Barbican Asset Management
Introduction A Zimbabwe Stock Exchange quoted company, Apex Corporation Zimbabwe Ltd has its operating base in Zimbabwe, while its manufacturing and trading operations e
mbrace the entire southern and central African subcontinent.
The group’s origins date back to the 1902 establishment of Philpott & Collins stationers and booksellers in Bulawayo and the founding of Phoenix Brushware in 1932. In 1956 Philpott & Collins went public before Phoenix Brushware acquired it in 1976 culminating in the change of name to the P&C group.
Thereafter, the P&C group witnessed both organic growth and acquisitions which gave birth to the manufacturing giant we now know as Apex (the name it adopted in 1982). Evidently its growth has taken the group beyond its origins.
Apex has in its port-folio a collection of si-milar industries bound together into a formidable giant, taking full advantage of shared strengths. It is structured into four main divisions, which are heavy manufacturing, light manufacturing, communications and foundries.
Heavy manufacturing division comprises of industrial galvanizing & fabricating, More Wear Industries Lysaght Steel Merchants. This division’s products and services include, among other things, hot dip galvanizing, steel fabrication, bulk fuel tanks, railway rolling stock and air receivers.
Foundries division includes Zimcast, which is the manufacturer of a range of items from enamelled sanitary ware to plumbing fittings and traditional three-legged pots. McMeekan, which is the other arm in this department, speacialises in general precision machining and grinding, gearbox gears, and brake drums among other things.
The communications division is made up of Bardwell Printers, which is a leader in print work be they brochures, annual reports, leaflets and labels to letterheads.
The division also inclu-des Supersonic, a renown-ed supplier of audio-visual, communication and solar equipment. Other arms in this division in clude Lomagundi Travel, Solarcomm and Philpot & Collins.
John W Searcy, William Smith & Gourock, Scandia wire products, Precision Grinders and Phoenix Brushware make up the light manu-facturing division. Its products include domestic and industrial brushware, flags and banners, PVC tarpaulins, tents and more.
With this line-up in place, Apex is poised to remain a force to reckon with in the manufacturing sector. Its first half-year results bear a clear testimony to what the group is made of; a long-term performer of repute even under the current economic hardships.
The group put a spirited performance that saw it achieving above inflation results.
Its turnover grew by 269,89% from $1,6 billion to $5,8 billion within the two interim periods.
Operational efficiency was instrumental for the 647% growth in operating profit to an impressive $1,7 billion. This resulted also in a 968% rise in attributable profit, which settled at $771 million during the currently reported half year. All these pushed up the EPS by 968% to 2 211 cents in 12 months to April.
The Apex share has been performing lower than the industrial index, before it shot up to levels above the former. Most stockbrokers developed a sudden interest in the counter sending a message that led to investors holding on to their volumes. The shares have become quite illiquid resulting in low volumes being traded daily.
In a hyper-inflationary environment, earnings get continuously eroded. Apex has a well-developed and reliable export base, which should see earnings being cushioned against inflation by export proceeds.
It is also worth noting that Apex operations cut across a number of industries, ie being well diversified which sees the groups covered against any slump in business in one field.
The group has to contend with the ever rising raw material costs.
Earnings in forex are converted at a fixed and controlled rate while import prices are on the rise.
Returns from export are expected to continue sustaining the current growth of earnings. Thus the group’s earnings are likely to be boosted by increase in exchange gains especially with the current review of the exchange rates.
This resounding earnings growth resulted in our projections of forward P/E ratio of 1.6x against the historic P/E of 15.60. This makes it a highly under-valued share with a potential to pick up the threads anytime.
The group’s six months performance to April surpassed that of the whole year ending October 2002. We expect this magnificent performance to continue into the final half.
We therefore rate Apex as one of the strongest buys