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IH worries liquidity constraints might stifle BAT Zim H2 volumes


Oct 6, 2023

By ETimes

HARARE – BAT Zimbabwe, a listed cigarette manufacturer, is still susceptible to liquidity cycles, which have continued into the second half of 2023, warned IH Securities (IH).

This comes as authorities have put a leash on the money supply to tame inflation and stabilise the exchange rate.

As a result, there has been increased use of the greenback in settling transactions due to liquidity shortages.

Analysts say the company sells exclusively in local currency due to the fact that their parent company requires it to follow the laws of the country.

The country has been ramping up efforts to increase the use of the local currency amid its continued depreciation against the US dollar.

IH noted that 95.78% of BAT’s revenue was underpinned by domestic sales.

“We therefore expect domestic volumes to remain under pressure due to persistent liquidity constraints in the market and sustained competition,” the research firm said in its snapshot of BAT Zimbabwe 1H23 earnings.

“On the other hand, revenue contribution from cut-rag exports still shows potential for growth given increased demand for tobacco in key markets like China.”

BAT is currently trading at a rolling PER multiple of 37.39x compared to regional peers 11.3x, which is demanding at these levels, according to IH.

In April this year, BAT Zimbabwe finance director Wilson Chitsonga told an analyst briefing that they are working on a pricing model that is responsive to market developments.

“We are aware of the issue; we sell 100% in ZWL from the trade, but if we look at our wholesaler to the retail, they are actually selling in US dollars in other areas, even in rands. but our consumers are basically buying our stick in ZWL,” he said.

“So, the plan is still in place, and we are actually doing system testing on our side just to make sure that we can accommodate demandable selling of currency.”

The company has not been spared from exchange rate volatility despite continuously reviewing their selling prices of sticks.

BAT Zimbabwe has been actually doing “regression testing”. If completed successfully, the firm will actually switch to the demandable currency.

BAT Zimbabwe closed Thursday session at 15,985.00, recording a drop of 1.93% from the previous price.

By ETimes

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