CBZ Holdings (CBZH) reported total income of US$244 million that was largely driven by non-interest income which totalled US$163 million. Fees income whose growth was driven by increased USD transactions accounted for half of the group's non-interest income.
Fair value gains were notably down on accounting technicalities. Lending income was largely static as increased credit lines offset tight monetary policy effects. Operating expenditure pressures held on because of once-off restructuring costs but these were largely cushioned by bad debts recovered and lower expected credit losses.
The group ended the year with earnings of US$39 million after associate losses further cut into pre-tax profits. However, after adjusting for non-recurrent costs, the group would have reported earnings of approximately US$70 million.
The group's loan book, while lower than prior year, showed resilience because of additional lines of credit that softened the impact of tight monetary policy.
The quality of the book improved on account of efforts to de-risk the Agro Yield loan book, among other measures. Cash balances remained above US$250 million and management declared a final dividend of US1,61c per share (financial year 2023: US1,29c).
The central bank is expected to maintain a tight monetary policy stance throughout 2025 and we anticipate that CBZH's lending income growth will remain constrained regardless of additional lines of credit and the Targeted Finance Facility.
To this end, we opine that CBZH will leverage off its strong non-interest income market share to sustain income growth momentum in the financial year 2025. Although the bottom line is poised to improve considering non-recurrent costs in the financial year 2024, prospects of a stable ZiG will likely present a key offset through lower foreign currency and FV gains.
We revise our financial year 2025 price target upwards to US39,08c largely because of ripple effects of the agriculture sector's rebound on local transactions activity. We maintain our BUY recommendation on the counter regardless of elevated liquidity risk on the Zimbabwe Stock Exchange.
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Regional peers were used to generate forward-looking multiples, and these were adjusted for differences in country risk. In addition, a liquidity risk discount was applied as a reflection of the counter's low free float shares and tight ZiG liquidity.
The Reserve Bank of Zimbabwe is expected to maintain a tight stance on monetary policy throughout the year, and we anticipate that banks' credit creation ability using local funds will remain constrained.
We are cognisant of additional lines of credit and the Targeted Finance Facility but the stringent terms and depressed aggregate demand in the economy will limit uptake in 2025.
To this end, we opine that the sector's players will look to non-interest income to maintain, if not grow, earnings.
CBZH, which holds the largest share of both ZiG and USD Point-of-Sale transactions, will be poised to benefit from additional transactional activity that will be driven by the agriculture sector's rebound this year.
While we note that CBZH's earnings in the financial year 2025 will likely improve considering the non-recurrent costs in 2024, prospects of stable currency in 2025 will mostly offset the positive outlook because of lower fair value and foreign currency exchange gains.
Given indications of a saturated financial services industry, the group's strategy to double assets to US$2 billion by 2028 remains constrained.
That said, the group has set its sights beyond Zimbabwe, and we are cautiously optimistic about the strategy.
- This article was written by Morgan & Co, a securities firm for a new era, whose local knowledge and expertise is twinned with international experience to grow the Zimbabwean capital markets.
