Ratings agency cautions Flame Tree on acquisitions
Flame Tree Group managing director Heril Bangera (left) with a worker at his factory in Nairobi. PHOTO | FILE
What you need to know:
Flame Tree Group has been relying on acquisitions to diversify into the FMCG market with a focus on the cosmetic sector.
GCR noted the firm's ability to conclude and integrate new acquisitions would bolster the scale of its FMCG operations while also pushing it to a higher credit rating.
A rating agency has urged listed plastic goods manufacturer, Flame Tree Group to be cautious in its divesture to fast-moving consumer goods (FMCG) as its market is more competitive.
Global Credit Ratings (GCR) accorded Flame Tree a BB+ rating on a stable outlook in its first evaluation but noted the increased investment in FMCG products was important for company growth but also heightened its risk profile.
Flame Tree has mainly diversified into the beauty sector.
“The investments being made into FMCG products to increase capacity and market share, while necessary for growth, do entail higher financial risks and add to the risk profile of the group as a whole,” said GCR in its rating report.
The company listed in 2014 at the securities exchange has been relying on acquisitions to diversify into the FMCG market with a focus on the cosmetic sector.
GCR noted Flame Tree’s ability to conclude and integrate new acquisitions would bolster the scale of its FMCG operations while also pushing it to a higher credit rating.
Flame Tree, which produces Zoe Lotion, acquired cosmetic brand Suzie Beauty a week ago having bought Miss Africa, Black Angel and Beautyplus hair brands from Beauty Plus Trading East Africa in September last year.
The company also bought the Monalisa skincare brand.
Listing eased the company’s liquidity position allowing it to grow its profit margins in the half-year results released last August and which GCR expects to hold till end of the year.
“Weak operating profit of Sh139 million was reported in 2014 due to liquidity constraints and rising expenses; but following the listing, operating profit climbed by an annualised 38 per cent to Sh96 million in the first half of 2015, with the operating margin widening to 8.6 per cent,” reads part of the GCR report.
Access to liquidity was one of the reasons behind Flame Tree’s decision to sell its shares to the public.
Last Thursday, the company’s shares were trading at Sh6.40 each, which is below the initial public offer price of Sh8.
Flame Tree’s stable outlook was linked to the performance of the plastics business. GCR noted the ongoing infrastructure development in the country, and the broader region, would drive demand for Roto Moulder’s products manufactured by the company.
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