Mining rights ownership risks High electricity tariffs could squeeze margins Skills flight to neighbouring countries.

Increased emerging markets demand for automobiles recovery

Source: IES

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Nature of business Zimplats Holdings Limited is a mining group which explores for and produces platinum group metals (PGMs) in Zimbabwe. The company's exploration projects include Ngezi South and North, Hartley Platinum and Selous. It is a company incorporated in Guernsey, British Isles and is listed on the Australian Stock Exchange (ASX). Zimplats is 87% owned by Impala Platinum Holdings (IMP: SJ) of South Africa. It operates from two main sites (Ngezi and Selous) and employs underground mining techniques (board and pillar method) to extract PGMs. We note that six metals (Platinum, Palladium, Gold, Rhodium, Nickel and Lithium) contribute c99% of total revenues whilst other metals contribute 1.0%. Zimplats has a vision to be the leading platinum company in Zimbabwe, producing 1.0m platinum oz per annum. In line with its vision the company has embarked on a phased expansion drive to ramp up production levels. For example, the Phase II project which is currently underway is the second stage in a series of planned expansions to grow the business. Zimplats currently has three underground mines It is worth noting that Zimpats has shifted away from open pit mining and now employs underground mining through its three mines (Ngwarati, Rukodzi and Bimha Mine). Ngwarati and Rukodzi Mine have a combined capacity in the region of 2.2mtpa whereas the new Bimha Mine has a capacity of around 2.0mtpa. This implies that the group currently has an estimated capacity of 4.2m tonnes of ore per annum. However, the Phase II expansion project is expected to add another 2.0mtpa through the Mupfuti Mine (Portal 3). Zimplats also operates two concentrators at Ngezi and the Selous Metallurgical Complex (SMC) with a combined capacity of 4.2mtpa. The concentrators are currently operating at full capacity. Furthermore, Zimplats also has a smelter at the SMC with the capacity to process 6.2mtpa of concentrate. Refining is done through parent companys Impala Refinery Services (IRS). Of the 4.2m tonnes of ore that is mined, c3.0% (127,000 tonnes) is the concentrate. This gives about 7,500 tonnes of white matte that is then exported to South Africa to a Base Metal Refinery (Impala Refinery Services). Zimplats receives approximately 90% of the value of PGMs and 80% of the value of base metals from IRS. Management has indicated that the group is currently evaluating the possibility of commissioning a refinery. Overview of Q3 2011 results Improved quarterly performance Zimplats recently issued its Q3 2012 financial results showing 32% q-o-q revenue growth to US$ 28.0m. However, revenues were down 2.0% y-o-y. We attribute the surge in quarterly earnings to improved metal prices compared to Q2 2012. Mining production was adversely affected by illegal industrial actions An industrial action at Zimplats led to a loss of two and a half production shifts during Q3 2012. As a result, a tonne mined at 1,125,000 was 1.0% below Q2 2012, although it was up 6.0% y-o-y. The head grade at 3.33g/t was satisfactory at 1.0% above Q2 2012. Tonnes of ore milled at 1,069,000 were 4.0% lower than Q2 2012

Group Structure

Zimplats: Operational Indicators


1,800 1,600 1,400 1,213 1,200 1,000 800 644 600 400 200 2005 2006 2007 2008 2009 2010 2011 2012F 630 3.20 3.15 3.10 3.05 1,169 1,555 1,432 1,395 3.50 3.45 3.40 3.35 3.30 3.25

878

Gross revenue per 4E oz (USD)


Source: IAS/Company Reports

Cash cost per 4E oz (USD)

Ore head grade (g/t)

69

(up 6.0% y-o-y) owing to scheduled major plant maintenance shutdowns. Overall, production dropped by 2.0% to 90,557oz q-o-q (up 8.0% y-o-y) on the back of illegal strikes and power outages which affected operations at the mine's platinum matte furnace. An increase in cash costs Operating costs surged 18.0% y-o-y to US$ 76.4m from US$ 64.9m in Q3:2011. We note that the cost performance for Q3 2012 was worse than the same period last year due to significant increases in electricity and employment costs. Furthermore, the companys local spend (including payments to government and related institutions) increased by 6.0% to 69% of total payments in Q3 2012. Consequently, cash cost of production per 4E oz was 1.0% higher than Q2 2012 and 12.0% higher that Q3 2012, driven mainly by lower 4E production. Overall, operating profit for the quarter amounted to US$ 51.9m. Outlook Strong commodity prices to boost cash flows While platinum in particular remains exposed to downside risks related to economic issues in the euro zone, we remain bullish on the long term outlook for PGMs as demand is likely to be dominated by the expected commodity requirements stemming from projected economic growth in China, India and importantly the N-11 (Next 11 emerging economies). Furthermore, a rise in investor appetite for precious metals should support platinum and palladium prices. We expect platinum prices to trade in a range of US$ 1,470/ oz ounce to US$ 1,770/oz this year, and palladium to trade between US$ 575/oz to USD775/oz. This compares with a 2011 trading range of US$ 1,350/oz to US$ 1,890/oz in platinum and US$ 549/oz to US$ 858/oz in palladium. Underlying fundamentals in favor of palladium In 2011, platinum's surplus eased 12.5% to 735,000z, as a 7.0% increase in global fabrication demand outweighed a near 5.0% rise in global platinum supply. Meanwhile, palladium's supply shortfall dropped by almost 50% in 2011, with the market recording a 313,000oz deficit, compared with a shortfall of 587,000oz the previous year. We are therefore seeing gross deficits on palladium versus surpluses and growing stocks of platinum. However, we think investor sentiment is unlikely to swing dramatically enough in palladium's favor in 2012 to warrant a closer proximity between the two metal's prices. Despite the noise on indigenisation issues, strong organic growth is likely to continue beyond the near-term Zimplats boasts a +200moz (4E) minerals inventory and is capable of growing to at least 1.0moz Pt pa in the longer-term. The group is in the midst of its Phase II expansion project that will see production move from at least 180koz Pt p.a. to at least 270k oz p.a.. Nonetheless, we believe that continued investment in this type of infrastructure requires a resolution of issues such as indigenisation and assurance of stability thereafter. Clarity regarding security of tenure is also a pre-requisite in our view, to any form of material mining investment, in any jurisdiction. In line with the companys production increase project, we expect total ore mined in FY 2013 to be in the region of 4.6m tonnes. Applying a conservative selling price of US$ 1,409/4E oz on our projected 4E matte volume of 448,104oz would imply revenues of US$ 631.5m in FY 2013. Based on these estimates, we project after tax earnings to be around US$ 197.2m. out of South Africa is likely to propel PGM prices. Valuation and Recommendation We have valued Zimplats using a DCF valuation approach. Our model assumes that mined tonnage will increase to about 6.0m tonnes by FY 2015 as the Phase II expansion project reaches completion. Our model also assumes that Phase III will kick in soon after and mined tonnage will increase to c8.4m by FY 2019. We have derived a WACC of 20.0% and applied a country risk premium of Zimbabwe of 15.0%. Furthermore, our model places a 60.3% weighting on the terminal value (TV) given the massive minerals inventory of >200moz (4E). On the other hand, our comparative analysis shows that Zimplats is trading on a stand out mark to market 5.7x 2013 PER (based on our estimates). This represents a significant discount to peers (average of 20.7x). We think Zimplats has the potential to create material additional value for shareholders. The share price has taken a knock on indigenisation concerns. Our valuation methodology yielded a target price of US$ 15.00, indicating 46.1% potential upside. BUY.

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ZIMPLATS- 5 YEAR CAGR COMPARISON 30 JUNE (USDm) Income Statement (USDm) Turnover
Platinum Paladium Gold Rhodium Nickel Other

2006 162.4
84,755 19,186 4,759 28,774 19,559 5,413

2007 236.0
102,253 23,771 6,071 42,474 52,655 8,743

2008 294.3
153,868 28,690 8,159 63,245 31,509 8,786

2009 120.3
81,807 12,995 8,179 (1,985) 14,835 4,480

2010 404.0
233,929 53,658 19,902 33,385 48,418 14,661

2011 527.4
284,991 98,347 26,636 30,030 66,135 21,215

2012F 515.0
298,217 172,697 100,009 57,915 33,539 19,422

2013F 5yr CAGR 631.5


365,684 211,767 122,634 71,017 41,126 23,816

27% 27% 39% 41% 1% 28% 31% 34% 33% 30% 33% 33%

Gross Profit Profit/(loss) before tax Taxation Profit/(loss) after tax Attributable to minority interests Profit/(loss) attributable to shareholders Balance Sheet (USDm) Assets Non Current Assets Current assets Total Assets Capital and reserves Non-current liabilities Current liabilities Total Equity and Liabilities Ratios EPS (USD) NAV (USD) Gearing RoaA RoaE EV/EBITDA EV/4E oz Current Ratio DPS Dividend Yield Margins OP Margin PBT Margin PAT Margin EBITDA Margin

73.8 57.3 (9.5) 47.7 47.7

138.2 117.4 (17.8) 99.6 99.6

172.4 145.5 (21.1) 124.4 124.4

14.9 (26.0) 1.0 (25.0) (25.0)

232.0 166.6 (44.5) 122.1 122.1

323.1 236.1 (35.7) 200.4 200.4

293.5 220.2 (60.5) 159.6 159.6

353.6 272.0 (74.8) 197.2 197.2

188.2 108.1 296.2 230.6 31.2 34.5 296.2 0.4 2.1 1.0% 18.6% 23.0% 15.5 5,491 3.14 35.1% 35.2% 29.4% 40.4%

228.6 176.8 405.5 329.4 34.0 42.1 405.5 0.9 3.1 0.0% 28.4% 35.6% 7.0 4,848 4.20 48.6% 49.8% 42.2% 57.3%

371.6 227.0 598.5 442.7 108.3 47.5 598.5 1.2 4.1 12.9% 24.8% 32.2% 5.6 5,041 4.78 49.4% 49.5% 42.3% 57.6%

529.9 120.4 650.3 415.2 150.6 84.5 650.3 (0.2) 3.9 23.0% -4.0% -5.8% 5,749 1.43 -20.7% -21.6% -20.8% -3.0%

592.1 220.7 812.8 539.0 183.8 90.0 812.8 1.1 5.0 19.6% 16.7% 25.6% 5.1 2,873 2.45 42.8% 41.2% 30.2% 48.6%

681.9 293.5 975.4 739.4 142.8 93.2 975.4 1.9 6.9 5.1% 22.4% 31.4% 3.1 2,352 3.15 46.4% 44.8% 38.0% 52.8%

831.2 366.8 1,198.1 939.8 146.5 111.8 1,198.1 1.5 8.7 4.1% 14.7% 19.0% 3.1 2,102 3.28 43.2% 42.8% 31.0% 49.2%

926.9 458.5 1,385.4 1,100.7 150.5 134.2 1,385.4 1.8 10.2 3.5% 15.3% 19.3% 2.3 1,531 3.42 43.4% 43.1% 31.2% 48.9%

29% 22% 27% 26% 36% 22% 27%

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Contacts General Sean Gammon Director Direct Moblie Email

+263 4 791 874 +263 772 205 937 sean.gammon@imara.co

Sales Trading Tino Kambasha Head Direct Mobile Email

+263 4 791 593 +263 772 572 110 tino.kambasha@imara.co

Dealing Thedias Kasaira Director Direct Mobile Email Sebastian Gumbo Dealer Direct Mobile Email Dave Markham Dealer Direct +263 4 792 064 Mobile +263 772 924 269 Email dave.markham@imara.co

+263 4 792 064 +263 772 600 562 thedias.kasaira@imara.co

+263 4 792 064 +263 772 600 323 sebastian.gumbo@imara.co

Analysts Tel Addmore Chakurira Email Batanai Matsika Email Nontando Sibanda-Zunga Email

+263 4 700 000/ +263 4 790 403 +263 772 265 454 addmore.chakurira@imara.co +263 772 889 556 batanai.matsika@imara.co +263 772 772 755 nontando.zunga@imara.co

72

Notes

Imara Africa Securities (A division of Imara SP Reid) Imara House, Block 3 257 Oxford Road Illovo Johannesburg 2146 South Africa Tel: +27115506200 Fax: +2711 550 6295

Imara Securities Angola SCVM Limitada Rua Rainha Ginga 74, 13th Floor, Luanda, Angola Tel: +244222372029 /36 Fax: +244222332340

Imara Capital Securities Ground Floor Plot 64511 Showgrounds Gaborone Botswana Tel: +267 3188886 Fax +267 3188887 Members of the Botswana Stock Exchange

Imara Edwards Securities (Pvt.) Ltd. Tendeseka Office Park 1st Floor Block 2 Samora Machel Avenue Harare, Zimbabwe Tel: +263 4 790590 Fax: +263 4 791435 4 Fanum House Cnr. Leopold Takawira/Josiah Tongogara Street Bulawayo Tel: +263 9 74554 Fax: +263 9 66024 Members of the Zimbabwe Stock Exchange

Imara S P Reid (Pty) Ltd Imara House 257 Oxford Road Illovo 2146 P.O. Box 969 Johannesburg 2000 South Africa Tel: +27 11 550 6200 Fax: +27 11 550 6295 Members of the JSE Securities Exchange

Stockbrokers Malawi Ltd Able House Cnr. Hanover Avenue/ Chilembwe Road Blantyre Malawi Tel: +265 1822803 Members of the Malawi Stock Exchange

Namibia Equity Brokers (Pty) Ltd 1st Floor City Centre Building, West Wing Levinson Arcade Windhoek Namibia Tel: +264 61246666 Fax: +264 61256789 Members of the Namibia Stock Exchange

Stockbrokers Zambia Ltd 2nd Floor, Design House P O Box 38956 Lusaka Zambia Tel: +260 1227303 Fax: +2601221055 Members of the Lusaka Stock Exchange

This research report is not an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The securities referred to in this report may not be eligible for sale in some jurisdictions. The information contained in this report has been compiled by Imara Edwards Securities (Pvt.) Ltd. (Imara) from sources that it believes to be reliable, but no representation or warranty is made or guarantee given by Imara or any other person as to its accuracy or completeness. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of Imara as of the date of this report only and are subject to change without notice. Neither Imara nor any other member of the Imara group of companies including their respective associated companies (together Group Companies), nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Each recipient of this report shall be solely responsible for making its own independent investigation of the business, financial condition and prospects of companies referred to in this report. Group Companies and their respective affiliates, officers, directors and employees, including persons involved in the preparation or issuance of this report may, from time to time (i) have positions in, and buy or sell, the securities of companies referred to in this report (or in related investments); (ii) have a consulting, investment banking or broking relationship with a company referred to in this report; and (iii) to the extent permitted under applicable law, have acted upon or used the information contained or referred to in this report including effecting transactions for their own account in an investment (or related investment) in respect of any company referred to in this report, prior to or immediately following its publication. This report may not have been distributed to all recipients at the same time. This report is issued only for the information of and may only be distributed to professional investors (or, in the case of the United States, major US institutional investors as defined in Rule 15a-6 of the US Securities Exchange Act of 1934) and dealers in securities and must not be copied, published or reproduced or redistributed (in whole or in part) by any recipient for any purpose. Imara Edwards Securities 2012

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