Simbisa’s profitability prospects improve
PROFITABILITY prospects for Zimbabwe’s Simbisa Brands – which holds franchise licences for Steers, Nando’s, Chicken Inn and Pizza Inn – have been boosted by a reduced reliance on imports and expansion opportunities.
Simbisa was unbundled from Innscor Africa and listed separately on the Zimbabwe Stock Exchange. The company runs quick-serve restaurants in Zimbabwe, Zambia, Kenya, Ghana and other regional markets.
“Depreciation of regional currencies impacts the reported results. Demand for Simbisa products is correlated with the state of local economies; therefore, deterioration of macro-economic environments presents downside risk,” Anthea Alexander, an analyst at Exotix, said.
“Zimbabwe, in particular, has a very uncertain outlook, and economic developments will have a big impact on performance,” Exotix said in a research note.
However, the company’s two biggest markets, Zimbabwe and Kenya, were “performing well, according to management”, and brand loyalty and economies of scale “have cushioned Simbisa against difficult trading conditions” in these markets.
Simbisa has faced increasing competition in Zimbabwe following the entry of KFC and other players.
Challenging macro conditions, high operating costs and weak management in Zambia and Ghana have culminated in net losses in those markets.
“Zambia and Ghana remain the problem markets. We expect management will have to make some tough decisions regarding its investments in these markets if it is unable to turn around performance over the short-to-medium term.”
For the year to the end of June, analysts have forecast revenue of $157 million (R2.06 billion) and earnings before interest, taxes, depreciation and amortisation (Ebitda) of $19.2m. This is expected to yield revenue growth of 7 percent year in the year and Ebitda growth of 34 percent.
Basic earnings per share for the interim period to December 2016 rose 2 percent to 0.86 cents.
The company said it expected to add between 20 and 25 new counters over the next three to four years, mostly in Zimbabwe and Kenya, and was also investigating opportunities to introduce new concepts and products in existing markets.
“Expansion targets are not set in stone, as they will depend on opportunities in each individual market,” Exotix said.