Choppies under siege

  • Share price crumbles to 40t/share
  • Investors cautioned not to trade Choppies shares
  • Money laundering allegations hit hard on Choppies
  • Audit to assess Choppies accounting practices
  • SA retailers could buy Choppies, says SA analysts


Largest retail supermarket group, Choppies Enterprise Limited has closed the third quarter of the year 76.3 percent down on the Botswana Stock Exchange Limited (BSEL), after the release of a number of cautionary announcements led the stock to close at its all-time low of 40 thebe per share.
Motswedi Securities, a stock broking firm, announced that Choppies’ demise is underpinned by allegations of money laundering and failure to release financial results on time as well as decline in profits which are expected to fall with by a whopping P15 million.
Choppies has been making the news in the last few weeks, with the focus mainly around the serious shareholding disagreements between the directors in Zimbabwe. Choppies Enterprises Limited manages and controls 93 percent on economic interest in Nanavac Investment PTY LTD which trades as Choppies Supermarket Zimbabwe according to the media statement released by Choppies.
One of the non-executive directors and shareholder of the Zimbabwean subsidiary has also accused Choppies of money laundering claims and disputes his ownership of only 7 percent but rather said he owned 51 percent of supermarkets.
The company released an updated announcement and trading statement on the 27th September 2018, at the instruction of the Botswana Stock Exchange Limited and subsequent trade halt that lasted all of three hours. In this announcement, the company attempted to explain that the delay in the publication of their year-end results comes as a consequence of appointing new external auditors that have to reassess a number of past accounting practices policies as well as the identification of a number of matters relating to the current and earlier financial periods which require independent verification and expert legal analysis and advice before the impact on accounting recognition, measurement and disclosures can be determined.
These include allegations of theft directed at one of the directors of the Group’s Zimbabwean investee company and certain transactions undertaken by the Group’s South African subsidiary in the last two financial years. It is not the first time that Choppies has delayed their results as a result of auditors delaying in the stock taking process. The last financials for the period ended 30 June 2017, were delayed and the above reason was stated by the directors of the Group.
Over and above the delayed results publication, was the identifying of gaps in the company’s inventory procedures that left the Group’s year on year inventory understated. This discovery, along with the difficult trading conditions the company has faced in South Africa, Mozambique as well as in the Eastern Africa region, have made the management of Choppies confident of minimum reduction in profit after tax of 20 percent, or in monetary terms P14.93million. This will effectively bring the estimated earnings per share down to 4.19 thebe, from its current standing of 7.47 thebe.
Choppies is also listed on the Johanesburg Stock Exchange (JSE). Its performance on the JSE is also under siege. The group, which operates across Southern and East Africa, listed on the JSE in May 2015 at R4.90 per share. Choppies’ share price fell as much as 85 percent this week after the Botswana-based food retailer said it would miss a deadline to publish its financial results for the year to June.
The immediate reaction on the JSE to the release of the first cautionary on the 21st September was chaotic. The share price fell from 165 cents to 42cents, representing a loss of almost 75 percent in value. By the time the second, more explanatory cautionary came out, the damage had already been done. The company on the JSE was slowly climbing back up by the weeks end albeit struggling to do so. Action on the BSE, on the other hand, came in on Friday where the share price fell from 169 thebe (a price that has been constant for the whole month of September 2018) to a historic low of 40 thebe per share, that summing up to a value loss of 76.3 percent to its shareholders. The drastic drop in the price consequently brought the 52 week trailing Price to earnings down to 5.4 from the 22.6 it has been comfortable it. When compared to its industry players on the BSE, Sefalana with a price earning of 12.7 and CA Sales with a price earning of 14.2, Choppies is in for a very bumpy ride going forth.
Choppies expanded its footprint in SA in 2015 and competes with the likes of Shoprite and Boxer. The Johannesburg-and Botswana-listed company had 71 stores in SA in 2017, making the country its second-largest market after Botswana.
It also operates in Kenya, Zambia and Zimbabwe.
According to reports in South Africa’s Business Day, Choppies’ dramatic share decline could make it a takeover target for the likes of SA’s Shoprite. The publication reported that Cratos Capital portfolio manager Ron Klipin held the view that Choppies was under “quite a bit of pressure”.“They’re a small player in a big pond, where the big players have the benefit of large-scale purchasing power,” Klipin said.
“In the longer term, I’m not sure that a small player can survive in that sort of market, and I would suspect that with their wide geographical footprint, the cost of distribution could be a problem for Choppies,” he said.