SIMBISA Brands posted a 7% topline growth to US$157,5 million on the back of a 5% increase in customer count and a 2% increase in average spend.
Local operations’ sales were 4% firmer compared to prior year despite a 3% contraction in average customer spend.
In the region, a 16% growth in sales was a result of a 26% increase in average spend albeit an 8% decline in customer count.
Local outlets’ earnings before interest, taxes, depreciation and armotisation (EBITDA) margin was four percentage points weaker because of mounting cost pressures, while the regional EBITDA margin was 13 percentage points stronger against prior year.
Profit before tax was down 14% to US$11,6 million because of an increase in net interest expense. Resultantly, profit after tax was down 20% to US$15,6 million.
Growth in loans receivable and inventories
On the balance sheet, total assets marginally grew by 5% to US$197,9 million largely because of an increase in inventories and loans receivable. Operating cash flows surged by 39% to US$29,4 million because of an increase in the group's store count, but this was offset by a net increase in financing cash flows. An interim dividend of US0,62c per share was declared.
Forecasts
- Hippo earnings seen softening
- Simbisa Brands mulls VFEX listing
- Simbisa Brands listing boost for VFEX
- Nedbank Zim heads for VFEX
Keep Reading
Liquidity-tight environment and tax-effects to maintain chokehold on average spend despite agriculture and gold sector boom.
We envisage that tight monetary policy and the food tax will drive slow local operations in the second half. However, we expect some reprieve coming from the agriculture sector recovery and upbeat gold sector performance to cushion the blow in FY25 (financial year 2025). Further, Kenya’s anticipated economic recovery is expected to provide additional cover and underscore a rebound in FY26.
Valuation
We revise our FY25 price target downwards to US29,93c because of the structural impact of the fast-food tax and tight liquidity. We maintain our HOLD recommendation on Simbisa Brands.
Investment thesis
We opine that the liquidity-tight environment characterised by high interest rates and reserve requirement ratios with the intent to manage exchange rate disparity will likely stifle average customer spend in the medium-term with possible impact on revenue and earnings. Also, the recently-gazetted fast-food tax will likely be passed on to the consumer, resulting in shrinkflation as the group battles to preserve margins.
However, we see a reprieve coming from the imminent tobacco season with an anticipated harvest of approximately 280 million to 300 million kilogrammes, as well as the strong gold price and rising artisanal miners’ output. This, coupled with Kenya’s anticipated economic recovery, lower interest rates, and easing costs will likely cushion Simbisa’s top and bottom line before underscoring a recovery from FY26 onwards.
Valuation
We estimate a FY25 price target of US29,93c that is based on a blend of relative valuations (Price-to-Earning and Enterprise Value/EBITDA) and Discounted Cash Flow. Regional peers were used to generate forward-looking multiples, and these were adjusted for differences in country risk.
This article was written by Morgan & Co, a securities firm for a new era, whose local knowledge and expertise is twinned with international experience to grow the Zimbabwean capital markets.
