AXIA Corporation Ltd

20 October 2021
Specialty Retail – Equity Research

FY21: Uptick in volumes drives top line

Defensive sales strategy in local market encourages consumer spend during lockdown Market Data
The operating environment in the second half of the Axia financial year (Jan-Jun) was characterised
by COVID-19 induced restrictions, while y/y inflation continued to decline giving rise to a relatively Report Date 20-Oct-21
stable local currency. With the stabilising currency, TV Sales & Home re-introduced credit sales Bloomberg Ticker AXIA: ZH
allowing the company to defend market share and grow volumes (debtors’ book grew 306% y/y). Rating HOLD
TV Sales & Home volumes were up 35%; sales were also driven by growth in the store network.
Current price $ $44.50
Equity accounted earnings mainly comprised of earnings from Restapedic Bedding grew 239% y/y.
DGA - Zimbabwe increased sales of locally produced products as substitutes for some imported Target price $ $43.73
products which helped defend volumes (sales up +3%) while Transerv had an impressive volumes Market Cap $mn 24,568.20
increase of 67% y/y. DGA – Region was adversely affected by the devaluing Kwacha, loss of EV $mn 25,115.19
distributorship agency in Zambia as well as shrinking modern trade space in Malawi. Consolidated
Market Weight 1.84%
turnover for DGA Zambia and Malawi, in US$ terms, declined by 7% over the comparative period
while contribution to the ZWL$ top line decreased from 16% in FY20 to 14% in FY21. In historical Common Shares Outstanding mn 552.15
terms, AXIA’s top-line for FY21 came in at ZWL$18.18bn, +397% y/y versus annual inflation of Freefloat 56%
106% for the matching period (ended June 2021) on the back of improved volumes. Given
Average Daily Value Traded $000’s 2,345.97
inflationary pressures on costs, the company’s EBITDA margins narrowed to 17% from 21% in
FY20 (historically circa 10%). EBITDA closed at ZWL$3.08bn, +301% y/y. Interest bearing Last Dividend declared 1H21
borrowings have increased by 358% from June 2020 mainly to support strategic working capital Dividend Yield 0.54%
investments. Cash utilised in operations came in at ZWL$29.39mn suggesting working capital strain PER (+1) 11.63
as the business expands. Total assets for FY21 grew to ZWL$7.47bn from the FY20 position of
EV/EBITDA (+1) 4.52
ZWL$2,75bn whilst total liabilities were recorded at ZWL$4.26bn from ZWL$1.52bn in June 2020
resulting in an NAV of ZWL$7.47bn. AXIA is re-investing most of its free funds into expansion Share price performance YTD 385.27%
projects and therefore did not declare a final dividend.
Volumes to remain firm as local COVID induced restrictions are eased
We expect a strong recovery in business activity for TV-Sales and Transerv going into the first half
of FY22 as the local lockdown restrictions are eased. Consumer spending will be further driven by 12m share price performance (ZWL$) v. All Share
a consecutive year of above average rainfall that will likely lead to improved consumer earnings.
DGA-Malawi and Zimbabwe concluded major distribution agencies; we expect a positive impact on
operating profit going into FY22. Management’s strategy to take control of their value chain and 50.00
focus on local products will aid in containing operating costs, we expect margins to trend lower but 45.00
40.00
most likely not to historical levels. Revenue is forecasted to increase by 77% for FY22 from 35.00
ZWL$18.18bn in FY21 to ZWL$32.18bn. We anticipate a 77% growth in EBITDA to ZWL$5.29bn 30.00
25.00
from ZWL$2.99bn. Resultantly, we forecast net income attributable to shareholders to rise 68% y/y 20.00
to ZWL$2.11bn. The depreciation of local currencies in Zambia and Malawi remains a cause for 15.00
10.00
concern as they negatively impact the net assets of the consolidated business. Given the continued 5.00
drive to reinvest in earning capacity of the business, dividend payout ratio is forecasted to remain -

Jul-21
Jan-21

Feb-21

Mar-21

Apr-21

Jun-21
Nov-20

Dec-20

Aug-21

Sep-21
Oct-20

May-21

Oct-21
circa 20% for FY22 and FY23.

Update to HOLD recommendation Axia All Share Index

We estimate that Axia is trading on a PER (+1) to FY22 of 11.63x versus its peers at 12.4x, and
EV/EBITDA (+1) to FY22 of 4.5x compared to peers at 7.1x. It is worth noting that the company’s
historical 5-year average PER is 4.7x. Using a blended DCF and multiples-based valuation method
we now arrive at a target price of ZWL$43.73 for Axia, implying a downside of 1% at current levels.
We therefore update our recommendation to a HOLD.

Net
Revenue EBITDA DPS EBITDA Net Debt
Income EPS ($) EV/Sales EV/EBITDA P/E P/CE P/Bk Div yield
($mn) ($mn) ($) Margin ($mn)
($mn)
2021A 18,185.8 2,991.6 1,251.8 2.267 0.242 16.5% 547.0 1.4 8.4 19.6 17.1 8.3 0.5%
2022E 32,183.3 5,294.3 2,112.7 3.826 0.765 16.5% -642.3 0.7 4.5 11.63 10.2 3.9 1.7%
2023E 59,640.6 8,946.1 3,584.7 6.492 1.298 15.0% -1,855.4 0.4 2.5 6.9 6.1 2.0 2.9%
2024E 68,667.7 8,926.8 3,477.9 6.299 1.260 13.0% -4,428.0 0.3 2.3 7.1 6.0 1.4 2.8%
2025E 74,920.3 9,739.6 3,720.7 6.738 1.348 13.0% -8,038.5 0.2 1.7 6.6 5.5 1.0 3.0%
 Equity Research
Financials
20 October 2021
umm

Axia Corporation Financial Summary 2021A 2022E 2023E 2024E 2025E CAGR
Statement of Comprehensive Income -ZWL$mn
Revenue 18,185.77 32,183.31 59,640.63 68,667.69 74,920.32 113%
EBITDA 2,991.62 5,294.27 8,946.09 8,926.80 9,739.64 90%
Depreciation and amortisation (186.82) (305.20) (416.54) (618.05) (772.76) 180%
EBIT 3,322.47 5,429.82 8,948.27 8,706.52 9,344.77 68%
Net interest expense (368.07) (482.48) (565.08) (639.00) (727.71) 108%
Equity accounted earnings 96.52 170.82 316.55 364.46 397.65 93%
PBT 3,050.93 5,118.15 8,699.74 8,431.98 9,014.71 67%
Taxation (802.95) (1,347.01) (2,289.62) (2,219.15) (2,372.51) 71%
PAT 2,247.98 3,794.07 6,437.62 6,245.84 6,681.80 66%
Non Controlling Interest (996.23) (1,681.40) (2,852.94) (2,767.94) (2,961.15) 69%
Net Income attributable to shareholders 1,251.75 2,112.66 3,584.69 3,477.89 3,720.65 64%
Basic EPS (ZWLc) 226.80 386.60 655.97 636.43 680.85 64%
Dividend Per Share (cents) 24.50 77.32 131.19 127.29 136.17 55%
Margins
EBITDA margin 16.5% 16.5% 15.0% 13.0% 13.0%
Net margin 6.9% 6.6% 6.0% 5.1% 5.0%
Statement of Financial Position- ZWL$mn
Non Current Assets 907.07 1,331.29 2,183.55 2,805.02 3,363.66 109%
Inventories 3,072.35 5,498.20 9,847.34 11,237.96 12,088.96 86%
Cash and cash equivalents 691.54 2,160.83 3,565.96 6,368.88 10,255.87 99%
Current Assets 6,566.04 12,423.00 22,173.30 29,004.52 35,807.62 93%
Total assets 7,473.11 13,754.28 24,356.85 31,809.54 39,171.28 94%
Equity Attributable to Equity Holders 1,631.54 3,321.67 6,189.42 8,971.73 11,948.25 109%
Non Current Liabilities 233.42 233.42 233.42 233.42 233.42 29%
Current liabilities 4,269.96 7,179.60 12,061.48 13,963.91 15,387.98 78%
Total liabilities 4,503.38 7,413.02 12,294.90 14,197.33 15,621.40 77%
Total equity and liabilities 7,473.11 13,754.28 24,356.85 31,809.54 39,171.28 94%
Statement of Cash Flows-ZWL$mn
Operating Cash Flow (29.40) 1,933.66 2,526.47 3,954.78 5,103.84 72%
Investing activities (319.40) (321.83) (596.41) (686.68) (749.20) 177%
FCF (348.80) 1,611.82 1,930.06 3,268.11 4,354.63 67%
Financing activities 382.74 (142.53) (524.94) (465.18) (467.65)
Net (decrease)/increase in cash and cash equivalents 33.94 1,469.29 1,405.13 2,802.93 3,886.98 58%
Cash and cash equivalents at the beginning of the year 657.60 691.54 2,160.83 3,565.96 6,368.88 282%
Cash and cash equivalents at the end of the year 691.54 2,160.83 3,565.96 6,368.88 10,255.87 99%
Growth Rates
Revenue 397.3% 77.0% 85.3% 15.1% 9.1%
EBITDA 303.8% 77.0% 69.0% -0.2% 9.1%
Net Income 154.8% 68.8% 69.7% -3.0% 7.0%

RESEARCH TEAM
Lloyd Mlotshwa Tatenda Makoni Florence Takaendesa Vanessa Machingauta
lmlotshwa@ih-group.com tmakoni@ihsecurities.com ftakaendesa@ihsecurities.com vmachingauta@ihsecurities.com

Tel: +263 (242) 745 133/139, Email: research@ihsecurities.com

Website: www.ih-group.com
 Equity Research
www.ihsecurities.com

Certification
The analyst(s) who prepared this research report hereby certifies(y) that: (i) all of the views and opinions expressed in this research
report accurately reflect the research analyst’s(s) personal views about the subject investment(s) and issuer(s) and (ii) no part of
the analyst’s(s) compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed
by the analyst(s) in this research report.

Ratings Definition
Buy - Expected 1 year return is at least 20%

Hold - Expected 1 year return of between -10% and 20%

Sell - Expected 1 year return of -10% and below

Disclaimer
This document has been prepared by IH Securities to provide background information about the securities and (or) markets
mentioned herein, the forecasts, opinions and expectations are entirely those of IH Securities. This document was prepared with
the utmost due care and consideration for accuracy and factual information; the forecasts, opinions and expectations are deemed
to be fair and reasonable. However there can be no assurance that future results or events will be consistent with any such
forecasts, opinions and expectations. Therefore the authors will not incur any liability for any loss arising from any use of this
document or its contents or otherwise arising in connection therewith. Neither will the sources of information or any other related
parties be held responsible for any form of action that is taken as a result of the proliferation of this document.

RESEARCH TEAM
Lloyd Mlotshwa Tatenda Makoni Florence Takaendesa Vanessa Machingauta
lmlotshwa@ih-group.com tmakoni@ihsecurities.com ftakaendesa@ihsecurities.com vmachingauta@ihsecurities.com

Tel: +263 (242) 745 133/139, Email: research@ihsecurities.com

Website: www.ih-group.com