Drought hits SeedCo shares

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SEEDCO Holdings (SeedCo) shares have lost 21 percent this year due to effects of a poor farming season caused by drought.
The latest development comes at a time most stocks on the Zimbabwe Stock Exchange are appreciating in value, as investors hedge against rising inflation.
Year-on-year, Zimbabwe’s largest seed producer’s stock, which closed trading at 161,81 RTGS cents on Friday, has depreciated in value by 40 percent.
“It is likely because of a depressed farming season,” said Fungai Nyaungwa, a senior associate at Akribos Research Services.
“The market also anticipates poor seed sales on account of affordability and the drought.”
The southern African region is currently experiencing harsh weather conditions, which have compromised agriculture operations, particularly the harvest of the staple maize crop, and deepened Zimbabwe’s economic crisis marked by an acute dollar crunch.
It is estimated that Zimbabwe’s maize harvest, which started in April, maybe less than one million tonnes compared with 1,7 million in 2018 – a far cry from the two million tonnes annual requirements.
“Also, austerity measures may also lead to a tightening of government input programs, which usually provide a boost in sales for SeedCo,” Nyaungwa told The Financial Gazette.
Enock Rukarwa, FBC Securities’ research and investment analyst, said SeedCo’s performance was being affected by weather patterns.
“SeedCo is a fairly good counter in terms of relative company fundamentals, however, demand for the company’s products is continuously under attack from factors like climate change, low disposable incomes and low producer prices for food crops in particular,” he said.

This also comes as SeedCo had last year warned that Zimbabwe’s current economic situation could have an adverse impact on its trading year.
“There is going to be an adverse impact from the economic turbulence that we are facing. Our biggest concern is the inflationary environment,” Morgan Nzwere, the group’s chief executive, said in December last year.
“This is worsened by the fact that our product is a public good or a mass product and trying to increase the price of a mass product or to sell it in US dollars will attract quite a lot of attention.”
This was after backlash from government and the public had forced the company to reverse price adjustments it had effected in line with inflation developments.
With the company still to publish full year results, it is not yet clear how much the worsening foreign currency shortages have affected the company’s procurement.
Nzwere, however, expressed concern that the situation could negatively affect the company’s procurement and marketing.
Apart from the drought and the harsh economy, FBC Securities said the separation of the foreign concern under SeedCo International might also be weighing on the share price performance of SeedCo.
“Given value preservation objective in light of the current macroeconomic conditions a rational investor chooses SeedCo International ahead of SeedCo. This is obviously based on the foreign currency generation capacity between the two companies,” Rukarwa said.
“On a like-for-like basis, SeedCo International is performing far much better than SeedCo and historical SeedCo investors have been migrating to the foreign concern where capital gains have been high since separation.
“In as much as the separation of SeedCo International created a lot of value for shareholders and unlocked potential of underutilized resources this corporate action might also have has negatively affected the share price performance of SeedCo,” he said.
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