Equity Analysis /

Initiation – Liquidity crunch looms for ‘Africa’s Amazon’

    Nirgunan Tiruchelvam
    Nirgunan Tiruchelvam

    Head of Consumers Equity Research

    Eronmosele Aziba
    Eronmosele Aziba

    Equity Research Analyst, Consumers

    Tellimer Research
    25 July 2019
    Published byTellimer Research

    The first pan-African e-commerce platform. Jumia provides an e-commerce platform in 14 countries, including Kenya, Ghana, Algeria, Angola and Senegal. It offers marketplace, logistics, shipment, delivery and payment services. The company listed on the NYSE on 12 April.

    Business model has severe vulnerabilities. The business is intensely cashflow negative and we have concerns about its viability. At the current burn rate, Jumia’s cash levels will be low in FY 21 and, by FY 22, it may need another capital raise, even if operating margins and inventory management improve. 

    Jumia has been miscast as Africa’s Amazon. 

    1. Africa’s retail infrastructure is weak and at a nascent stage. 
    2. Amazon became cashflow-positive in 2002 and profitable in 2003, but those factors are absent for Jumia. 
    3. Jumia will find it more difficult to access the deep capital markets that drove Amazon (and other Western e-commerce) growth. Jumia’s cashflow is weak and it is unlikely to be able to access the same level of bond financing. 

    Corporate governance risks are high. There have been allegations of fictitious sales and weak accounting standards from short-sellers, although we cannot independently confirm any of these.

    Jumia is trading at an unjustifiable premium to its e-commerce comparables. On a price/sales basis, it trades at a 60% premium. Our view is that Jumia’s market opportunity in Africa does not justify these premiums. We initiate our coverage of Jumia with a Sell recommendation and a target price of US$16.2.

    Figure 1: Jumia’s cash burn rate is unsustainable (US$mn)

    Source: Company filings, Tellimer research