Can Cassava now chart a new stronger path?





When Cassava Smartech was demerged from Econet Zimbabwe and separately listed on the Zimbabwe Stock Exchange, the move was seen as the beginning of endless possibilities.

Riding on the success of Ecocash, which was at the time and still is the main business unit and a banking unit Steward Bank, that was rivalled by a few in terms of bank accounts, not many would fault the enthusiasm that was associated with demerging of Cassava from Econet.

The rationale for the demerger also made sense, it was meant to unlock the value of a business that was already contributing approximately 40 percent of Econet’s revenues.

Prior to demerging, Cassava seemed to be taking advantage of untapped potential across all areas in which it had expanded, such as mobile money, insurance, remittances, ride-hailing, and mobile e-commerce.

But arguably its potential was being slowed down, by having to compete for resources and management attention with the other business units, the mobile business obviously getting the bigger share of attention.

The solution was to demerge.

Generally, demergers take place as management expects a demerged company will be worth more as an independent entity rather than being part of a larger business. As of today, Econet and Cassava combined are bigger than ZSE’s traditional biggest company Delta. Before demerger, they were not.

Emilia Chisango, Cassava Zimbabwe’s finance director, is on record saying the demerger from Econet “will not only unlock value for shareholders but operating independently will allow the Cassava Zimbabwe management team greater focus on the implementation of its strategy.”

It’s a view that was shared across the Group with Econet founder Strive Masiyiwa, on his Facebook page, under a write-up titled “The art of unlocking value (Part 2)” writing about how the move would unlock value.

In that write-up, Masiyiwa boasted: “Last year (2017) this little business generated revenue of over US$250 million in Zimbabwe. Every year it doubles in size. It is the single largest employment creator in Zimbabwe (with) about 1,000 directly and 100,000 indirectly. It touches the lives of more people than any other business in the country. Our insurance arm, EcoSure, is the largest insurance company in the country in terms of policies. Our digital bank, Steward Bank, has more than 800,000 customers. 80 percent of Zimbabwe’s 1,5 million smallholder farmers use EcoFarmer. (One million) kids access educational support through Ruzivo (online learning). Teachers use the platform, too!”

There was so much promise indeed.

Even outside the organisation, the sentiment was the same. On the listing day in December 2018, the market gave Cassava a market capitalisation of US$3,88 billion. It was a record and made the company the biggest on the ZSE. Bigger than parent company Econet and the market’s traditional giant Delta.

During the course of trading, Masiyiwa posted on Facebook saying, “Cassava and Econet at a combined market capitalisation of US$7.66 billion, this represents about 40 percent of the ZSE total market capitalisation,” he said. Before the demerger, Econet was valued at $6,3 billion.

There was no questioning that value was being unlocked.

Three years down the line, the company is changing its name from Cassava Smartech Zimbabwe Limited to EcoCash Holdings Zimbabwe Limited in what some market watchers believe is an attempt to leverage on Ecocash’s strong brand name as other business units remain insignificant.

The company itself says the decision was motivated by the need to differentiate its operations from those of other units under its major shareholder Econet Global Limited.

Although the combined value of Econet and Cassava is still bigger than traditional market giant Delta, the technology company is no longer at the top of ZSE’s valuations. It’s at number five by market capitalisation. From being bigger than Delta, it’s now valued at just 35 percent of Delta and 53 percent of Econet.

But is the market value the only thing that has reversed or stagnated? Probably not.

EcoCash’s run-in with regulators left a dent in the company’s ability to continue creating and capturing value. Following the ban of its mobile money agents, amid accusations they were now being used for illegal foreign currency dealings, EcoCash lost a significant part of its revenue earning power.

For the three months to September 2020 EcoCash lost 16,5 percent of its subscribers. Its market share dropped to 86,2 percent from 87,5 percent.

Its evident the regulatory changes put in place by the central bank, dealt a severe blow to EcoCash. Till now the business has to reconfigure its business model to recover lost revenue streams and embark on another growth path. Its last trading update for the first quarter to May 2021, showed some improvement although the figures are distorted by the inflationary aspect.

The mobile money business experienced steady growth over that period recording a 60 percent increase in transaction values. The increase in transaction values was largely driven by an increase in wallet funding. Active customers also continued to recover during the period, the Company said.

On the other hand, although Steward Bank has struggled for profitability, it has managed to grow its customers to more than 1,9 million as at end of December 2020. While financial numbers for Steward Bank are not yet out, the latest trading update says the bank experienced higher transaction values as well as growth in interest-earning assets.

For the Insurtech Services business, “new products and alternative payment channels were introduced leading to a doubling of our short-term insurance customers”.

Interestingly these businesses were already on a growth trajectory prior to the demerger. Did they benefit from the demerger or they have continued on the same growth levels as they did under Econet.

Post demerger, the market expected phenomenal growth which the company is yet to deliver.

At the time of demerger, Cassava had more than seven business units as highlighted by Masiyiwa in his write-up.

Giving an outlook this week, management said the good agricultural season presents opportunities for the group’s “agritech unit, short-term insurance, mobile money and the bank”.

Not much has been seen from Vaya Technology Limited where most of the growth was expected to come from.

“We will probably have to wait for the end of this month’s release of the full year financial results for the year ended 28 February 2021 to see how much the units under Vaya Technology Limited have done so far to justify the demerger. Drawing lessons from EcoCash, it took a few years after launch for it to start making a significant contribution.

But then again you would think their experience would have been an advantage to do things faster this time around. After all the adoption of new technologies has been accelerated by the Covid-19 pandemic.