Choppies, Atlantic Leaf Properties, Alaris Holdings, Super Group, Long4Life
I n the wake of the Steinhoff debacle, investors are wary of any signs of irregularities — especially repeated ones.
While the destruction value of Botswana-based retailer Choppies Enterprises over the past weeks is nowhere near as huge as that of the international giant, the share price collapse will rekindle grim memories.
Usually when investors purchase a stock, the aim is to get exposure to a fast-growing segment of the market. Choppies is no different, offering exposure to the fast-moving consumer goods (FMCG) segment in mass lower-income segments of African markets.
Jonathan Paledi, a portfolio manager at Inkunzi Investments, says taking investment decisions on a counter such as Choppies depends on investors being able to process information made available to them. Unfortunately, this key infor- mation is wanting at Choppies.
A vague statement released by the retailer over delayed financial results offered no comfort to investors. It wiped P1.6bn off Choppies’ market value.
Shareholders have lost about three-quarters of their value on the Botswana Stock Exchange (BSE) this year.
The contagion began in SA, where the Choppies share price slumped to a low of 42c — to the dismay of local investors, who had hoped Choppies could replicate the successes of Shoprite Holdings in various African markets.
The drop in the Choppies share price brought the trailing earnings multiple down to 5.4, from the far headier historic rating of roughly 23 times. The earnings multiple for Choppies is now well below BSE countermates such as Sefalana Holdings (12.7 times) and PSG Group-aligned CA Sales (14.2).
The big question now is whether Choppies offers value at these bombed-out levels.
Lester Davids, trading desk analyst at Unum Capital, believes the uncertainty around the company’s financial position and financial statements may hold back potential buyers from making firm moves.
One thing to bear in mind is that takeovers usually occur in distressed scenarios — remembering the recent example of Tuskys wanting to acquire Nakumatt in Kenya.
One aspect of the most recent Choppies communique to spook the market was the admission that results were predicted at least 20% lower than the previous reporting period. Kwabena Antwi, an investment analyst at Kgori Capital in Botswana, says there is also a bit of uncertainty surrounding the eventual profit figure. This is because its auditors are querying the historical purchase price allocations from its business acquisitions, depreciation and amortisation accounting, valuation of inventory and impairment assessments of property, plant and equipment, intangible assets and deferred tax assets.
Choppies, now audited by PwC, was previously audited by KMPG Botswana. The group warned that certain transactions were not made fully apparent so were not sufficiently considered in preparation of historical annual financial statements.
These included some business acquisition transactions undertaken by the SA subsidiary during the 2017 and 2018 financial year.
The bottom line is that there are likely to be re-statements. The timing is not great. Antwi notes this unfortunately comes after investors were enthusiastic about Choppies’ half-year results after its SA division finally made a profit after nearly a decade in the red.