• Mon. Mar 4th, 2024

ANALYSIS| Bullish Willdale Eyes Growth in 2024 as Revenues Hit ZWL$36.9 billion


Feb 1, 2024

By ETimes

Financial Performance Highlights

  •   ZSE listed construction materials firm Willdale Limited reported an ZWL$8.3 billion inflation adjusted after tax profit for its financial year ended 30 September 2023, a 97% rise from the previous year. Gross profits climbed 196% to ZWL$10.5 billion.
  •   Revenues increased by 106% to ZWL$36.9 billion. According to the Company, reduced availability of stock due to electricity shortages saw capacity utilization fall to 75% and contributed to a 5% decline in sales volumes. However, the Company noted that demand for bricks was relatively high during the year, driven by housing development, construction of educational facilities and shopping centres
  •   The Company highlighted the adverse impact of exchange rate distortions as exchange losses of ZWL$7.3 billion amounted to 21% of total revenues versus 2% in 2022.
  •   Despite that, margins were sustained by a favourable product mix as customer preference for high-margin bricks increased.
  •   The operation generated net cash flows of ZWL$3.6 billion, which supported investment expenditures of ZWL$2.2 billion and the overall cash flow position was a surplus of ZWL$834 million.
  •  The Company’s Total Assets stood at ZWL$143.2 billion, with cash holdings of ZWL$1.3 billion, inventories of ZWL$12.7 billion and receivables of ZWL$12.6 billion. Total liabilities stood at ZWL$39.1 billion, with payables of ZWL$15.7 billion and total borrowings of ZWL$915 million.
  •  Looking ahead, the Company highlighted the need for electricity supply to improve and expressed optimism about the opportunities presented by Zimbabwe’s construction sector. The Company will also enhance its efforts to raise funds from existing assets to finance plant upgrades.
  •   The group declared a dividend of USc0.0056.
Commentary and Analysis

On paper it looks a fair performance from Willdale. The Company’s Gross Profit Margin and Operating Expenses to Revenue ratios suggest that pricing and cost management were effective against the inflationary environment and reduced capacity utilization. The Company’s operations were also cash flow positive, which was sufficient to finance its capital expenditures and spared it from incurring any expensive short-term debt. So the main concern lies in the Company’s low levels of liquidity, and the apparent need for some semi-intensive capital investments. Beyond that, the general operating environment still presents significant risk, as the the energy supply situation remains unstable and the increased dollarization could put a squeeze on aggregate demand.

On the upside, the high volatility of the local currency and the systemic issues affecting traditional financial assets should see property investments continue to be an attractive asset class. This has been the trend since the official introduction of the ZWL in 2019, with residential and commercial property developments popping up across the country. However, it appears that Willdale has generally struggled to exploit the opportunities presented by the environment. Analyzing the trends in the Company’s annual sales, growth has generally been weak with volumes only up 1% since 2017. External factors such as COVID-19 and environmental challenges such as power supply and macroeconomic headwinds have been key contributors to the sluggish growth. And, it is also worth noting that much of the local construction boom has been driven by small-scale contractors who tend to rely on small/informal brick manufacturers for their procurement needs. Perhaps this suggests the need for Willdale to invest in its production capacity, to improve both output and price competitiveness, and it may also be necessary for the Company to revamp its product distribution model to target the informal/small-scale construction sector. The challenge lies in the group’s internal capacity to raise the necessary funds, which appears constrained in the short term, while the prospects of raising debt and equity also appear weak. That said, the Company’s short-term outlook is stable based on its cost and price management efficiency and the high demand for construction materials

On the ZSE, in the last twelve months the Willdale share has gained 1,571% in nominal terms and 22% in implied USD terms. The share is currently trading at a Price to Book ratio of 0.51x.

By ETimes

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