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Tawanda Musarurwa Business Reporter
Listed firms Hippo Valley, Seed Co and Padenga were the leading companies in capital expenditure in the early years of dollarisation. This put them in good stead to now sweat their assets and yield significant dividends for their shareholders. Emergent Research head of research Mr Ray Chipendo said Hippo and Padenga are now in a better position to realise returns on invested capital.

“”Examples of such companies that invested heavily in the years 2010-2013 include Hippo Valley, Seed Co and Padenga. “Hippo has invested a lot in plant and equipment. Better efficiencies are starting to show. Padenga, has been on an investment drive and is fast drawing close to operating at capacity,” he said.

The stock analysts cautioned investors against investing in companies that are still in the early stages of spending their capex. “As some of our work has indicated, returns on invested capital dipped in years 2011 and 2012 for most companies. We believe this can be explained by the rise in capital expenditure that bloated many balance sheets. Hence, the worst time to buy into a company is when it is starting to incur huge capex.”

But Mr Chipendo maintains that companies that completed their re-investment and are now sweating their assets are better buys. “The opposite is true. Post huge capex is best time to buy,” said Mr Chipendo. “Our strategy would be to look at companies that invested heavily in the years 2010-2013 and saw their share prices slow down as a result of returns diluted by high capex.

“We are happy with such companies if we can see evidence of sweating their assets.” Although the Zimbabwe Stock Exchange has underperformed over the past few years, with latest figures showing the local bourse’s market capitalisation having dipped 3,10 percent to $3,63 billion at the end of last month, investment opportunities are still available on the market.

Analysts have suggested that long-term investors should adopt a bottom-up strategy and seek exposure into lowly geared firms that have strong cash generation abilities and solid balance sheets.