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%.
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.