Our opinion on the current state of CHPChoppies Enterprises, headquartered in Botswana, represents a unique case study in the highly competitive grocery retail sector of Southern Africa. Operating 212 stores across several African nations, including South Africa, Botswana, Zimbabwe, Zambia, and Kenya, Choppies has carved out a niche for itself despite the daunting challenges posed by more established players with greater buying power. The company's presence on both the Botswana Stock Exchange (BSE) and the Johannesburg Stock Exchange (JSE) highlights its ambitions and efforts to expand its footprint beyond its domestic market.
The grocery retail market in Southern Africa is known for its intensity, with several large chains dominating the scene. This environment presents substantial hurdles for smaller operations like Choppies, which must navigate competitive pricing, supply chain management, and market penetration without the leverage of larger conglomerates. Despite these challenges, Choppies has demonstrated resilience and a capacity to grow, as evidenced by its performance in the year ending 30th June 2023. The company reported a 6.4% increase in revenue, albeit with a 7.5% decline in headline earnings per share (HEPS). This performance was bolstered by the opening of sixteen new stores and a 6.8% growth in prices, although sales volumes on a comparable basis saw a slight decline.
The trading suspension on the JSE from November 2018 until November 2020 marked a tumultuous period for Choppies, raising concerns about its financial health and operational stability. However, the resumption of trading signaled a potential turnaround and a step towards recovery. The trading update for the six months ending 31st December 2023, projecting HEPS to be between 5c and 5.5c, indicates a stabilization in its financial performance, albeit the growth remains modest.
One of the critical challenges for investors considering Choppies is the relatively low volume of shares traded daily. With an average of about R18,000 worth of shares changing hands, the liquidity and tradability of Choppies shares are limited, potentially deterring significant investment and affecting share price volatility.
In summary, Choppies' journey reflects the broader challenges faced by smaller retail chains in competing with larger entities in the grocery sector. Its efforts to expand, improve operational efficiency, and navigate financial difficulties illustrate a commitment to sustaining its business model. However, the competitive landscape, coupled with limited trading volumes, suggests that while Choppies may offer a unique investment opportunity, it also carries inherent risks and uncertainties that investors must carefully consider.