Financial Mail - Investors Monthly - - Contents - Kitso Dick­son

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.

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