SIMBISA Brands (Simbisa) needs to channel more investment efforts towards the Kenyan market as it de-risks from Zimbabwe’s worsening macro-economic conditions, a local equity analyst group has said.
IH Securities (IH) said Simbisa — whose Kenya investment started paying off last year cushioning the group against Zimbabwe’s inflation-ravaged shrinking disposable incomes — needed to invest more in the East African country.
“While we acknowledge that disposable incomes in Kenya have come under pressure due to tax increases, it is our view that given relatively higher disposable incomes, a stable Kenyan shilling and population size, Kenya continues to present strong potential growth opportunities and the width to migrate customers into the higher margin casual dining segment,” IH said in its analysis of the group’s first half 2019 financials.
Simbisa has for the past few years been working on growing regional operations to ultimately contribute at least 60 percent of total group revenue as the local trading environment remains relatively unstable in comparison to regional peers.
The consumer-facing counter reported a 10 percent improvement in regional operational operations which contributed $34,6 million in hard currency in the first half of 2019.
Opening eight new outlets in Zimbabwe, the restaurateur also opened 11 more eateries in Kenya and the DRC as 10 counters where shut in Zambia in an effort to streamline the business to focus on ‘A grade’ sites.
Resultantly, overall group revenue was up 44,3 percent year on year to $143,24 million in the first six months of 2019 from $99,27 million recorded prior period.
Although Simbisa obtained unanimous approval in March 2018 to have a secondary listing on the London Stock Exchange Alternative Investment Market (AIM) by issuance of ordinary shares and approval to acquire of Foodfund International (FFI), the transaction has since been terminated as both parties involved reached an impasse.
The group — which adopted a dual pricing regime (RTGS and discounted USD prices) in their local stores in the last quarter of the half under review – has been looking for mechanisms to defend value and raise foreign currency for select inputs and external obligations which include franchise fees and royalties.
“Going forward, we do expect Simbisa’s top and bottom lines, in real-terms, to come under pressure in the short-term as local real disposable incomes adjust amidst recent monetary reforms which are prompting a severe dislocation between real income growth and inflation,” said IH.