Novi Weekly Wrap - June 15 Edition

Lafarge Zambia floats additional shares as it gets closer  to LuSE 25% Free Float threshold

Lafarge floated more of its shares on the Lusaka Stock Exchange which reduced its parent company's holdings to 77.37% from 84% -- 2.37% away from LuSE's Free Float Compliance program which requires any firm listed on the LuSE to float at least 25% of shares to be available for day-to-day trading. Lafarge received bids in excess of 25m shares for an available 18m which shouldnt be surprising because the stock is up 65% year-to-date on the back of blockbuster earnings in 2013. Profit after-tax increased by 14.6% to K338m in 2013.

Adhering to the 25% free float is very important for the growth of the LuSE which still only has 21 stocks listed. The more listed companies meet the threshold the more shares will be available for trading which will make it more efficient to buy and sell. As things stand, the LuSE is quite illiquid. Hopefully more listed firms comply with this rule this year because the stock market plays a vital role in an economy in terms of capital-raising and transparency of corporations.

On the other hand, companies can also raise capital without being publically traded (i.e. floating shares) on the exchange. Focus Financial Services raised K100m through a bond offering on the Lusaka Stock Exchange as part of its K400m Medium Term Note Program. This comes a few weeks after Bayport Financial Services raised K172m under the same program. Focus Financial is in a different sector from Bayport - according to its website, Focus offers short-term working capital, investment banking and general insurance services.

Dangote Industries Zambia fined K18,000 by National Construction Council

Dangote Industries was fined K18,000 for contracting companies that were not registered with the National Construction Council (NCC). The 3 contractors that Dangote had hired were also fined K18,000 each. The company is 4 months away from going live with its $450m cement plant in Ndola whose construction began in 2012. The plant will have the capacity to produce 1.5m MT of cement annually.

In the grand scheme of things, the fines are a drop in the ocean. But what a poor oversight by management - had this been taken any further, the start of production could have been delayed this year. However, the cement sector will become very interesting and could see prices reduce as a result of more competion from Dangote. Currently, Lafarge, Zambezi Portland Cement and Oriental Quarries are the major players in this industry. Contruction will still be a major driver of economic growth in Zambia for a while and the availability of cement will be very important.

Union Gold plans to construct K70m hotel in Ndola

Union Gold - the company that manages Protea Hotels Zambia - announced plans to construct an 80 room hotel opposite Levy Mwanawasa stadium in Ndola. This will be the firms 8th hotel in Zambia. No official timeline has been given yet as to when the construction was set to begin and how long it would take to complete. According to Union Golds Chairman in an interview with the Post newspaper, the thinking behind the hotels construction is to tap the traffic that football is bringing to the area, i.e. housing football teams, fans etc.

According to data from the Ministry of Tourism, Zambia had a total of 72,991 rooms available in 2013, up 9% from the previous year. There is still a lot of room to grow for any company in the hospitality sector. Union Gold is every investors wet-dream because it is highly diversified in sectors that are experiencing tremendous growth in Zambia. In addition to Protea Zambia, its family of companies contains construction giants Velos as well as Spar Zambia under management (amongst others). Could we see Union Gold go public in the near future? If they did, there would certainly be no shortage of interested investors - local or international!

The LuSE all-share Index closed Friday unchanged at 6,033.80. A total of 37,176 shares were transacted in 15 trades resulting in a turnover of K851,287.