How Simbisa’s aggressive expansion drive adds value

Simbisa Brands, a local quick service restaurant brand with huge regional exposure and a listing on the ZSE, has announced a firm intention to acquire an international restaurant group once shareholders and regulatory approvals are secured.

To date Simbisa had restricted its operations to the sub-Saharan Africa region where it operates 434 counters in 11 countries, mainly in Zimbabwe which accounts for 45% of total counters or stores.

Its strong appetite for expansion can be traced back to 2015 when the company successfully unbundled from Innscor.

Simbisa, then classified as the QSR segment within Innscor’s broader portfolio, controlled and still retains market leading brands such as Chicken Inn, Creamy Inn, Steers, Bakers Inn and Pizza Inn, which are very popular especially in the core market of Zimbabwe.

As a value proposition in unbundling then, the company’s directors strongly argued that the move was likely to unlock significant value, notably through acquisitions and mergers of entities in complimentary spheres coupled with other forms of expansions.

Since its unbundling, Simbisa has organically expanded from 388 restaurants in June 2015 to 419 restaurants in 2016 and 434 restaurants as at June 2017.

The company has therefore added 46 counters over the two year period June 2015 to June 2017.

As part of this organic growth, in 2017 Simbisa opened 17 new counters in Kenya, 4 new counters in Zambia, 7 in Ghana, 2 in DRC and 13 in Mauritius, not factoring the number of stores closed in the same period within those markets.

These new counters opened across the region are a very clear demonstration of the company’s appetite for expansion but given the illiquid nature of the local equity market in recent years and the punitive cost of local capital in the form of debt, such growth appetite could not be sustained.

The company’s cashflow analysis over the past 3 years since unbundling shows that likewise the company cannot organically mutate in its quest for expansion.

Since 2015, Simbisa’s has reported a negative free cashflow consistently which likewise diminishes the propensity to generate growth from within.

But the case for expansion can strongly be argued for using the profitability and restaurant growth data.

Profit went up by 28% between 2016 and 2017 coming from a lower revenue growth of 8%.

The most interesting static here is when we look at profit per counter, which has grown phenomenally between 2016 and 2017, showing that newer counters have been more profitable.

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