Choppies, a Botswanan supermarket chain, will retain Standard Chartered Plc as an investor after a 1.37 billion rand ($114 million) share sale ahead of a secondary listing in Johannesburg later this month.
The London-based bank isn’t selling stock and will own about 12 percent of the grocer, while management will hold 35 percent, Choppies Chief Executive Officer Ramachandran Ottapathu said by phone on Monday. Standard Chartered may even increase its position, Ottapathu said. The lender bought a 13 percent stake in the retailer in December 2013 for an undisclosed amount.
Choppies, which was founded in 1986 and has operations in Zimbabwe and South Africa as well as its home market, plans to expand in more African countries to take advantage of rising household incomes, economic growth and a switch by shoppers to stores from outdoor markets. It wants to add 75 new outlets by the end of December 2016 in countries including Kenya, Tanzania and Zambia, brining its total to about 200.
Choppies trades at 24 times estimated earnings, according to data complied by Bloomberg. That compares with 21.4 times earnings at Shoprite Holdings Ltd., South Africa’s biggest grocer.
“If Choppies can raise money at this price-to-earnings ratio, good for them,” said Alec Abraham, senior equity analyst at Sasfin Securities in Johannesburg. “But it’s a very competitive space and companies are having to really invest to keep their market share.”
The food retailer is issuing 117 million new shares for about 574 million rand, bringing the total for sale to 277 million shares, it said in a statement. That means about 52 percent of stock will be available for public trading. Based on a current share price of 4.09 pula ($0.42), the total raised would be about 1.37 billion rand.
South African shopping chains have been struggling amid unemployment of about 25 percent, high levels of personal debt and nationwide blackouts that have caused shoppers to stay away from malls. Choppies, which locates its stores near taxi ranks and bus routes and isn’t in large shopping centers, hasn’t experienced “significant pressure” on sales in South Africa, Ottapathu said.
“We see growth opportunities in the current markets in which we operate and the retail penetration of the markets we are going into is low,” he said.
The company plans to add 15 new South African stores in Limpopo, Mpumalanga and Free State provinces and will not operate in major metropolitan areas in the continent’s most industrialized economy, Ottapathu said. It wants to generate 25 percent of its revenue from Choppies’ own brand, which may appeal to the company’s low-to mid-income customers.
“To say it wants to raise its own brand sales in South Africa from 10 percent to 25 percent is a bold statement,” Abraham said. “South African retailers have struggled to raise that much beyond 12 percent.”
Choppies has found expansion partners in Zimbabwe, Zambia, Tanzania and Kenya and identified a potential collaborator in Namibia, Ottapathu said.