1. TA HOLDINGS February 18, 2014
TA Holdings fundamentals and valuations indicate a strong buy.
Using a WACC of 13% to discount its FCFF and deducting the
market value of debt, an intrinsic value of USD 0.78 was obtained,
an upward potential of 817% from the current market price of USD
0.085. TA Holdings has high quality quoted investments, local and
foreign exposure with operations in countries of the region which
ensures a significant higher base of normal earning power and a
strong balance sheet with low gearing levels with debt been used
sparingly. Also TA Holdings has access to two low cost source of
leverage that allows TA Holdings to safely own far more assets than
equity capital alone would permit, deferred taxes and float (funds
insurance business holds because it receives premiums before
needing to pay out losses).
Main price growth drivers
TA Holdings strengthened insurance business liquidity position
coupled with improved business diversification and the maintenance
of healthy underwriting margins would be a growth driver. Improved
liquidity and reduced capital risk achieved by rebalancing the
investment portfolio will also come into play. The strength of the
group’s balance sheet and, most importantly, its ability to preserve and
grow surplus capital is a key determinant of its longer term financial
soundness
Sound financial position: low leverage, cash sufficiency and high
margins. Improved Revenue Per Available Rooms (RevPARs) at all
hotels in the Group for instance from the refurbished Cresta Lodge
and Cresta Sprayview. A number of property development projects
will also be implemented in the coming years with the aim of
increasing rental yield levels.
High discount to peers (87%) with respect to PBV2012 expected to
fall substantially. The main reasons for discount decrease are
increased operational efficiency by Group through cost reduction, a
continued focus on improving underwriting margins and increased
use of technology to improve operations. Also TA’s business
portfolio which entail a diversified and expansive earnings base that
stretches across several sectors which include agriculture, tourism,
mining, insurance and manufacturing. Geographical diversity adds to
the group’s attractiveness with a presence in Zimbabwe, Botswana,
and Uganda. Its diversity reduces the group’s exposure to risks still
inherent in Zimbabwe’s fragile economy.
Robust pipeline of projects resulting in growth of earnings yield and
production volume, in particular at Sable Chemicals the coal
gasification project is now at the design stage which will ensure that
TA holdings will continue to have an expansive revenue base even
Highlights
INDUSTRY-Investment holding
Share Price: $0.085
Target Price: $0.86
Market Cap: $ 14.01M
52-Wk Range: $0.05- 0.10
12-Month Trailing P/E: 0.12
EPS: 0.78cents
Listing: ZSE
Recommendation: BUY
ANALYST: Adam Mupinda
acmupinda@gmail.com
Financial
Capital Expenditure
2. TA HOLDINGS February 18, 2014
after the anticipated divestures in ZFC and PG. A number of
property development projects will be implemented in the coming
years with the aim of increasing rental yield levels. TA Holdings
will consolidate its position through hotel property acquisitions as
additional properties should see operations attain critical mass over
the medium term, ensuring stronger earnings. Growth will be
driven by sustainable growth in rental income and operating profit.
Moreover, such growth would likely have a positive impact on
property valuations, which in turn would reduce gearing levels and
enhance credit worthiness.
Focus on developing new products, especially in the micro
insurance area and expanding distribution channels, mainly bank-
assurance. TA Holdings as a group has room for further market
penetration underpinned by appropriate capitalisation and solvency
levels. The group is expected to generate underwriting profits and
continue to focus on expense control and be a low cost operator for
its insurance business both inside and outside Zimbabwe.
TA needs to increase its brokers' capability in the insurance
business to write more business outside its main motor premium
base. Capacity, speed, decisiveness incorporated with a motivated
human capital will go a long way in driving growth northwards.
Main risks issues
Too much government control on Sable Chemicals. Although TA
Holdings have a 51% stake, it does not exercise control but only
influence through board appointments. Government, the other
partner, considers the sole ammonium nitrate producer in
Zimbabwe, as strategic to the agro-based economy and closely
regulates the pricing and distribution of the ammonium fertilizer.
Insurance risk
Fluctuation in the timing, severity and frequency of claims
presents insurance risk. Inadequate reinsurance protection or other
risk transfer techniques exposes the Group's insurance business to
significant unexpected losses.
Foreign currency risk
TA Holdings has significant operations in Botswana, Uganda and
South Africa and the group financial position can be affected by
movement of the $US against other trading currencies like the
PULA and Rand. If the Zimbabwe economy fails to gain traction,
and continue to recover, TA sales will be adversely affected.
Deflation might be a problem.
Interest rate risk
Because of the non-existent monetary intervention, Zimbabwe is
exposed to external interest rates rise. If TA requires debt capital
Market
Human capital
3. TA HOLDINGS February 18, 2014
for financing activities, rising interest rates will reduce EPS,
significantly
TA holds 100% stakes in Zimnat Lion, Grand Reinsurance
and Cresta Zimbabwe. Controlling shareholding in the
following companies, Botswana Insurance Company(62%),
Lion Assurance Company (54%), Sable Chemicals as well as
holdings in the following associates Cresta
Marakanelo(35%), Minerva(30%), ZFC(22%), PG(13%
which has been impaired)
Zimnat Lion is wholly owned by TA Holdings Limited.
Underwriting performance improved due to growth in
premiums and improved retention and claims ratio. In the
absence of new capital, solvency is expected to continue
declining. In the FY12 it decreased from 63% to 55%.
Capital risk remains high with property investments
representing about 50% of its capital. The relative expense
ratio remains high at 53%, exposing the insurer to higher
claiming years.
The insurer exhibits significant reliance on motor, with 68%
of Net Written Premiums derived from this class, elevating
operational risk from external events.
To that effect Global Credit Ratings affirmed a claims paying
ability (CPA) rating of BBB+ which is a rating taken as
within investment grade by potential investors. This plays a
critical role on how much the company can pay to access
debt markets outside Zimbabwe and also indicate how
financial stable is the company in paying out claims.
BUSINESS OVERVIEW
Segment Profit % ‘FY12
The insurance business
contributes the bulk of TA
Holdings share of profits with a
total of 85% share of profits. So
understanding the insurance
business is vital to understanding
TA Holdings
INSURANCE – ZIMBABWE
a) ZIMNAT LION
Source: Annual report
4. TA HOLDINGS February 18, 2014
Zimnat Life is 100%-owned subsidiary of TA Holdings. It
increased benefits paid largely due to higher group life
claims as well as the rebasing of investment contract
policyholder liabilities. On the other hand an increase in
gross written benefits was registered largely due to an
increase in individual life and employee benefits business.
In addition, the combined property and listed equity
exposure has decreased in line with the expected medium
term regulatory limit of 70%. This was done even under the
environment of unavailability of domestic long term debt
instruments. Zimnat Life has shown its flexibility to
restructure its balance sheet under limiting conditions.
Grand Reinsurance is a wholly owned subsidiary of Freecor
Holdings. Freecor is in turn 100% owned by TA Holdings
Limited. Grand Re maintains a comparatively strong capital
base, with solvency measures recorded at levels above the
statutory requirement of at least 25%. Solvency is at 63%, a
rise from 37%. Increased claims in the fire and farming
classes resulted in the rise of the claims ratio 27% to 45%
resulting in a flat underwriting profit.
TA Holdings share of profits in Minerva slightly took a
deep although it was positive, from $239,000 to $160,000.
Management changes which took place recently are
expected to improve profitability with cost containment as a
major factor. Minerva is the largest insurance and
reinsurance broker in Zimbabwe (18.99% and 94.6%
respectively) in terms of brokerage income (Appendix 9)
b) ZIMNAT LIFE
Source: Annual report
c) GRAND RE
Source: Annual report
d) MINERVA
5. TA HOLDINGS February 18, 2014
The majority of BIC’s shares (62.5%) are currently held by
TA Holdings Limited. In turn BIC owns 86% of Lion
Assurance Company (LAC) in Uganda giving TA Holdings
an effective 54% interest in LAC. BIC has a non-life
insurance market share of 22%. It is a market leader in the
domestic non-life insurance arena.
The insurer continues to adopt a moderately aggressive
investment strategy, with non-cash investments collectively
comprising largest share of capital. Profit before tax was
boosted by impressive returns on equity investments.
BIC obtained an upgraded credit rating of AA- from Global
Credit Ratings which will help it to access cheaper capital
outside Botswana and also reflect its ability to pay out
claims.
A turnaround of fortunes as LAC registered an underwriting
profit compared to an underwriting loss the previous year,
mainly due to more prudent writing and cost rationalization.
Cresta Zimbabwe increased revenue per room to USD49
from USD42 due to better management of room rate yields.
With more rooms with the acquiring of the newly
refurbished Cresta Sprayview, revenues are expected to
rise.
TA Holdings have effectively fully impaired its investment
in PGIZ due to poor performance on the Zimbabwe Stock
Exchange therefore no longer consider it a strategic
investment
TA Holdings has put a buffer on negative performance of
its loss making agriculture based associates so as to limit
their effect on its short term performance. TA is
anticipating divesture in ZFC and concentrating on cost
rationalisation for SABLE Chemicals by importing
ammonia to augment local production whilst negotiating for
a viable electricity tariff.
TA Holdings does not consolidate SABLE Chemicals
although it holds 51%, a move which greatly overstates its
turnover ratios like return on assets considering that its
investment in the business is quite huge.
TA Holdings owns an effective 35% in Cresta Marakanelo.
Revenue increased due to improved room rate yield
INSURANCE – OUTSIDE
ZIMBABWE
a) BOTSWANA INSURANCE
COMPANY (BIC)
Source: Annual report
b) LION ASSURANCE
COMPANY
Source: Annual report
NON INSURANCE-
ZIMBABWE
CRESTA ZIMBABWE
PGIZ, SABLE Chemicals and ZFC
Aggregate company investments
Source: Annual Report
NON INSURANCE-OUTSIDE
ZIMBABWE
CRESTA ZIMBABWE
MARAKANELO
6. TA HOLDINGS February 18, 2014
although translation losses were incurred due to the
depreciating PULA against the US dollar
The insurance and hotel sectors have performed
well year-to-date, in Zimbabwe and would recommend
an exposure to this sectors.
Continued economic recovery will serve as a
fundamental catalyst for this positive performance.
This coupled with the end to the liquidity
shortages currently experienced in Zimbabwe, which
have put a downward pressure on consumption.
Insurance business will remain highly
competitive and given the need to advertise more, hence
increase in costs inflation. Insurance industry growth and
profitability are therefore expected to come under further
pressure in the medium term.
Growth rate in GWP slowed down from 39.62%
in 2011, 21.6% in 2012 and 8.71% in 2013 for non-life
insurance business in Zimbabwe. Slow rate of economic
growth has resulted in people and business
underinsuring.
Regional and domestic tourism arrivals in
Zimbabwe are also expected to rise after a decline
recorded in 2012.
Move from mass tourism to attracting high
spending tourists- explains increase in tourist receipts
and this trend will continue in the medium to long term.
The five forces model indicates that the TA
Group insurance business has a favorable position in the
regional insurance industry. Given the Groups financial
capabilities, significant market share in Botswana, strong
brand name requirement, it shields it from threat of new
competitors. On the other hand the hotel industry has
high sunk costs and geographic factors which limit
competition (see appendix 8)
Industry Overview and
Competitive Positioning
Source-2012 ZTA annual report
Five Forces Model
Insurance Industry
Hotel Industry
7. TA HOLDINGS February 18, 2014
High quality quoted investments
Lean structure after restructuring
Local and foreign exposure with operations in
different countries of the region which ensures a significant
higher base of normal earning power
Strong balance sheet with low gearing levels with
debt been used sparingly
Owns one of Southern Africa’s largest hotel
management groups
Grand Re has a high illiquid balance sheet, with more
than 90% of its invested assets been long term assets
resulting in increased investment and capital risk
Grand Re has most of its cash holdings, about 85% in
a particular institution which is a red flag because it increases
banking counterparty risk
There are too much property revaluations and if they
are excluded from shareholders interest will result in
deteriorating solvency ratios.
For BIC, there is so much reliance for premiums
written on motoring, contributing the largest share of the Net
Written Premiums, which is a risky business to write.
Room to be a dominant leader in sales of
participating traditional fixed life insurance, such as whole
life insurance, a product whose features are highly supportive
of insurer creditworthiness
Continued regional spread- potential new markets
opening as Sub Sahara Africa has the least hotel penetration
Use of analytics tools to gain insights about consumer
preferences and deliver a differentiated experience-
Consumers want to leverage a mixture of digital and face-to-
face interactions with their insurers, and they want greater
transparency about costs and services.
SWOT ANALYSIS
STRENGTHS
WEAKNESSES
OPPORTUNITIES
8. TA HOLDINGS February 18, 2014
Political risk-uncertain socio-political outlook is
likely to curb capital inflows and economic growth
Competition from financial institutions –
underwritten profits have generally remained thin and
volatile leaving the reinsurance business susceptible to
future high claims years and limiting its financial
flexibility to write premiums which competitors might be
incapacitated to write but are profitable. This gives room
to daring financial institutions to come in and take away
the business
Liquidity a challenge as volatile markets will
make it unprofitable to divest from some businesses at a
particular point in time
There is a possibility of the group suffering
significant capital loss resulting from weak operating
environment driven by high claims severity and fixed
overheads whilst having sub-economic pricing. Also
capital erosion can be attributed to deteriorating asset
quality or inappropriate asset liability matching
Cognisance is taken of the volatile nature of the
hospitality industry, where economic shocks or security
concerns can have a sudden and severe effect on
occupancy levels and pricing.
Other Considerations
Access to two low cost sources of leverage that allows
TA Holdings to safely own far more assets than equity
capital alone would permit, deferred taxes and float
(funds insurance business holds because it receives
premiums before needing to pay out losses, in this case it
includes insurance contracts and investment contracts).
Insurance contracts are when the Group has accepted
significant insurance risk to provide reimbursement and
financial protection to the insured in the event of an
unfortunate future event. An investment contract transfer
financial risk, which is the risk of a possible future
change in one or more of a specified interest rate,
financial instrument price, commodity price.
THREATS
Total Liabilities Disaggregation
Source: Annual report
9. TA HOLDINGS February 18, 2014
TA Holdings is relatively very cheap as it is trading
at greatly discounted PBV ratio of 0.2892 times compared
to the peer group of 2.2571 times meaning an 87%
discount
This provides room for share value appreciation, as
well as share repurchases.
By applying a PBV of 1 which is lower than the
lowest PBV of the comparable group of companies, well
below industry averages, TA has significant room to grow.
A target price of 93 cents per share can be obtained
compared with the current market price of 8.50 cents per
share. Using peer group average the target price will be
$2.11
Using a WACC of 13% (see Appendix 3) to
discount its FCFF and deducting the market value of debt,
an intrinsic value of USD 0.78 was obtained (see
Appendix 2), an upward potential of 817% from the
current market price of USD 0.085.
TA has a growth generating
portfolio. Only 9% of its total assets
are in the form of cash and cash
equivalents meaning that most of its
assets are committed to the growth
of the business assets.
2012 2011 2010
ASSETS USD'000 USD'000 USD'000
Property,
plant and
equipment 17% 15% 14%
Intangible
assets 1% 1% 1%
Investment
properties 9% 10% 8%
Investment in
associates 18% 20% 24%
Financial
assets 20% 17% 15%
Deferred tax
asset 0% 0% 0%
Inventory 0% 0% 0%
Reinsurance
assets 12% 13% 12%
Deferred
acquisition
costs 2% 2% 3%
Insurance
receivables 7% 7% 6%
Trade and
other
receivables 4% 3% 2%
Taxation 0% 1% 1%
Cash and
cash
equivalents 9% 10% 14%
Total assets 100% 100% 100%
Source: company data
VALUATION
Source: Estimates
TA holdings does not have local comparable
companies with a similar portfolio mix so regional
investment holding companies ,invested in insurance
and hotel business have been used as a peer group
Earnings based valuations of PER and EV/EBITDA
will not capture the true value of the conglomerate
because of significant earnings attributable to
minority shareholders and associate companies and
an extensive portion of investments in financial assets
which record earnings gains on dividends, interest
payments or capital gains when the asset is sold.
Source: Estimates
10. TA HOLDINGS February 18, 2014
Target Price is USD 0.86 given as an average
obtained from relative valuation as per PBV and discounted
cash flows.
TA Holdings has significantly improved its
operating margin from 3% to 10% owing to containing
operating costs. A decomposition of ROE explains the
decrease in ROE from 9.6% to 4.73% (see Appendix 6)
TA Holdings has a strong balance sheet with a debt
to equity of 0.092 times meaning that the company has
financed most of its assets from equity. Also a quick ratio of
99% shows that TA Holdings is almost meeting its current
obligations from current assets.
TA Holdings need to strengthen its insurance
business liquidity position coupled with improved business
diversification and the maintenance of healthy underwriting
margins.
The interest burden multiple marginally decreased
but will be higher in the near future because of cheaper long
term funds(11% with maturity in 2018 compared to
previous year long term cost of 17% maturing in 2014)
Asset turnover slightly declined whilst the equity
multiplier increased
Without debt TA Holdings ROE will be 2.2% for
2012
The tax burden was very high contributing only a
multiple of 0.47 compared to 0.93 the previous year and
was the major reason for the decrease in ROE
Share Repurchases
At a price of USD 0.085, TA is greatly undervalued
presenting a possibility of more share repurchases.
Valuation
TA looks cheap on the following metrics P/E and
PBV, compared to regional peer group.
Also very cheap compared to its intrinsic value
based on FCF valuation, $0.081 v $0.78
TA Holdings share price is an ideal stock for value
investing, considering that over the years it has diverged
from its intrinsic value,
FINANCIAL ANALYSIS
INVESTMENT THESIS
11. TA HOLDINGS February 18, 2014
Secondly an important tenet for value investing is that
buy in should be done when the stock is at its lowest level to
ensure limited downward risk, at USD0.085 TA Holdings
provides that opportunity
Economic Recovery
The insurance business in Zimbabwe is posed to grow
with the economy recovering
Has been modest to date, but predicted to accelerate
and gain traction over the next 3-5 years provided external
funding for the economy is secured.
Business with prestigious brand power, and formidable
management with great experience and good allocators of
capital
Still has room to expand
Management has strong relationships with investee
companies.
Stable income generating portfolio.
LONG EQUITY POSITION WITH SAFE 3-5 YEAR
HOLDING PERIOD
12. TA HOLDINGS February 18, 2014
Disclosures:
Ownership and material conflicts of interest: The author of this report holds a financial interest in the securities of this company.
The author or a member of his household, of this report does not know of the existence of any other conflicts of interest that might
bias the content or publication of this report.
Receipt of compensation: Compensation of the author of this report is not based on investment banking revenue.
Position as an officer or director: The author, or a member of his household, does not serve as an officer, director or advisory board
member of the subject company.
Market making: The author does not act as a market maker in the subject company’s securities
Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and
believed by the author to be reliable, but the author does not make any representation or warranty, express or implied, as to its
accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or
entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security
13. TA HOLDINGS February 18, 2014
Appendix 1
Financial Ratios
Financial year 2012 2011 2010
Liquidity Ratios
Current Ratio = Current Assets 0.99 0.99 1.04
Current Liabilities
Quick Ratio=
Current Assets –
Inventories 0.987718 0.984494 1.0381121
Current Liabilities
Efficiency Ratios
Inventory Turnover =
Cost of Sales 216.4848 211.2201 161.67913
Inventory
Accounts Receivables Turnover =
Sales 10.36477 16.01755 18.311096
Account Receivable
Average Collection period =
Accounts receivable x 365 35.21545 22.7875 19.933269
Sales
Average Payment period = Accounts payable x 365 41.86 29.06 31.41
Cost of Sales
Fixed Asset Turnover Ratio =
Sales 2.467445 2.871847 2.8928829
Fixed Assets
Total Asset Turnover Ratio =
Sales 0.421334 0.435028 0.4031479
Total Assets
Leverage Ratios
Total Debt Ratio = D/A Total Debt 0.04 0.02 0.02
Total Assets
Debt to Equity = D/E
Total Debt 0.09 0.04 0.04
Total Equity
LT Debt to Equity Long-term Debt 0.03 0.00 -
Total Assets
14. TA HOLDINGS February 18, 2014
Coverage Ratios
Interest Cover
EBIT 11.99688 12.22296 0.5553097
Interest Expense
Cash Cover
cash and cash equivalents 21.10452 23.84027 40.070796
Interest Expense
Profitability Ratios
Gross (Profit) Margin
Gross Profit 13% 13% 0%
Cost of Sales
Operating (Profit) Margin
Operating Profit 13% 0%
Cost of Sales
ROA=
EBIT 5% 5% 0%
Total Assets
ROE
Net Income 4.73% 10% -8%
Total Equity
ROE @ MV
Net Income 20% 32% -15%
Average Equity @ MV
Earnings per share
Net Income 0.80 2.81 -3.86
Average number of shares
Historic PE
Market Price 0.124883 0.042669 -0.054379
EPS
Retention Ratio
Retained Income 100% 100% 100%
Net Income
Earning Growth 44% -58%
15. TA HOLDINGS February 18, 2014
Appendix 2
FMI Investments (Pvt) Ltd the major shareholder has a 31% stake. Other shareholders include Old
Mutual Life Assurance (14%), Capital Ventures Holdings (11%) and Masawara (Mauritius) Limited
(9%). Previous shareholder support has been evident through a subscription of preference shares to
raise USD$1,000,000
19. TA HOLDINGS February 18, 2014
Appendix 4
Risk premium on lending (lending rate minus Treasury bill rate, %)
Source: http://data.worldbank.org/indicator/FR.INR.RISK
Source: Estimates
Treasury rate = lending rate – risk premium = 13%- 6% =7%
Borrowings comprise:
Non-current
Long term bank loans 4,361 516 4,361.00 516.00 -
Current
Bank overdraft 1,308 1,000 1,308.00 1,000.00 847.03
Short term bank loans 711 1,383 711.00 1,383.00 1,592.35
Total borrowings 6,380 2,899 6,380.00 2,899.00 2,439.38
Borrowings
The Bank borrowings represent the following:
(i) Overdraft facility of US$1.300 million with an interest rate of 16% plus LIBOR rate 16% 1.30
(ii) Short term bank loan of US$0.711 million with interest rate of 18%, maturing in August 2013 18% 0.71
(iii) Long term loan of US$0.343 million with an interest rate of 17%, maturing in 2014 17% 0.34
(iv) Long term loan of US$3.985 million with an interest rate of 11%, maturing in June 2018 11% 3.99
6.34
EFFECTIVE INTEREST RATE 0.03
0.02
0.01
0.07
weighted avg 0.13
Data Source World Development Indicators
Country Name Country Code Indicator Name Indicator Code2012
Botswana BWA Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK 7%
Nigeria NGA Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK 3%
South Africa SAS Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK 4%
Uganda UGA Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK 11%
Zimbabwe ZWE Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK
Avg 6%
Sub-Saharan Africa (IFC classification) CAA Risk premium on lending (lending rate minus Treasury bill rate, %) FR.INR.RISK
20. TA HOLDINGS February 18, 2014
Appendix 5
TA HOLDINGS
Multi-year Proforma Financial Statement
USD'm
Projected Free Cash Flow Projected Actual
Financial Year 2015 2014 2013 2012
Profit after Tax 5,786.99 5,128.12 4,532.48 3,278.00
add back Depeciation 1,908.79 1,569.44 1,290.42 1,061.00
add back Interest Expensed net of tax 165.06 165.06 165.06 263.39 net of tax
subract Other Cash income net of taxes - - -
add back Decrease in non-cash current assets 19,252.35 15,823.99 11,349.65 8,486.00
add back Increase in current liabilities 505.83 473.43 (4,241.96) 7,525.00
subtract Increase inproperty & Equipment @ cost 8,405.16 6,910.85 5,682.21 4,672.00 use at cost
Free Cash Flow 19,213.86 16,249.18 7,413.43 (1,030.61)
Growth 0.18 1.19 -8.19
Calculation of WACC
Assumptions
Risk free Bond Rate 7%
Credit premium 6%
Rel Duration 1.5
Tax Rate 26%
Equity Premium 13%
Beta for TA Holdings 0.8
Growth rate beyond 2012 4%
Funding Vehicle Market Value Weight Before Tax After Tax
Equity 16,484.59 15% 17.35% 17.35%
Debt 96,891.00 85% 16% 12%
Enterprise 113,375.59 1 16% 13% <<===WACC
Valuation using Free-Cash-Flow & WACC
Years Forward 1 2 3
Financial Year 2013 2014 2015
Cash Flow 7,413.43 16,249.18 19,213.86
Terminal Value 243,479.88
Sum of Future values 7,413.43 23,662.61 286,356.35
PV of Future cash flows 225,014.42
add Cash Available -
Enterprise free cash value 225,014.42
less Debt (96,891.00)
Shareholders Value 128,123.42
div by Number of share in issue '000 164,845.91
FCF Valuation per share ==>> 0.78
21. TA HOLDINGS February 18, 2014
Appendix 6
Du Pont Decomposition of ROE
ROE 4.73% 9.60%
The interest burden multiple marginally decreased but will be higher in the near future
because of cheaper long term funds(11% with maturity in 2018 compared to previous year
long term cost of 17% maturing in 2014)
Asset turnover slightly declined whilst the equity multiplier increased
Without debt TA Holdings ROE will be 2.2% for 2012
The tax burden was very high contributing only a multiple of 0.47 compared to 0.93 the
previous year. Major reason for the decrease in ROE
Net Income = Net Income x PreTax Profit x EBIT x Sales x Assets
Equity PreTax Profit EBIT Sales Assets Equity
= Tax Burden x Interest Burden x Margin x Turnover x Leverage
2012 2011
Net Income 3,278.00 6,294.00
PreTax Profit 7,049.00 6,745.00
EBIT 7,690.00 7,346.00
Sales 64,842.00 62,052.00
Assets 153,897.00 142,639.00
Equity 69,304.00 65,571.00
Tax Burden 0.47 0.93
Interest Burden 0.92 0.92
Margin 0.12 0.12
Turnover 0.42 0.44
Leverage 2.22 2.18
22. TA HOLDINGS February 18, 2014
Appendix 7
Google trends
The Cresta Brand Worldwide
Cresta brand worldwide is well known in the following markets, Switzerland, South Africa and
United Kingdom. Other notable markets with prospects that can come as tourists to Zimbabwe or
Botswana and be interested in the Cresta brand, include Italy and Germany.
23. TA HOLDINGS February 18, 2014
Appendix 8
FIVE FORCES MODELS
Five forces model for the insurance industry
Final rating: 3.2
Intensity of existing rivalry
Relatively few competitors (especially Life insurance industry). Few competitors mean fewer firms
are competing for the same customers and resources, which is a positive for insurance industry.
Government limits competition. Government policies and regulations can dictate the level of
competition within the industry. When they limit competition, this is a positive for Life insurance
industry
Exit barriers are low. When exit barriers are low, weak firms are more likely to leave the market,
which will increase the profits for the remaining firms. Low exit barriers are a positive for insurance
business.
Threat of Substitutes
Limited number of substitutes. A limited number of substitutes mean that customers cannot easily
find other products or services that fulfil their needs. Limited substitutes are a positive for insurance
industry
Buyers require special customization. When customers require special customizations, they are less
likely to switch to producers who have difficulty meeting their demands. Buyer customization
positively affects insurance industry
Limited number of substitutes means that customers cannot easily switch to other products or
services of similar price and still receive the same benefits.
Threat of New Competitors
Customers are loyal to existing brands. It takes time and money to build a brand. When companies
need to spend resources building a brand, they have fewer resources to compete in the marketplace.
These costs positively affect insurance industry
High capital requirements mean a company must spend a lot of money in order to compete in the
market. High capital requirements positively affect insurance business
0
1
2
3
4
Intensity of
existing rivalry
Threat of
Substitutes
Threat of New
Competitors
Bargaining
Power of
Suppliers
Threat of
Substitutes
Series1
24. TA HOLDINGS February 18, 2014
Strong distribution network required. Weak distribution networks mean service provision is more
expensive to render and will not get to some of the end customer. The expense of building a strong
distribution network positively affects insurance business
Strong brand names are important for the insurance industry. If strong brands are critical to
compete, then new competitors will have to improve their brand value in order to effectively
compete. Strong brands positively affect insurance industry
Bargaining Power of Suppliers
High competition among suppliers. High levels of competition among suppliers acts to reduce prices
to producers. This is a positive for insurance industry
Large number of substitute inputs. When there are a large number of substitute inputs, suppliers have
less bargaining leverage over the insurance companies. This is due to competition among substitutes.
Greater competition positively affects
Bargaining Power of Customers
Substantial product differentiation
High cost of switching to substitutes
Substitute has lower performance
Five forces model for the hotel industry
Final rating: 2.4
Intensity of existing rivalry
Large industry size
Threat of Substitutes
Large compared to cheaper budget motels and lodges which offer a lower service.
Threat of New Competitors
Customers are loyal to existing brands. It takes time and money to build a brand. When companies
need to spend resources building a brand, they have fewer resources to compete in the marketplace.
These costs positively affect hotel industry
0
1
2
3
4
5
Intensity of
existing
rivalry
Threat of
Substitutes
Threat of New
Competitors
Bargaining
Power of
Suppliers
Bargaining
Power of
Customers
Series1
25. TA HOLDINGS February 18, 2014
High capital requirements mean a company must spend a lot of money in order to compete in the
market. High capital requirements positively affect hotel business
High sunk costs
Geographic factors limit competition
Entry barriers are high
Bargaining Power of Suppliers
High competition among suppliers. A high level of competition among suppliers acts to reduce
prices to producers. This is a positive for hotel industry
Large number of substitute inputs. When there are a large number of substitute inputs, suppliers have
less bargaining leverage over producers. This is due to competition among substitutes. Greater
competition positively affects hotel business
Critical production inputs are similar.
Low cost of switching suppliers.
Bargaining Power of Customers
Low dependency on distributors
The scale of the interaction
0 no interaction 2 low 4 high
1 insignificant 3 average 5 very high
Source: estimates and wikiwealth.com
26. TA HOLDINGS February 18, 2014
APPENDIX 9
ZIMBABWE INSURANCE FIRMS MARKET SHARES
Market Share for Insurance Brokers in Terms of Income and Premium Written
SOURCE: IPEC QUARTERLY REPORT
Market Share for Insurance Brokers in Terms of Brokerage Income
SOURCE: IPEC QUARTERLY REPORT
27. TA HOLDINGS February 18, 2014
Market Share of Insurers in Terms of GPW and NPW
SOURCE: IPEC QUARTERLY REPORT
Market Share of Insurers in Terms of Total Assets
SOURCE: IPEC QUARTERLY REPORT
28. TA HOLDINGS February 18, 2014
Market share for life companies by Net Written Premium for the quarter ended September 2013
SOURCE: IPEC QUARTERLY REPORT
29. TA HOLDINGS February 18, 2014
http://data.worldbank.org/indicator/FR.INR.RISK
http://www.morningstar.com/invest/stocks/346732-sbv-sabvest-limited.html
http://markets.ft.com/research/Markets/Tearsheets/Financials?s=HCI:JNB&subview=IncomeStatement
http://www.stockexchangeofmauritius.com/officialquotes/
http://www.afdb.org/en/countries/southern-africa/zimbabwe/zimbabwe-economic-outlook/
TA Holdings Annual reports for 2011 and 2012
IPEC quarterly reports
Global Credit Rating Co. – Global Master for Rating Insurance Companies Methodology (July, 2013)
