IH Securities projects 7% rise in Seed Co revenue

LOCAL financial services firm, IH Securities, says it expects revenue for Seed Co Limited to increase by 7% to the equivalent of US$51,5 million in the seed producer’s 2024 full financial year.

This comes after the Zimbabwe Stock Exchange-listed firm more than doubled its revenue to ZWL$59,71 billion in its half-year period ended September 30, 2023, from the 2022 comparative.

In its full-year financial results ended March 31, 2023, Seed Co posted revenue of ZWL$42,7 billion translating to US$45,92 million using the exchange rate on the day of reporting. This was an increase from a 2022 comparative of ZWL$27,2 billion.

In an analysis of Seed Co’s half-year results, IH Securities said its review of seed company’s financials was based on a United States dollar-based valuation for the entire business, hence the difference in the greenback projected revenue versus what it actually was.

“For forecasts to remain relevant in the present inflationary environment, we have shifted to a US$ based valuation of the business. We forecast revenue will increase by 7% in FY24 to circa US$51,50 million. We expect adjusted EBITDA [earnings before interest, taxes, depreciation, and amortisation] margin to remain flat at 27,4%. We anticipate the group to close FY24 with a PAT [profit-after-tax] of US$6,6 million,” IH Securities said.

“With forecasts indicating below-normal rains in southern Africa, seed demand going into the summer cropping season is likely to be subdued. However, the group has emphasised its commitment to research and innovation to address changes in climate and farmer needs, with seven new varieties registered in Zimbabwe and 12 in the region during the period.”

IH Securities said the group had almost concluded the intake and processing of raw seed for this year’s season and had sufficient stocks to meet the season’s anticipated demand.

“Total maize seed stocks available in Zimbabwe and the region are 40% and 14% higher than in the prior year, respectively. Margins to FY24 are expected to remain resilient as the bulk of stock the group currently holds is from the last production season,” IH Securities said.

“The group is optimistic that the recommendation to remove the 10% forex trading margin may facilitate favourable multi-currency pricing. In the meantime, focus for management will be on increasing the contribution of exports and US dollar-denominated sales.”

This year saw Seed Co open direct stores to bypass traditional channels paying in Zimbabwe dollars and increase access to US dollar sales directly from the market.

“The group also plans to leverage its regional operations that have shown a promising start to the season through intra-group exports. While back-up power investments are being made to alleviate power shortages, these will increase costs compared to running on the grid, possibly exerting pressure on margins,” IH Securities said.

During the half year period, maize volumes fell 22% to 1 638 metric tonnes (MT), resulting in a 3% drop in total volumes to 8 572MT.

Nevertheless, value tracking price adjustments drove a 604% growth in historical revenue from ZWL$5,92 billion in 1H23 to ZWL$41,69 billion.

“Operating costs, however, outpaced revenue owing to inflationary pressures and exchange rate volatility, and saw 825% growth to ZWL$34,62 billion from 1H23. Seed Co Limited registered ZWL$226,06 billion in other income, derived from exchange gains on US dollar-denominated sales converted to Zimdollar at the closing rate,” IH Securities said.

“Therefore, EBITDA closed the period 120% higher than the prior year at ZWL$216,59 billion. The business predominantly accessed funding at productive sector rates, easing finance costs, which constituted 16% of revenue compared to 57% in 1H23. The average interest rate fell to 95% from 113%. The group paid ZWL$80 billion in taxes and closed the period with a PAT of ZWL$137,18 billion, up 2 176% from ZWL$6 billion in 1H23.”

IH Securities added: “The business accessed existing facilities to fund incoming deliveries and other key operational costs, bringing total borrowings at the end of the period to ZWL$133, 26 billion, against cash balances of ZWL$6,13 billion, reflecting a high debt burden on the group.”-newsday