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4-Traders Homepage  >  Equities  >  Nyse  >  Wal-Mart Stores    WMT

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Wal Mart Stores : OVERREACH - Debt wakes supermarket giant from pan-African dream

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07/17/2017 | 07:37pm CEST

OVERREACH

Debt wakes supermarket giant from pan-African dream

East Africa’s largest supermarket chain, Nakumatt, has long epitomised an & Africa rising& success story, with its rapid growth from a small family-owned company to a retail behemoth in a region many analysts described a few years ago as a new frontier for consumer growth.

By 2017, the company, which started as a small furniture and bedding shop in 1965, had 66 stores across East Africa. It pioneered 24-hour shopping and loyalty programmes in the region’s retail sector, its success also boosting other businesses in the manufacturing, retail, banking and property space.

The owners, the Shah family, modelled the company on Walmart, itself having started out as a humble family owned business. They planned to build a pan-African brand to take on entrenched southern African retail chains in West and southern Africa.

As a first string in this bow, the group snapped up Shoprite’s unprofitable stores in Tanzania and Uganda in 2014 and 2015.

Nakumatt’s success, and that of other Kenyan retailers such as Tuskys and Naivas, attracted investors seeking to get a foot in the door of this explosive growth story, which rested on a growing, well-entrenched middle class with rising disposable income and a taste for higher-value goods, which underpinned the growth of formal retail developments.

MD Atul Shah often mentioned regular visits from fund managers and private equity investors eager to buy a stake in the group. But after considering several suitors and a listing on regional bourses, the company said it preferred to increase its value with further growth before considering selling a stake.

In 2017, the company hit a wall. Pictures of empty supermarket shelves started circulating on social media, and consumers started asking questions. Nakumatt eventually admitted it had overreached itself and was deep in debt.

Many suppliers, at the end of their tether over poor credit terms and payment, held back stock, while banks have sharply pulled back credit to the private sector, including the supermarket group.

Expansion plans have been shelved and stores closed in a bid to buy time.

Investors with much-needed capital are still interested, but the company is now negotiating from a position of weakness.

The depth of its hole is unknown and there are concerns about a knock-on effect of its problems into the wider economy.

The company has laid many of its problems at the government’s door, citing interference in the business and a difficult business environment. But the company’s critics point to poor corporate governance and a lack of transparency in its operations.

This, they say, is the result of the family’s reluctance to cede control of the business. Rather than bring in investors, it funded its expansion and operations with expensive commercial debt. It opted out of listing because of concerns about scrutiny and control — even though its problems may have been avoided by going that route.

Nakumatt’s woes have put paid, for now, to its pan-African dreams. The news has also dented the dream of East Africa as the new frontier of growth for global retailers, particularly as it is not alone.

For example, local competitor Uchumi has been battling with high debt for years and has now had to pull back from its own regional expansion.

Nakumatt is also a victim of the & Africa rising& story, built on feet of clay, which seduced many companies to overinvest in expansion in the belief that they were part of an ever-upward trajectory of growth that has now proved to be elusive.

Games is CEO of business consultancy Africa @ Work

INVESTORS ARE STILL INTERESTED BUT THE COMPANY IS NOW NEGOTIATING FROM A POSITION OF WEAKNESS

THE NEWS HAS ALSO DENTED THE DREAM OF EAST AFRICA AS THE NEW FRONTIER OF GROWTH FOR GLOBAL RETAILERS

(c) 2017 Times Media Group. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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Financials ($)
Sales 2018 495 097 M
EBIT 2018 22 469 M
Net income 2018 13 160 M
Debt 2018 40 284 M
Yield 2018 2,61%
P/E ratio 2018 17,98
P/E ratio 2019 17,01
EV / Sales 2018 0,56x
EV / Sales 2019 0,55x
Capitalization 238 038 M
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Wal-Mart Stores Technical Analysis Chart | WMT | US9311421039 | 4-Traders
Technical analysis trends WAL-MART STORES
Short TermMid-TermLong Term
TrendsNeutralBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 31
Average target price 80,2 $
Spread / Average Target 2,1%
EPS Revisions
Managers
NameTitle
C. Douglas McMillon Chief Executive Officer & Director
John Furner President
Gregory B. Penner Non-Executive Chairman
Michael J. Bender Chief Operating Officer-Global eCommerce
Brett M. Biggs Chief Financial Officer & Executive Vice President
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