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Capital Markets

Uchumi share touches all-time low of Sh2.90 as debt load bites

Uchumi Supermarkets outlet on Aga Khan Walk in Nairobi. PHOTO | FILE
Uchumi Supermarkets outlet on Aga Khan Walk in Nairobi. Its share price June 20, 2016 touched an all-time low of Sh2.90 since the stock was readmitted at the bourse on May 31, 2011. PHOTO | FILE 

Uchumi Supermarket’s share price Monday touched an all-time low of Sh2.90 since the stock was readmitted at the bourse on May 31, 2011.

The troubled supermarket chain, which has so far shed 71 per cent of its value since the beginning of this year, closed at Sh2.95 a share Monday, making it the worst performing counter at the Nairobi Securities Exchange.

Uchumi’s poor run at the NSE comes at a time the supermarket chain is facing a winding up petition triggered by mounting suppliers’ dues amounting to Sh3.6 billion, which have forced the firm to rely on short-term bank loans for working capital.

Analysts at Cytonn reckon that Uchumi needs to raise capital to take on local competitors such as Nakumatt, Tuskys and Naivas as well foreign entrants such as Carrefour, Game and Choppies.

“Uchumi will need to raise more capital to remain operational in a competitive retail environment,” said Cytonn in a research note.

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Uchumi has historically been grappling with suppliers’ dues and mounting debts, which led to the listed retailer being declared insolvent on June 1, 2006 and subsequent suspension from trading at the Nairobi bourse.

The counter resumed trading at Sh12.20 per share and rallied to reach a high of Sh22.70 apiece on April 2, 2013. The distressed retailer traded 7,300 shares Monday and the counter moved 94,400 shares last week.

Standard Investment Bank attributed the price decline to “local investor selling.”

At Monday’s closing price, Uchumi had a market capitalisation of Sh1.07 billion. This is almost the same cash Choppies, a Botswana firm, used to buy 75 per cent of Ukwala supermarket.

Law changed

Uchumi Monday filed a notice seeking to challenge High Court judge Farah Amin’s Friday ruling in which she threw out its application that the winding up case be guided by the newly enacted Insolvency Act.

The judge held that Uchumi cannot rely on the new law because the creditors had actually commenced the process a day before the law changed.

Cytonn says Uchumi will find it challenging to court a deep-pocketed investor to put in up to Sh5 billion in exchange for a controlling stake given the erosion of value.

“The company will find it hard to attract investors who will inject the amount needed to restructure it, considering the only positive value on offer is the brand.”

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