Earnings Report /
Zimbabwe

Simbisa Brands: FY 19: Local disposable income takes a hit on market dislocation

    Michelle Mangwanya
    Michelle Mangwanya

    Junior Equities Analyst

    IH Securities
    21 October 2019
    Published by

    Earnings growth buoyed by regional operations

    Simbisa’s performance for FY 19 was impacted by the current economic adversities that have led to a vast erosion of disposable incomes locally, notwithstanding a boon in H1 19 that stemmed from record tobacco and gold earnings last year. Regional operations recorded revenue growth of +118% yoy (12% in real terms) to $135.9mn, while local operations registered a 79% yoy revenue growth to $255.1mn, but a 5% yoy slump in volume, amid annual inflation of 176% at the year ending June 2019. Thus, the group recorded a +90.9% yoy growth in revenue to $390.8mn in FY 19 (vs $204.7mn in FY 18) while overall EBITDA surged +127.6% yoy to $64.0mn in FY 19 from $28.1mn FY 18. This yielded an improved overall EBITDA margin of 16.4% in FY 19 vs 13.7% in FY 18, as the business added several new casual dining brands in its portfolio that appealed to a higher-income demographic in the region, where contribution to revenue stood at 35% from 30%. 

    Recommend Buy

    We forecast Simbisa’s revenue to come in at $2.1bn to FY 20, up 437.9% yoy and thereafter $2.4bn to FY 21 up 14.5% yoy, buoyed by the conversion of Simbisa’s regional revenue from US dollars to Zimbabwe dollars at a higher rate using a now relatively well established inter-bank rate. We anticipate EBITDA to come in at $352.1mn in FY 20 up 449.9% yoy and $408.0mn in FY 21, up 15.9% yoy from 2020 as a result of a depreciation of African currencies and mounting inflation. The EBITDA margin is forecast to remain sturdy, inching to 16.8% from 16.4% in FY 19 as continuous cost adjustments are expected to lag behind pricing. Thus, we forecast a PAT of $207.4mn to FY 20, up 539.8% yoy, which will rise to $235.4mn in FY 21, up 13.5% yoy compared to 2020. 

    We now estimate that Simbisa trades at PER (+1) and EV/EBITDA (+1) multiples of 3.7x and 2.3x to 2020e, respectively; against comparable peers at PER (+1) and EV/EBITDA (+1) multiples of 21.5x and 13.2x, respectively. Using a combination of multiples and a DCF valuation approach, we arrive at a target price of $5.69, which yields an upside of 309.7%. Thus, we maintain our coverage of Simbisa with a Buy recommendation.