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Enacy Mapakame
Retail and specialty distribution group, Axia is projected for earnings growth in the financial year 2020, although disposable incomes are also expected to be under pressure on the back of rising inflation.
Market watchers are of the view that the inflationary environment will continue to see an increase in prices of goods and services on the local market which will drive growth in revenue figures.
Brokerage firm IH Securities also contend the conversion of currency from USD to local ZWL$ should also see Axia recording big numbers for the financial year 2020.
In light of this, revenue is projected to jump 74 percent to ZWL$972 million.
“Given the inflationary environment and the re-introduction of the ZWL$, we estimate nominal group revenue to surge to $972,2 million (+74,4 percent year on year) in FY20, buoyed by the conversion of regional turnover from real USD to ZWL$.
“We anticipate EBITDA (earnings before interest, tax, depreciation and amortisation) to surge +56,4 percent year-on-year to ZWL$133,7 million in FY20, yielding a sturdy EBITDA margin of 13,8 percent on the effects of backward integration. Resultantly, we forecast Net Income to rise +55,3 percent year-on-year to ZWL$93,6 million, as exchange gains on translated foreign operations will give a rise to Net Income,” said IH.
For the financial year 2019, the challenging operating environment characterised by erratic power supplies, soaring inflation and a depreciating currency that has vastly eroded disposable incomes had a knock-on effect on Axia’s performance.
The firm registered an 88 percent growth in TV Sales & Home while volumes marginally grew by 1 percent although there was volumes growth during the first half of the year as consumers sought a store of value.
The business was hampered by defaulting customers in Malawi while Zambia had a 3 percent decline in revenue, which resulted in the group’s regional operations, through DGA, recording a 2 percent decline in turnover.
Overall, Axia revenue grew 102 percent to ZWL$557,4 million in financial year 2019 while EBITDA surged to ZWL$72,7 million from ZWL$25,8 million in the previous year.
Regional operations achieved lower EBITDA margin of 0,1 percent from 2,8 percent on the back of stock write-offs from overstocking and customer returns which lead to DGA — Zambia making an operating loss.
But the Zimbabwe business recorded an upturn in EBITDA of 14,3 percent which saw after tax profit improve 273 percent to ZWL$63 million.
While economic headwinds are expected to persist in the near future, Axia is expected to also cash in on the Legend Lounge — a lounge suit manufacturing business, in which it owns 70 percent.
The group entered into a partnership with Legend Lounge, a lounge suit manufacturing business and will also focus on growing a market for its manufactured products both locally and regionally, with new strategic stores scheduled to be commissioned by the end of the first half of FY2020 in Victoria Falls and Rusape.
Management has also indicated it is evaluating investment opportunities with export potential to generate foreign currency and expand its footprint. IH upgraded Axia to a buy recommendation.
Bongani Ndlovu