ZIMRE Holdings (zimr.zw) Review
Market Cap = ZWL 5 bn
= USD 31m using a rate of 160.
In 2015, Day River got a 40% stake after a rights issue of $15m, thus valuing ZIMRE at USD37.5m
The decline in value is not exclusive to Zimre but applies to the overall market, which has to get back up to that 2015 level. Based on that alone you could say it's undervalued in terms of long-term cyclical trends.
The group has Investment Properties recorded at ZWL 6 bn, ...a billion above the market cap. The balance sheet size is ZWL 12 bn....twice the market cap...with ZWL 6 bn worth of liabilities. Notice the huge cash balances, a billion ZWL, close to USD9.8m at the time (Dec2020)
The market is valuing this company at something very close to book value. It's as if the future operations of the company don't really matter.
Market Cap = ZWL 5 bn.
Equity on the books = ZWL 5 bn.
Earnings per share = 35.85 ZWL cents Price per share = 330.00 ZWL cents thus a P/E ratio of 9 Avg trailing PE ratio for insurance firms in 2021 is 12 Thus ZIMRE is undervalued But 2021 has generally high PE ratios.
A PE ratio of 9 means you will have to wait 9 years for the company's earnings to be equivalent to the price you paid for your share today. Zim companies should in general have PE ratios way below global averages because of the country risk, and macro-econ instability.
Taking these into account, the PE ratio of 9 could actually be an overvaluation of ZIMRE. My guess would be a PE ratio of 5 would make the company fairly valued. I am deeply worried about policy shifts, regarding the writing of insurance contracts in USD.
ZIMRE has spread its net wide across the insurance spectrum in the region. Stability in Zim will drive future profits for the group.
The group structure brings complexity. You are effectively analyzing several businesses. - life reassurance and pensions - non-life reinsurance - general insurance - property investments The best way is to go about it is to disaggregate them first.
However, the group is predominantly in non-life reinsurance ..which contributes 75% of the group's income ..so it's this division that matters the most.
Regarding the EPS, the quality is subjective since the bulk of profit reported in 2020 is emanating from fair value adjustments on properties. Actually, 30% of total income is arising from fair value adjustments.
The subjectivity lies in the valuation inputs used. Most of the investment property is in commercial, industrial, and retail. Bears will say commercial and retail spaces are dying. I say, "not-so-fast" in Zimbabwe, but the point is we should see huge write-downs in the future.
ZIMRE is leaning towards acquisitions. The acquisitions and spending on the ZSE could be the fulfillment of the desire by Day River Corp, its major shareholder, to acquire stakes in ZSE listed companies via ZIMRE.
ZIMRE is now a majority shareholder in Fidelity ..acquired 35% more in 2020, taking total ownership to 67%. They can take it private (delist), at any time. Just like they did with ZIMRE Property...purchased 35% more and delisted.
They have quite a few other unlisted securities in their portfolio.
The associates, equity investments, etc make it so convoluted to analyze this group. The group also owned a 49% stake in ZUPCO. They tied to sell it to the gvt in the 2000s, and it did not work out. They eventually impaired the entire investment, so it was off the books.
Now that ZUPCO is back on the road, functioning, with trains added into the mix, ZIMRE still owns the 49%. If it finds a buyer now, it can get an unexpected windfall. It should revalue its ZUPCO shares and add the asset back onto the balance sheet this year.
Events after reporting date raise the uncertainty around the May 2021 SI instrument on forex. Could this be the SI Instrument that is rumored to have been violated by the one young C-suite in Harare, leading to a heavy fine, leading to the dismissal of the C-suite?
Since it is hereby disclosed in financials as Events after the report date, could we speculate that ZIMRE might possibly be facing a similar situation, thus the need to worry, monitor, and think around the uncertainties.
Regarding the shareholding, it's the same as other Zim counters....these are closely held companies....the trading float is tiny.
When you buy ZIMRE, you are betting on the big two directors, Rudland and Von Seidel who own a combined 42%. I think they have managed the business well. The other investors are not really active investors that scrutinize things and hold the leadership accountable.
I am not excited about this share, and would only buy if the macro-economic environment shows signs of massive growth. Growth is hinged on the economy. However, I would buy, if the goal is to preserve value. I do not think it will trade below the equity book value.
Ciao!