Zim dollar, high inflation affecting property valuation
VOLATILITY of the local currency and the prevailing hyperinflationary environment have made it difficult to give a satisfactory valuation of listed companies, a new report has revealed.
This comes as property valuers have been urged to revisit traditional valuation models as concerns have been raised over the huge variations on property values.
According to real estate firm Integrated Properties, internationally, a variance of between five percent and 10 percent is considered normal, but in Zimbabwe, the difference can go up to as much as seven-fold.
“Under the current economic environment, we have observed that the loss of currency value has resulted in a general heavy discount of the company’s profitability in real currency terms and subsequent free cash flows to the firm, which is the general starting point for intrinsic valuations,” Akribos Research Service said in an analysis of Mashonaland Holdings’ (Masholdings) financial results for the year to September 30, 2019.
“Secondly, the volatility in the market combined with associated inflation and country risk premiums results in a significantly higher discount rate that heavily discounts the company’s bottom line. Added to that, there are questions that arise over the inflation adjusted numbers which make use of an inflation index that is viewed as too conservative in tracking actual price movements,” said Akribos.