Choppies loses P1.7bn in value after sell-off frenzy
Mbongeni Mguni | Friday October 5, 2018 18:00
Choppies opened the week trading at P1.69 with a market capitalisation of P2.2 billion and by last Friday, was trading at P0.40 with a market capitalisation of P521 million. By Wednesday, the first day of trading after the long weekend, the regional supermarket group had recovered slightly to P0.62, still in record low territory however.
Choppies’ troubles began last Thursday when the Botswana Stock Exchange halted trading of its shares and requested clarification on the reasons for a delay in results for the year ended June 30, 2018. Choppies subsequent clarification triggered a sell-off stampede after the group said its new auditors were reassessing historical figures related to business acquisitions, value of inventory, property and others. Further alarm was raised when Choppies directors, in their clarification statement, could not state when the results would eventually be made available to investors. “Such reassessments are ongoing, complex by nature and require careful analysis in order to determine the impact on prior and current periods,” the directors said. “The board and the company’s auditors identified a number of matters relating to the current and earlier financial periods, which require independent verification and expert legal analysis and advice before the impact thereof on accounting recognition, measures and disclosures can be determined. “Certain transactions and business relationships were not made fully apparent and were therefore not sufficiently considered in preparation of historical financial statements.” Choppies directors also said a raging shareholder dispute in Zimbabwe, involving that country’s former vice president, was adding uncertainty on the situation. This week, analysts told BusinessWeek that investors, some of them major institutional entities, were losing trust in the group, particularly as the delay in results was the second such announcement this year.
In April, Choppies again delayed its interim results citing the PwC’s work on inventory, but added that it would be complete by April 30, 2018.
The latest delay spooked investors, with Choppies’ counter on the Johannesburg Stock Exchange, dropping by 75% on Tuesday. On the BSE, Choppies dropped 76% on Thursday. “It would appear the marriage between investors and Choppies has broken down,” an equities analyst told BusinessWeek. “Investors are losing faith. This collapse is more about trust-related issues, particularly because the reasons given about the PwC review have been given before.” Fund managers representing some of Choppies’ investors include Allan Gray, African Alliance, Kgori Capital, BIFM, Stanlib and Investec. BusinessWeek is informed that several of the fund managers reduced their exposure to Choppies following last week’s developments. Institutional investors hold about 774 million of Choppies’ shares, or 59% of total issued capital. “The company’s fundamentals from its last report in April showed stable profits, even a growth of 21% and the directors announced that the PwC review of inventory was complete. “However, no one can draw comfort from that now because the directors are saying this review will overhaul the historical financials, in particular sensitive areas for asset managers who take forward-looking positions.
“Choppies declares dividends once a year based on the annual results and with the delay in the annual results, based on the reasons given, investors aren’t willing to take on more risk,” another analyst told BusinessWeek. Meanwhile, retail investors have also been alarmed by viral messages spreading on social media, alleging that grimmer news is due from the retail giant. Choppies has approximately 8,000 individual investors who hold three percent of its issued capital.