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Analysts optimistic about Choppies Zim prospects

Bright future: Choppies is headed for recovery
Industry analysts believe that the Zimbabwean operations of Choppies Enterprises may get a new lease on life following the recent departure of Robert Mugabe as president of that country.

According to Donald Motsomi, research analyst at Stockbrokers Botswana, Zimbabwe is rife with euphoria and optimism, especially given the new administration’s positive rhetoric towards resuscitating the country’s battered economy.

“We expect any turnaround in the economy to be gradual and largely dependent on creating reforms that will attract foreign direct investment (FDI) and financial assistance from international bodies,” he said.

He noted that the crippled economy of Zimbabwe faced ensuing cash availability issues with banks implementing daily cash withdrawal limits in order to preserve hard cash in the financial system. According to Motsomi, the cash shortage in the economy prompted retailers and wholesalers to sell products at differing prices depending on the mode of payment.

“This led the Reserve Bank to implement a framework for these entities banning this trading behaviour to allow for single pricing,” he said.

Motsomi said other requirements under this framework require prompt banking of cash generated from sales by these entities as well as limits on cash back facilities to consumers.

However, Motsomi said the group fared well amidst these difficult conditions, reversing the prior year’s losses to see a positive bottom line.

“Two stores were opened over the period bringing the store count to 32, supported by two distribution centres,” he said.

With regards to the newer markets, Motsomi said Choppies will be expanding its presence in each country as well as breaking into the Namibian market.

He said Mozambique currently faces high levels of inflation, putting consumers under strain. He said this could prove a challenging market for the group.

“Tanzania’s large population, high population growth rate and increasing urbanisation make it an attractive market in our view,” Motsomi said.

He added that three store openings are planned

for Namibia in the current financial year, adding that given its proximity to Botswana and similarities to this market, these operations will be managed from Botswana.

The retailer continued its aggressive expansion across the sub-Saharan African region, with the group opening 29 stores over the period bringing the total store count to 212 stores with retail space increasing 20.6% to 308,704 square-metres.

He said this growth translated to a 20.1% increase in the top line to P8.85 billion from P7.37 billion in 2016 with gross margins strengthening to 21.2% compared to 19.6% last year.

“The cost base saw a large jump as a result of the group’s expansion putting further pressure on profitability with profit after tax declining 28.9% to P74.6 million from P104.9 million in 2016,” said the analyst.

He also indicated that core market, Botswana, is showing further signs of maturity as the group continued to slow its roll out of stores in this country. In neighbouring South Africa, the group gained further traction in the North West region on the back of a turnaround strategy adopted by new management and increased store openings.

The Kwazulu-Natal operations also fared well bringing South Africa’s consolidated performance to turn earnings before interest, taxes, depreciation and amortisation (EBITDA) positive and reduce net losses.

“Going forward we expect to continue seeing strong growth in the top line as Choppies expands towards reaching its target of 252 stores by the end of the 2018 financial year,” said Motsomi. He further noted that they anticipate profitability will remain under pressure in the short-term as the group continues to incur rising costs from its rapid expansion, and looks to bed down newer operations.





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