Delta banks on improved consumers’ disposable income in 2022





HARARE – Volumes recovery as well as significant disposable incomes improvement among most consumers, will see Delta revenue doubling to $88,7 billion in the financial year 2022, according to market watchers.

The significant growth in the agriculture sector is expected to boost disposable incomes as economic activity continues to increase on the back of relaxed lockdown restrictions, subsequently improving liquidity for consumers.

Stockbrokers IH Securities, therefore, forecast consumer-oriented stocks like Delta cashing in on improved product supply and sourcing of raw materials from the agriculture sector, coupled with the prevailing currency stability.

Already, the beverage giant’s 1H22 volumes growth mirrored the prevailing trend in the local consumer sector, which has seen consumers trading upwards given recovering liquidity, which was evidenced by the growth in the larger beer division’s premium segment which went up 57 percent year on year while local sorghum beer volumes rose 68 percent year on year.

“The above-average agro-season and the relatively stable local currency will also positively impact consumer liquidity on the demand side,” said IH in an earnings review.

“We anticipate Delta’s product mix will shift to mainstream and premium brands as disposable incomes recover. We expect revenue to increase by 167 percent to $88,7 billion in FY22 from $33,20 billion in FY21 driven by volume recovery and marginal price adjustments.

“We expect further EBITDA margin correction from 28 percent to 23 percent in FY22 as input costs surge upwards following the rise in utility costs and removal of fuel subsidies,” said the brokerage firm.

According to IH, Delta is well-positioned to take advantage of any positive economic rebound.

“With recent acquisitions completed and the consolidation of African Distillers Limited (AFDIS), Delta is now a fundamentally larger business,” said IH Securities.

Volumes in the sorghum beer division is also forecast to experience a drastic improvement as South African entity United National Breweries (UNB) begins to make meaningful contributions. During the 1H22 period, UNB benefited from the lifting of the alcohol ban recording a volumes increase of 118 percent.

Volumes at Natbrew Plc (Zambia) however remained down, easing by 22 percent compared to the same period last year as the segment remains under pressure due to limited access to the market on the back of Covid-19 restrictions as well as the resurgence of competition from bulk beer offerings that are not excise/value-added tax (VAT) compliant.

Going forward, management at Delta has hinted on increased CAPEX for the rest of FY22 going into FY23 which may affect the cash position and the likelihood of a higher dividend yield. Part of the cash generated will be used to settle legacy foreign liabilities.

The group has legacy foreign liabilities of US$13,9 million. The use of free funds has allowed Delta to generate enough forex locally to fund working capital as well as service legacy debt.

On the local bourse, Delta, which is also the biggest counter by market value is expected to reach a 12-month target price of $150 with IH giving a hold recommendation. – Business Weekly