Retail giant OK Zim back on firm ground

ground after posting some impressive financial results for the year ended March 31.
OK, Spar and TM, which are the major players in the retail sector, have been facing stiff competition from small retailers who are cashing on the influx of cheap imports.
OK managed to bring in fresh capital while TM Supermarket, through its shareholder Pick n Pay of South Africa, has managed to gain their lost market share.
From the performance of the group, it shows that OK Zimbabwe has laid the foundation for growth with a recapitalisation, which solidified their balance sheet.
The 32 percent upside seen during the financial period under review is just a starting point.
The refurbishment and facelift of its shops should see the retail giant recover and grow market share and hopefully reap greater rewards for shareholders.
While margins are likely to remain depressed on the back of competition and slow recovery of the local industry, the response to the group’s refurbished outlets paints a promising earnings growth potential driven by volumes growth.
Challenges bedeviling local manufacturers are likely to ease as industry continues to get funds to recapacitate and this will be enable OK to fully implement own brands that should see margins recover.
During the period under review, OK Zimbabwe turned over US$257,4 million, which was a 37 percent improvement on turnover for the comparable period.
However, operating expenses that were up 45 percent on the comparative period to US$19,9 million put a dent on the retail giant performance.
The operating expense to income percentage was 8,2 percent compared to 7,3 percent it recorded in the full year period to March 31 last year.
Operating expenses were 69 percent of what they were in the prior full year to March 31 last year and these have been steadily rising.
This resulted in the group achieving profit after tax of US$4,3 million representing a 250 percent increase on the profits achieved during the same period last year.
The group’s financial statement reflected total assets of US$68,9 million, up 79 percent, driven largely by the recapitalisation undertaken earlier in the year that facilitated restocking and refurbishment work.
The group’s net asset value stood at US$38,8 million and they closed with cash equivalent of amounting to US$6,5 million.
The hallmark for the full year for the group includes the completion of refurbishment work on five of its branches, namely Masvingo, Kwekwe, Belgravia, Queensdale and one Bon Marche outlet.
During the period under review OK Zimbabwe completed the takeover of Makro Zimbabwe sites and these have since been able to breakeven.
In the outlook period the group hopes to extend the refurbishment to five other branches.
The refurbishment work will target two OK outlets as well as Bon Marche Avondale, while a new Bon Marche outlet is set to be opened at Westgate. The group’s focus will remain on the high mark-up categories of goods while targeting to do US$4 200 per square metre revenue for the current financial year as well as capital expenditure forecast of US$16 million compared to US$9,4 million incurred in the previous financial year.
According to management, the group aims to reintroduce its own brands using both local and foreign manufacturers with a bias to the latter due to capacity constraints on the former and this the group hopes would cut the supply chain by eliminating the middlemen and hopefully improve margins.
OK Zimbabwe is valued by analysts as a buy based on the assumption that the group achieves average monthly turnover of US$26,3 million per month as the group consolidates the benefits of a stable well funded balance.
If OK operates on average gross profit margin of 17 percent and assumed profit before tax margins of 2,7 percent analysts forecast the group to achieve second half gross profit and profit before tax of US$53,2 million and US$8,9 million respectively.
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