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Zambeef shares revive, as debt-cutting drive bears fruit

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Zambeef Product's struggling shares rebounded by nearly 13% after the Zambian dairy-to-meat group reassured on earnings, and said it had cut significantly dollar-denominated debts which have provoked concerns among investors.

Shares in Zambeef, which in the last session touched an all-time low of 5.8p, closed on Wednesday in London at 6.62p, a gain of 12.8% on the day.

The recovery followed the group's statement that it had made "significant progress" reducing its debts, whose large proportion denominated in dollars raised alarm among investors given the halving of the Zambian kwacha, in which Zambeef operates, against the greenback over the year to the end of September.

Many emerging market currencies have suffered particular depreciation as prospects of a US interest rate rise have increased, while economic growth prospects in developing countries such as China have faded.

The kwacha has suffered particularly thanks to weakness in metals prices, with copper particularly important to Zambia's economy and foreign currency earnings.

Debt reduction

Zambeef said that its net debt had, in dollar terms, fallen by 37% to $74.7m over the year to the end of September, the group's financial year.

And of that 65% was denominated in dollars, compared with 71% a year before.

The proportion has fallen since to 55%, with the group adding that it "continues to look at ways of reducing exposure to the US dollar even further in order to mitigate future earnings volatility arising from exchange rate fluctuations".

This includes increasing sales to dollar-denominated export markets, with Zambeef saying that 15.5% of its revenues were invoiced in dollars.

Broker reaction

The statement - which also said that underlying pre-tax profits for the latest financial year would "be in line with market expectations", and forecast growth in revenues and profits in kwacha terms in 2015-16 – was well received by brokers.

VSA Capital said that given the "sharp decrease" of some 60%, in Zambeef's share price over the past three months, "and Zambeef's improving gross margins, we believe the stock may offer value to investors at these levels".

Panmure Gordon, restating a "buy" rating on Zambeef shares, with a 25p price target, said it "welcomed" Wednesday's statement.

"Zambeef is a significant fully-integrated agribusinesses operator in Zambia, and increasingly so in other key African geographic territories, where we continue to see excellent potential for the Group in the country's food processing and agricultural sector.

"[We] remain positive on the group's longer term growth potential."

By Agrimoney.com

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