Uchumi shake-up spurs 36pc gain at the stock exchange

Uchumi Supermarkets stock has seen the highest price gain at the stock exchange over the past month, with investors betting on the retailer’s second turnaround after a difficult first-half year that saw top managers fired.

Its share price has risen 36 per cent to Sh10 since mid-August, when it had sunk to a low of Sh6.40 following sustained negative corporate news including the sacking of CEO Jonathan Ciano and chief finance officer Chadwick Okumu.

Since hitting a low on August 7, Uchumi stock has gained 54 per cent, outperforming the market in which no other stock has gained more than 15 per cent over the past month.

“There is some speculation driving up the share as well, considering that we are yet to see the full results of the restructuring that is going on.

Buyers are looking at their fellow investors who bought it at the Sh6 level and have now booked gains in excess of 50 per cent,” said ABC Capital corporate finance manager Johnson Nderi.

“You also have to take into account that Uchumi was traditionally a strong brand that still has some following among buyers.”

This week, the stock gained 12 per cent on foreign investor buying as the market reacted to the news that the retailer has so far cleared Sh500 million worth of supplier debts that stood at Sh1 billion in June, and its shelves are stocked at 80 per cent of optimum level.

READ: Uchumi clears Sh500 million debt to suppliers

In addition to settling the said liabilities and improving stock levels, the retailer has also made a substantive appointments in top management, hiring former Equity Bank executive Julius Kipng’etich as CEO and Willy Kimani, formerly of rival Naivas, as the chief operations officer.

“Though we think this is a step in the right direction, we think Uchumi will need to do a lot more on product packaging and marketing in order to claw back market share,” said SIB in a market report.

Uchumi reported a pre-tax loss of Sh262.3 million in the half-year ended December 2014 compared to a pre-tax profit of Sh106.9 million over the same period in 2013.

It has come under increased competition from rival chains such as Nakumatt, Naivas and Tuskys.

According to Mr Nderi, the three are ahead of Uchumi, especially in securing space in major malls where Uchumi’s presence is yet to gain traction.

The stock has seen some profit taking as well over the period, according to SIB. This has been partly due to lingering investor concern over the long-term funding.

The retailer has had to take up Sh500 million bank loan from KCB to pay its suppliers and finance some of its working capital needs.

Uchumi had already made a rights issue last year raising Sh896 million. It had been targeting Sh1.5 billion when the rights issue was first mooted in 2013, but a falling share price forced a downward revision as delay in government commitment to defending its stake in the chain took its toll.

Uchumi has said it plans to dispose of some land holdings that include 20 acres in Kasarani area of Nairobi, along the Thika highway, valued at about Sh2.2 billion.

The retail chain also has parcels of land where its Langata Hyper and Ngong Road Hyper branches stand.