Melting Choppies Stock Needs: A Concave Lens-Market Advice

•Institutional investors still reading financials and playing cards close to the chest

•Market view expects stability in the price in the long term as the company refocuses

•Opportunities might present themselves to the patient/long term investor who might be able to pick up volume at low and attractive prices

Recently Choppies traded the highest number of shares in the session crossing at just above 65,000 shares while the price remains unchanged at a low price of P0.60 per share. Choppies stock was frozen for 20 months after the retailer failed to publish financial results contravening Botswana Stock Exchange (BSE) regulations.

Choppies financials were not forthcoming pending changes in auditors after PricewaterhouseCoopers (PwC) resigned in September 2019 and was replaced by Mazars in February 2020 as well as the legal and forensic investigations. Choppies was also dogged by controversies coming from all directions, which the supermarket chain has been trying to put to bed. After being in the freezer for almost two years, the Choppies stock began melting just a few days of it being back from suspension.

As soon as the market opened after the much anticipated lifting of its suspension, Choppies had 1,765,579 shares changing hands and a turnover of P1.2 million, but the share price has remained at 69 thebe since 2018. The price then gradually plummeted to 60 thebe until now. “As expected, significant trading in the stock was observed in the first 10 days of trading (after the suspension was lifted) where cumulatively, 10.62mn shares changed hands at prices ranging from 69 thebe to 66 thebe,” says a market analysis. Coming from a frustrating suspension, Choppies became the MVP of BSE being a major contributor in a turnover of P1.5 million and 1,842,542 total volume in the first week after being unfrozen. Stockbroker Motswedi Securities has been giving an in-depth view into Choppies stock performance since the retailer came from suspension. “With the suspension lifted on the trading of Choppies’ shares, the Group’s shares can now be freely traded once more on the BSE. This will allow shareholders who have been unable to take any positions in the last 20 months whilst the stock was suspended to once again start trading, and not to be locked in or out of transacting in the stock,” Motswedi Securities advised investors. Motswedi securities talked with much optimism, saying Choppies stock is one of the most liquid on the BSE, will over time turn in aid price discovery and possible realizations of value whilst also boosting market turnover. This is a welcome development for the BSE equity market where turnover has been subdued for most parts, said the stockbroker.

According to a market observation, the first trading moments of Choppies after suspension, when the stocks shows all the bullish signs, was accounted for by retail clients. This is because when retail clients participated, institutional investors take time to digest the fair amount of financial results covering four reporting periods, namely the year end to 30 June 2018, interims to 31 December 2018, year-end to 30 June 2019, and interims to December 2019, and which were all presented at once. ‘‘So far, the demand has been able to absorb the supply, but the position might well change once institutional investors have finished the process of analysing all this financial information on the company that they are currently assessing,’’ said Motswedi Securities recently. Choppies is currently in a closed period, with the results for the year ended 30 June 2020 expected to be released by end of September 2020. Motswedi Securities promises more informative analysis will come after the results are released in September and the market might get some direction as to where the stock is headed. “In the meantime, we might see some further weakening of the share price in the short and possibly medium term, whist we also expect some stability in the price in the longer term as the company refocuses, and consolidates its positions in those markets that have been identified as key for the improved performance and profitability of the company, going forward,” said Motswedi Securities. Motswedi Securities advised that, until a more thorough analysis of all the long outstanding results has been done including up to year ended 30 June 2020 and more interactions with senior management has been carried out, extreme caution in trading in Choppies stock should be taken. The stockbroker researchers said however, at current levels opportunities might well present themselves to the patient, long term investor who might be able to pick up volume at low and attractive prices.

One of the main observations by Choppies results which have been pending for two financial years is the cut down of the retailer regional footprint as a way of patching a hole spewing losses. For the year ended June 2019, Choppies had an annual turnover of P9.62bn, v/s P10.79bn in the prior year.

According to analysis, in the aftermath of a series of poor financial performance spanning a number of years, Choppies revisited its strategy to improving profitability by closing a number of lossmaking regional operations subsequently exiting those markets. While its stock was frozen in the local bourse and Johannesburg Stock Exchange, since October 2018, Choppies exited South Africa, Kenya, Tanzania, and Mozambique markets. These discontinued operations collectively accounted for 44% of the Group’s total turnover in 2019 but contributed to most of Choppies losses, with some having never registered profit since becoming part of the Choppies Group. Choppies is now present only in Botswana, Zimbabwe, Zambia and Namibia. These are viewed as better or more profitable operations which will present the company with viable prospects for growth. According to observers this is expected to assist in increasing shareholder value in the long term. The Botswana operations in 2019 was the biggest contributor to the continuing operations since the company listed on BSE in 2012 contributing 77.4%, followed by Zambia at 10.9%, Zimbabwe at 9.5% and Namibia at 2.2%. The Choppies Group added three more stores to its Botswana portfolio, bringing it to a total of 91 stores in the country for the period ended 30 June 2019. Choppies commands a market leading 34% market share in Botswana.

In 2019, Zimbabwe was the only other region to produce profits, albeit a marginal one at P2.04mn. Zambia turnover increased for the same period, following the opening of three additional stores. The South Africa operations which were discontinued was the second largest contributor after Botswana with an overall trading revenue at P3.74bn in 2019. The SA operations suffered a blow due to existing high levels of competition from well-established retailers who wrestled for consumers with Choppies. At this region EBITDA’s loss skyrocketed to P196.6mn from P18.4mn as a direct result of depressed trading conditions in the North West province of the region. Observers say Kenya market greeted Choppies with “difficult market conditions” resulting in an operational loss of P58.2mn in the period ended 30 June 2020, compared to a lower operational loss of P27.8mn in the prior period. The Tanzania and Mozambique markets also added salt into Choppies wound with losses of P18.2mn (2018: loss of P5.9mn) and P15.5mn (2018: loss of P11.7mn) respectively. While there are still negotiations for the sale of Tanzania operations, according to Choppies directors, the Mozambique operations have been transferred to the Zambia operations. The non-movable assets like buildings are to be disposed for an amount of P10 million or US$1millon, the proceeds to which will be used to settle outstanding loan balances.