Econet Wireless Zimbabwe Limited Financial Analysis: A Year of Mixed Results

The following is an analysis of the financial statements of Econet Wireless Zimbabwe Limited for the year ended 28 February 2023, based on the Abridged consolidated statement of financial position as at 28 February 2023 using inflation adjusted figures. The figures are converted to USD using the rate 1 USD = 1150 ZWL rate found here

Statement of Financial Position

Item	ZWL (000)	USD (000)	Change (%)
Total Assets	709,022,033	616,541	108
Total Equity	436,798,754	379,825	86
Total Liabilities	272,223,279	236,716	159
Cash and Cash Equivalents	49,087,722	42,681	128

• The total assets increased by 108% from ZWL 340.8 billion in 2022 to ZWL 709 billion in 2023, mainly due to an increase in property, plant and equipment and financial assets at fair value through other comprehensive income.
• The total equity increased by 86% from ZWL 235.7 billion in 2022 to ZWL 436.8 billion in 2023, mainly due to an increase in other reserves from fair value gains on investments and property revaluation.
• The total liabilities increased by 159% from ZWL 105.2 billion in 2022 to ZWL 272.2 billion in 2023, mainly due to an increase in interest-bearing debt and deferred tax liability.
• The cash and cash equivalents increased by 128% from ZWL 21.6 billion in 2022 to ZWL 49.1 billion in 2023, mainly due to positive cash flows from operating activities.

Statement of Profit or Loss and Other Comprehensive Income

Item	ZWL (000)	USD (000)	Change (%)
Revenue	339,167,367	294,932	20
EBITDA	137,234,816	119,332	-7
Profit / (Loss) for the year	(16,997,954)	(14,782)	-143
Other Comprehensive Income / (Loss)	228,092,017	198,341	-8,784

• The revenue increased by 20% from ZWL 282.2 billion in 2022 to ZWL 339.2 billion in 2023, driven by growth in voice and data usage of 19% and 58%, respectively.
• The EBITDA decreased by 7% from ZWL 147 billion in 2022 to ZWL 137.2 billion in 2023, reflecting the sub-economic tariff environment coupled with accelerated exchange rate depreciation.
• The profit / (loss) for the year decreased by 143% from a profit of ZWL 39.6 billion in 2022 to a loss of ZWL 17 billion in 2023, mainly due to exchange losses of ZWL 77.2 billion and income tax expense of ZWL 23.2 billion.
• The other comprehensive income / (loss) increased by -8,784% from a loss of ZWL -2.6 billion in 2022 to an income of ZWL -228.1 billion in 2023, mainly due to fair value gains on investments and property revaluation.

 

Overall, the financial results of Econet Wireless Zimbabwe Limited for the year ended 2023 were mixed. Revenue growth was strong, but this was offset by lower EBITDA and a significant loss for the year. The company's other comprehensive income was also significantly negative, due to fair value gains on investments and property revaluation.

Some of the factors that affected the company’s profitability and performance during the year include:

• The sub-economic tariff environment that resulted from the disparity between inflation and exchange rate movements, which eroded the value of revenue and increased operating costs.
• The extensive load shedding on the national power grid, which forced the company to resort to alternative sources of energy to power its network, increasing its direct network and technology operating costs by 32.8% in USD terms.
• The vandalism of its critical network infrastructure, which impaired its service quality and customer satisfaction.
• The exchange losses of USD 67 million, which accounted for 22.7% of revenue, due to the depreciation of the local currency by more than 85% during the year.
• The increase in interest-bearing debt by USD 50.5 million, which increased its finance costs by USD 6.5 million.

According to POTRAZ results for the first quarter of 2022, Econet Wireless Zimbabwe Limited had a market share of 65% in mobile subscriptions, 66% in mobile voice traffic, and 68% in mobile internet and data traffic, indicating its dominance in the telecommunications sector. However, POTRAZ also reported that total mobile voice traffic, mobile internet and data traffic, and SMS traffic declined by 2.3%, 11.8%, and 12.7%, respectively, in the first quarter of 2022 compared to the fourth quarter of 2021, indicating a reduction in demand for mobile services.

However, the company also faces some challenges and risks operating in Zimbabwe, such as:

- High inflation and exchange rate volatility that affect the purchasing power of customers and the cost of imports.

- Limited access to foreign currency for capital expenditure and debt servicing.

Despite these challenges, Econet Wireless Zimbabwe has shown resilience and innovation in delivering digital solutions to its customers and enabling national development through technology.

The company has invested in solar power solutions to mitigate network outages, launched new products such as Sasai, YoPlay Hunt, and Akello Edutech, and supported various social causes such as Covid-19 relief, education, health, and environmental sustainability. The company's vision is to create a digitally connected future that leaves no Zimbabwean behind, and we look forward to seeing how they will achieve this goal in the coming years.

 

VALUATION

Based on the data provided and the results of the four valuation methods, I will summarize the findings but if you want to see the complete Maths go here

 

1. DCF Method:

Using the DCF method, the calculated share price of Econet Wireless Zimbabwe Limited was $0.0042 in USD and $4.83 in ZWL. This calculation is based on assumptions such as the future cash flow growth rate, the discount rate, and the terminal value formula. Users should exercise caution and perform sensitivity analysis to test different assumptions.

 

2. Price to Earnings Ratio Method:

The P/E ratio method could not be applied directly due to negative earnings per share (EPS) for Econet Wireless Zimbabwe Limited. Instead, the net income and equity value were used. The calculated share price based on the P/E ratio was $0.00053 in USD and $0.61 in ZWL. However, this calculation does not consider the market P/E ratio, which could reflect expectations for future growth and profitability.

 

3. Book Value Method:

Using the book value method, the calculated share price of Econet Wireless Zimbabwe Limited was $0.00174 in USD and $2.00 in ZWL. This method relies on the assumption that the book value reflects the true value of the company, which may not be the case in certain situations.

 

4. Discounted Dividend Method:

The discounted dividend model could not be applied due to the lack of information about dividends, the growth rate of dividends, the cost of equity, and the stock sale price for Econet Wireless Zimbabwe Limited.

 

The average share price using the results of the four valuation methods ranges from $0.00174 to $0.0042 in USD and from $2.00 to $4.83 in ZWL. However, it's important to note that these calculations are based on various assumptions and estimates, and users should exercise caution and consider other factors when evaluating the share price.

Conclusion:

The financial analysis of Econet Wireless Zimbabwe Limited for the year ended 28 February 2023 reveals a mixed performance. While the company experienced significant growth in total assets and equity, it also encountered a substantial increase in total liabilities. The revenue growth is promising, driven by increased voice and data usage. However, the decline in EBITDA and the significant loss for the year indicate challenges faced by the company, including exchange losses and income tax expenses. The increase in other comprehensive income reflects the positive impact of fair value gains. It will be interesting to monitor how Econet Wireless Zimbabwe Limited addresses these challenges and capitalizes on the growth opportunities in the telecommunications sector.