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Choppies’ JSE listing beginning of African adventure

Publishing Date : 18 May, 2015


SA analysts cautious on Choppies’ prospects

The Choppies Group, Botswana’s home grown retail giant, will use its planned Johannesburg Stock Exchange listing on May 27 to grow in South Africa and also as a springboard into Africa’s faster-growing economies.

Choppies is reportedly planning to raise R574m through the issue of 117-million new shares, which will be used to fast-track the continued roll-out of new stores, unlock opportunities in new markets and fund acquisitions.

Choppies Chief Executive Officer Ram Ottapathu is quoted by South African financial news Business Day as saying the Botswana Stock Exchange is not liquid enough. The liquidity crisis has hit local banks and other sectors such as property are feeling the domino effect.

“It is important for us to have greater liquidity and sources of capital to pursue these opportunities now,” Ottapathu said on Monday. "Most of our business — 75 percent — is outside SA. We believe we have competitive fundamentals that will see us through bumps in the economy.”

With 125 stores, Choppies is listed on the Botswana Stock Exchange with a market capitalisation of about P4.5-billion ($0.4bn). The price of the shares was to be determined after a road show to selected investors, this week.

Ottapathu however, is bullish about Choppies SA adventure, “We’re getting very positive feedback and it’s exciting for the company as well as for me as CEO. It’s exciting feedback from the investment communities.”

However a South African analyst pours cold water on Choppies’ excitement, saying the retailer will struggle in South Africa, because of the competition coupled with the country’s lower standard of living measure as compared to Botswana.

While measures such as its operating margin and return on equity were much in line with Shoprite and South Africa’s other food players, Choppies’ price-earnings ratio was said to be too “rich”, Sasfin Securities senior retail analyst, Alec Abraham said.

“I’m basing it purely on what’s going on in Botswana at the moment: they are on 28 and that is not a bargain at all. Within that LSM (living standards measure) 3-6 space, they have a lot of competition. Shoprite is strong there, Massmart through Cambridge and Pick n Pay with Boxer are trying to get in there. Standard of living is generally measured by standards such as inflation adjusted income per person and poverty rate.

“No macro-economic factors — gross domestic product growth or real wages — suggest to me that those consumers are going to be any better off than they were in the last two years. It’s just a very tough space,” Abraham said.

"They have the two DCs (distribution centres) in SA, but it’s going to take them a long time to grow into capacity, also to leverage their margin they say they want to get to 25 percent private label here. I don’t think they can because the supplier base is limited, maybe in Botswana but it’s doubtful here," he said.

On the reasons for the JSE listing, Ottaphatu said , “There’s the issue of liquidity prevailing in BSE, and this is the best and the most liquid stock exchange on the continent,: before adding that a listing on the largest bourse on the continent is merely natural progression in the growth pace of the company.

The company plans to open five more stores in Botswana, before the end of the calendar year and 14 in SA and 12 in Zimbabwe and will roll out into new markets like Zambia, Tanzania and Kenya and eventually to Namibia. Choppies is aiming for 200 stores by the end of next year.

Ottapathu is confident that Choppies will prevail among its competitors, based on its track record and its successful roll out of stores in South Africa in the North West, Limpopo and Free State. Currently Choppies claims 36 percent of the Botswana retail market share.

“That is where our key strong points are for growing the company to the 200 store mark, especially in Botswana where we can operate well above 100 stores with the current infrastructure, we don’t need to add on anything on top of it. In SA the infrastructure that we put in can take up to 100 stores without any more capital expenditure and in Zimbabwe we can operate up to 50 stores with the current infrastructure in place,” said Ottaphatu confidently.

Choppies’ compound annual growth in total revenues up 27 percent over the past four years with Ebitda (earnings before interest, taxes, depreciation, and amortization) for the past four years up 19 percent over the same period.

“We’re reasonably confident that we’ll be able to replicate the same growth levels going forward as well,” said Ottaphatu.



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