Mr Julius Kipngetich took over on 25th August 2015 as the new Uchumi Supermarkets CEO.In exactly three months that he has been in office,Here is a report on his achievements,failures and analysis on a three-Point turnaround strategy to revive Uchumi back to profitability.
Achievements
- The new management negotiated a bank overdraft from Kenya Commercial Bank in order to improve the retailers liquidity.
- On September 15th new management cleared a KES 500M debt owed to its suppliers
- On September 16th,Uchumi renewed its bill payments service with Kenya Power four months after suspending the partnership over what it claimed were delays in remitting cash paid in by electricity users.
- Uchumi has also put on sale their three properties on Langata road, Ngong road and Kasarani saying that they are not viable.
Uchumi’s Three point Turnaround strategy;
Strategy 1; Stabilization
Under this strategy,Uchumi plans to focus on only the profitable and manageable stores.As we have all seen,Uchumi closed all the regional stores in Tanzania and Uganda in order to concentrate on its kenyan business.
Strategy 2; Optimization:
The primary objective of this second phase is restocking the stores with a pilot store being Uchumi Koinange Street, which is now fully stocked.Cytonn investments research team paid a visit before and after the restocking and they affirm that the store is now optimally stocked .
‘We however note that this process is slow and most of the stores still lag behind. In our other store visits, we observed that a number of the retailer’s stores remain understocked, yet this is considered the key objective of this phase’ Said Cytonn in the weekly market report.
Strategy 2; Growth Phase:
Uchumi has defined its niche, the mass market. The defined niche will enable the retailer reposition its strategy definitively, and compete with the right peers in the Kenyan market.
‘However, we note that the local retail market remains competitive and Uchumi will play catch-up given that there are already established players like Tuskys and Naivas in the mass market.’ Added Cytonn Team
Despite the challenges facing Uchumi ahead, Cytonn and the Kenyanwallstreet believe there is still value in Uchumi but they have to work extra hard to catch up with their peers.Uchumi’s execution of the initiatives are still at very initial stages as evidenced by the fact that only one store is now optimally stocked. Consequently, Cytonn raises their Uchumi valuation discount rate from the original 16.6% to current 20.1% to reflect the riskiness of the expected cash flows. The high discount effectively revises Cytonn’s target price downwards from Kshs 11.2 to Kshs 9.7, representing a potential upside of 19.7% from the current price of Kshs 8.1.
Cytonn’s Reccomendation on Uchumi’s stock price
Accumulate.
Source(Cytonn Investments,Kenyanwallstreet)
