Delta Corporation: A Zimbabwean Beverage Giant - Riding the Valuation Wave!

Welcome, fellow adventurers, as we embark on a thrilling journey through the financial landscape of Delta Corporation Limited, a leading beverage company in Zimbabwe. Get ready to explore the financial statements for the year ended March 31, 2023, and uncover the impressive growth, overcoming of challenges, and the sweet taste of dividends.

Analysing financial statements in Zim dollar is just wrong and impossible but we like numbers so we took up the challenge and tried to convert the numbers to USD. In this blog post, we will analyse the financial statements of Delta Corporation for the year ended 31 March 2023, using the black market rate on 31March 2023 of 1 US dollar = 1450 ZWL (Zimbabwean dollar) as per this website zimrates. We used the black market rate because DELTA admitted that it nolonger uses the official rate here https://www.thezimbabwemail.com/business/delta-defies-ernst-young-on-exchange-rate/

 

Revenue: A Flurry of Growth

Delta Corporation's revenue surged by a staggering 60%, soaring from ZW$335.16 billion (US$231.14 million) in 2022 to ZW$536.92 billion (US$370.29 million) in 2023. This impressive growth was driven by increased volume across all beverage categories, strategic price adjustments to combat inflation and exchange rate fluctuations, and improved product availability and distribution efficiency. The Lager Beer segment took the lead, contributing 42% of the total revenue, followed by Sorghum Beer (33%), Sparkling Beverages (17%), and Wines and Spirits (8%).

 

Operating Income: Riding the Wave

Delta Corporation's operating income also experienced substantial growth, climbing by 29% from ZW$77.20 billion (US$53.24 million) in 2022 to ZW$99.79 billion (US$68.82 million) in 2023. This growth can be attributed to increased revenue and effective cost containment measures. Although the operating income margin slightly decreased from 23% to 19%, mainly due to the lag effect of price adjustments, the company benefited from improved operating efficiencies, productivity gains, and favorable input costs.

 

Earnings: Scaling New Heights

Profit before tax soared by an impressive 45%, reaching ZW$87.33 billion (US$60.23 million) in 2023 compared to ZW$60.35 billion (US$41.62 million) in 2022. This remarkable growth was primarily driven by the increase in operating income and exchange gains from foreign currency-denominated assets and liabilities. The company's profit after tax also experienced a healthy rise, increasing by 30% from ZW$48.68 billion (US$33.57 million) in 2022 to ZW$63.14 billion (US$43.54 million) in 2023. As a result, earnings per share climbed by 27% to ZW$6,139 cents (US$4 cents) in 2023.

 

Dividends: Sharing the Joy

Delta Corporation's dividend distribution is a cause for celebration! The company declared an interim dividend of US0.01 cent per share for the half-year ended September 2022, which was paid in December 2022. Additionally, a final dividend of US0.02 cents per share for the year ended March 2023 will be paid in June 2023. In total, the company distributed dividends of US0.03 cents per share, reflecting a payout ratio of 75%.

 

Valuating the Company

Valuing a company's shares is an essential aspect of investment analysis. Multiple valuation methods can be employed to estimate the fair value of a company's stock. In this article, we will explore four common valuation methods and calculate the average share price for Delta Corporation. It is important to note that these calculations are based on assumptions and estimates and should not be considered definitive or authoritative.

 

Valuation Methods and Results:

1. Discounted Cash Flow (DCF) Method:

The DCF method estimates the present value of an investment based on its expected future cash flows. Using the DCF method, the estimated value of Delta Corporation's shares was calculated to be US$2.6 or ZW$3,770 per share.

 

2. Price-to-Earnings (P/E) Ratio Method:

The P/E ratio compares a company's current share price to its earnings per share (EPS). By applying the P/E ratio method, the estimated price of one share of Delta Corporation was determined to be US$2.60 or ZW$3,770.

 

3. Book Value Method:

The book value method values a company's shares based on its net assets. The estimated price per share using this method for Delta Corporation was ZW$183.64 or US$0.13.

 

4. Discounted Dividend Method:

The discounted dividend model calculates the present value of future dividend payments. Using this method, the estimated price per share for Delta Corporation was US$0.40 or ZW$580.

 

Calculating the Average Share Price:

To determine the average share price considering all the valuation methods, we will sum up the prices obtained from each method and divide the total by the number of methods.

 

USD Calculation:

Average share price = (US$2.60 + US$2.68 + US$0.13 + US$0.40) / 4

Average share price = US$1.70

 

ZWL Calculation:

Average share price = (ZW$3,770 + ZW$3,770 + ZW$183.64 + ZW$580) / 4

Average share price = ZW$1,076.91

 

Valuation sum up

By considering the discounted cash flow (DCF), price-to-earnings (P/E) ratio, book value, and discounted dividend methods, we estimated the average share price of Delta Corporation to be approximately US$1.70 or ZW$1,076.91. These calculations are based on certain assumptions and should be regarded as rough estimates, rather than definitive valuations. Investors should conduct further research and analysis to make informed investment decisions.

 

Conclusion: Navigating the Waves

Delta Corporation has showcased resilience and adaptability in the face of Zimbabwe's challenging operating environment. The company's strong financial performance across its diverse beverage categories can be attributed to its portfolio of brands, extensive distribution network, operational excellence initiatives, and stakeholder engagement efforts. By investing in production capacity expansion, product innovation, digital transformation, and sustainability, Delta Corporation remains optimistic about its future prospects. With a vision to be a world-class total beverage business that creates value for all stakeholders, Delta Corporation continues its exciting journey forward.

 

Remember, fellow adventurers, market conditions can be unpredictable. It's essential to conduct thorough research, seek expert advice, and embrace the adventure with caution. Delta Corporation's story of growth and resilience serves as inspiration, but the future remains full of twists and turns. So buckle up, stay informed, and dive into the exciting world of Delta Corporation, the Zimbabwean Beverage Giant!