OK Zimbabwe, one of the biggest retail giants in the country, is seen earning US$346 million in revenue in the 2023 financial year, according to a research firm.
In a review of the company's report for the half-year to September 30, 2022, Inter Horizon Securities projected earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin of 6% in the financial year 2023 (FY23).
“For forecasts to remain relevant in the present inflationary environment, we have shifted to a US$-based valuation of the business. We expect the US dollar revenue to register at US$346 million by the financial year 2023. Dividend yield is expected to register lower to FY23 on account of planned acquisitions,” the research firm said.
While contractionary measures implemented by monetary authorities have remained in place, constraining spending in the local currency, researchers forecast marginal volume uplift in the second half of the retailer’s financial year based on seasonal spending patterns.
“We, however, expect that with increased dollarisation in the economy, there is a steady uptick in foreign currency sales going into the company’s coffers,” IH said.
“The retail space has been getting more competitive with increased market entrants in both the formal and informal channels. As such, it is encouraging that the company is now actively re-inventing itself.”
OK Zimbabwe last week concluded the acquisition of Food Lovers branches in the country as well as the rights to expand the brand locally. The company is also foraying into the pharmaceutical space with the introduction of the in-store Alowell Pharmacies.
“We await to see if the said acquisitions will be value accretive. On outlook for the rest of the financial year, incessant power blackouts are said to be driving up the cost of doing business and given no tangible short-term solutions at national level, we expect margins to continue to be under pressure,” researchers said.
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The trading environment in the first half of the financial year was characterised by exchange rate volatility, resulting in the resurgence of hyperinflation. Challenges faced by OK Zimbabwe included difficulties in product pricing due to run-away inflation and unfavourable trading terms from suppliers.
Some manufacturers in the period also prioritised supply into channels offering hard currency, straining supply for formal retailers.
Contractionary measures implemented by the central bank affected aggregate demand for goods and services by consumers and as a result, volumes fell from a marginal gain of 1% in the first quarter of the company’s financial year to an aggregate decrease of 8,23% in the first half of the financial year 2023.
Repricing of interest rates also resulted in a significant increase in interest burden for the company which had increased leverage due to ongoing capital expenditure campaigns.
While no new stores were opened within the period, the group invested in facelifting existing stores to improve competitiveness within the market.
Margins for OK Zimbabwe within the period registered lower due to a spike in operating costs. EBITDA margin for the first half of the financial year 2023 decreased from 8% at the start of the period to 6,5% while net margins eased from 3,9% to 2,3%.
Operating cash flow or EBITDA closed the period at 24,3%.
OK Zimbabwe reiterated the adverse effect of the IMTT on its business with the effective tax rate at the end of the period standing at 38%.
Nevertheless, the company remained in a profitable position and subsequently declared a dividend of US$0,13. At current levels, this translates to a dividend yield of 2,81%, according to researchers.
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