The Sunday Mail
Business Reporter
THE recent unbundling of the fast food business from industrial behemoth Innscor Africa and its subsequent listing on the Zimbabwe Stock Exchange as Simbisa is expected to add a fillip to the latter’s growth prospects via value-adding acquisitions, market watchers say.
Simbisa, listed on the local bourse on November 6, is a Pan-African quick service restaurant (QSR) operator.
On the first day of trading, the company’s turnover at US$643 253 contributed 88,8 percent of the total market turnover of US$724 688.
Its share price opened at USc12 and closed at USc14,32; with stockbrokers Lynton Edwards forecasting it climb to USc19.
“Given its strong presence in the Zimbabwean market, expanding branch network both in Zimbabwe and in the region and positive cash flows, Simbisa is well poised to capitalise on opportunities for earnings growth,” said Lynton Edwards in a research note.
Analysts also project that Simbisa, which had more than 388 outlets in 11 countries as at August 2015, will achieve a compound annual growth rate of four percent.
Earnings before interest, depreciation, taxes and amortisation is expected to grow eight percent while margins are forecast to rise from 12 percent in 2016 to 15 percent in financial year 2020.
“In our view, streamlining the company’s focus, core competencies, and enhancing of operational efficiencies would drive profitability going forward,” added Lynton Edwards.
Simbisa’s sales rose nine percent in the financial year 2015, below the regional sector’s average of 20,6 percent. The group has a net cash position of US$3,7 million “positioning the business to capitalise on organic and acquisitive growth opportunities”.
Unbundling the business is envisaged to facilitate access to capital markets as well as creating room for mergers and acquisitions of complementary businesses.
Simbisa’s listing is the first after automation of the bourse and the second listing this year after Proplastics in June.
Since 2011, the group has been on a compound annual growth of five percent with its highest operating margins achieved in 2011 at 11,5 percent and 10,56 percent in 2012.
The business, however, faces a lot of competition due to the low entry barriers in the sector.
The relaunch of the Kentucky Fried Chicken franchise on the local market including the expansion of Chicken Slice has been providing formidable competition in the industry.
But the diversified product mix in its portfolio has allowed Simbisa to reduce product concentration risk and maintain margins.
Headwinds caused by slowing growth in Sub-Saharan Africa are likely to affect the business going forward.
“The boom in most African economies was expected to create more consumers, but prospects have waned as growth has since slowed in most Sub-Saharan Africa countries.
“However, we believe the group will continue to post positive results on the back of continued improvement in efficiencies and cost containment,” said Lynton Edwards.
