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Understanding Quickmart’s Intention to List · The Mwango Capital Podcast

• 0:00
  SPEAKER_02: Good evening, everyone.
• 0:01
  SPEAKER_02: Thank you very much for joining us for this edition on the 23rd of September of Mwango Spaces.
• 0:06
  SPEAKER_02: We'll be focusing on the capital markets tonight.
• 0:09
  SPEAKER_02: And if you've been in this space,
• 0:11
  SPEAKER_02: if you focus on what's been going on in chaining capital markets,
• 0:14
  SPEAKER_02: the last 15 We've also seen quite a few companies hit record highs
• 0:17
  SPEAKER_02: on their share price on the NEC.
• 0:18
  SPEAKER_02: And the NEC 20 in and of itself,
• 0:19
  SPEAKER_02: that index has been rocketing back to levels it's not seen in over 10 years
• 0:22
  SPEAKER_02: in some cases.
• 0:44
  SPEAKER_02: Very neatly brings us back to what's happening today.
• 0:46
  SPEAKER_02: The intention to list by QuickMart,
• 0:49
  SPEAKER_02: the second largest retailer in the country if you're going by StoreCamp.
• 0:53
  SPEAKER_02: I'll be diving into the details of the business,
• 0:55
  SPEAKER_02: the rationale for listing during the course of this conversation.
• 0:58
  SPEAKER_02: It's a quick run.
• 0:59
  SPEAKER_02: This is a firm that posted revenues of around $50.4 billion in the 2025 fiscal year.
• 1:23
  SPEAKER_02: In that particular period,
• 1:24
  SPEAKER_02: we're looking at an increase in the net margin for the business because retailers,
• 1:28
  SPEAKER_02: generally speaking, tend to have really thin margins anyway, 3.2% for fiscal 2025.
• 1:33
  SPEAKER_02: And that number looks small until you look at it in context over
• 1:36
  SPEAKER_02: the preceding couple of years because of...
• 1:38
  SPEAKER_02: So if you go all the way back to 2022, the margin back then was less than 1%, right?
• 1:42
  SPEAKER_02: So there's been quite a bit of improvement in that respect.
• 1:44
  SPEAKER_02: And over that same period of time, 2025,
• 1:47
  SPEAKER_02: going back all the way to 2021,
• 1:48
  SPEAKER_02: the volume of sales for the firm effectively have doubled.
• 1:51
  SPEAKER_02: They've gone from 25.6 billion cashlings in revenue all the way to over 50 billion.
• 1:56
  SPEAKER_02: Gross profits have also increased by a comparable margin,
• 1:58
  SPEAKER_02: 5.4 billion, all the way to 11 billion.
• 2:01
  SPEAKER_02: And at the same time,
• 2:01
  SPEAKER_02: if you look at the profit line on the company,
• 2:03
  SPEAKER_02: you're looking at A pretty significant jump.
• 2:05
  SPEAKER_02: That in and of itself tells us a very much more interesting nuanced story about
• 2:09
  SPEAKER_02: where they've come from.
• 2:10
  SPEAKER_02: You look at net profits rather of around 182 million shillings for fiscal 21 and
• 2:15
  SPEAKER_02: that went all the way up to one and a half by 2025.
• 2:20
  SPEAKER_02: Tonight, we'll be speaking with Gregory Overo.
• 2:22
  SPEAKER_02: He's the CEO of SBG Securities.
• 2:24
  SPEAKER_02: I have a front row seat to this particular transaction,
• 2:27
  SPEAKER_02: so we'll go into the details of it with him over the course of this space.
• 2:31
  SPEAKER_02: I know we all have questions about the company,
• 2:33
  SPEAKER_02: the nature of the listing, wireless now, what is the intent of this transaction?
• 2:37
  SPEAKER_01: Greg, let's start with you.
• 2:38
  SPEAKER_01: Just a quick intro.
• 2:40
  SPEAKER_01: I've been with SBG Security and the broader Stanbik Standard Bank Group for the last 14 years.
• 2:45
  SPEAKER_01: My work has been in the equity capital markets and the debt capital markets overall
• 2:50
  SPEAKER_01: with experience across various areas such as corporate finance, advisory.
• 2:55
  SPEAKER_01: I've also had the pleasure of working on some of the largest complex transactions in
• 3:01
  SPEAKER_01: the capital markets, not just in Kenya, but across
• 3:03
  SPEAKER_00: East Africa.
• 3:04
  SPEAKER_01: We also run a significant brokerage franchise in Kenya,
• 3:08
  SPEAKER_01: and we also have affiliates within the region that also run brokerage
• 3:11
  SPEAKER_01: and asset management businesses.
• 3:14
  SPEAKER_02: Anastasana,
• 3:14
  SPEAKER_02: for that brief introduction,
• 3:15
  SPEAKER_02: for someone who's hearing about this for the very first time,
• 3:18
  SPEAKER_02: right, Quikmat saying, look, we have an intention to float.
• 3:21
  SPEAKER_02: Does that materially differ from putting out an information memorandum that leads into an IPO?
• 3:26
  SPEAKER_01: Yes, so there is a nuance.
• 3:28
  SPEAKER_01: This is an intention to float, which is perhaps not common in Kenya.
• 3:32
  SPEAKER_01: In fact, I doubt this has happened before.
• 3:34
  SPEAKER_01: I was involved in a process for MTN Uganda with SBG Securities where we put out
• 3:39
  SPEAKER_01: an intention to float.
• 3:41
  SPEAKER_01: The company publicly confirming that it has made plans to lead on an exchange
• 3:47
  SPEAKER_01: and is actually one of the final milestones towards the formal listing by a company
• 3:51
  SPEAKER_01: which is then followed by the official launch and the publication of a prospective.
• 3:56
  SPEAKER_01: So I think it's usually important to do this.
• 4:00
  SPEAKER_01: I think it's a best practice for equity capital markets,
• 4:03
  SPEAKER_01: essentially giving investors time to understand the company,
• 4:07
  SPEAKER_01: to do a bit of sector work,
• 4:08
  SPEAKER_01: especially for some of the institutional investors who perhaps are not.
• 4:11
  SPEAKER_01: So it does provide that opportunity so that by the time the
• 4:26
  SPEAKER_01: Prospectively formally published,
• 4:28
  SPEAKER_01: I think investors have had a time to assess the equity story for the business,
• 4:32
  SPEAKER_01: some high-level analysis.
• 4:33
  SPEAKER_01: Some investors might even be able to build financial models within the time period,
• 4:37
  SPEAKER_01: often reducing the time pressure to do a lot of this work from following the launch,
• 4:41
  SPEAKER_01: in which case investors are better prepared when the official prospectus is public
• 4:46
  SPEAKER_01: with a price,
• 4:46
  SPEAKER_01: with an offer price or a price trade in other markets as is the practice,
• 4:50
  SPEAKER_01: together with the other terms and conditions that would be contained in
• 4:53
  SPEAKER_01: the information memorandum.
• 4:55
  SPEAKER_02: At this point in time,
• 4:56
  SPEAKER_02: now that the statement of intent to list is out,
• 4:58
  SPEAKER_02: what sort of timeline should you look at between this coming out now and
• 5:02
  SPEAKER_02: when we start seeing the prospectors coming out with all those,
• 5:05
  SPEAKER_02: you know,
• 5:06
  SPEAKER_02: more concrete,
• 5:06
  SPEAKER_02: more detailed information,
• 5:08
  SPEAKER_02: balance sheets,
• 5:08
  SPEAKER_02: cash flow statements,
• 5:09
  SPEAKER_02: assessments, a detailed assessment of risk and so on and so forth.
• 5:12
  SPEAKER_02: Should you expect that sometime in Q4?
• 5:14
  SPEAKER_01: No, actually,
• 5:15
  SPEAKER_01: I think you will probably see the disclosure in the intention to float announcement
• 5:20
  SPEAKER_01: that makes reference to an expected launch date on or around 30th of September.
• 5:25
  SPEAKER_01: So everything going according to plan,
• 5:27
  SPEAKER_01: that's a date that the company would be looking to officialize.
• 5:29
  SPEAKER_01: So today you have got headline numbers in the ITF,
• 5:33
  SPEAKER_01: but you would have the full financials and a reporting accountants report
• 5:37
  SPEAKER_01: that would be part of the information memorandum.
• 5:39
  SPEAKER_01: So that's the sort of roadmap towards the listing.
• 5:42
  SPEAKER_01: And then the usual timetable should then fall off.
• 5:44
  SPEAKER_01: So what made this public listing on the NSC the ideal option?
• 6:13
  SPEAKER_01: We could look at it the other way.
• 6:14
  SPEAKER_01: Why not?
• 6:15
  SPEAKER_01: I think as capital markets continue to develop,
• 6:18
  SPEAKER_01: it is actually the end game for liquidity events.
• 6:21
  SPEAKER_01: And in fact,
• 6:21
  SPEAKER_01: what has been happening,
• 6:22
  SPEAKER_01: you're very right,
• 6:23
  SPEAKER_01: especially where there are businesses owned by private equity funds,
• 6:27
  SPEAKER_01: you do fund, there's a lot of...
• 6:28
  SPEAKER_01: I think for me,
• 6:30
  SPEAKER_01: it really speaks a lot to the success of their
• 6:41
  SPEAKER_01: capital markets that it can be seen
• 6:43
  SPEAKER_01: as a credible path to liquidity,
• 6:45
  SPEAKER_01: a path to seek growth opportunities through the markets to have such a business,
• 6:49
  SPEAKER_01: consider a listing as it grows.
• 6:51
  SPEAKER_02: This sort of follows up on what you're saying there,
• 6:53
  SPEAKER_02: because we've always had this conversation,
• 6:55
  SPEAKER_02: especially when you speak with private equity and venture capital,
• 6:57
  SPEAKER_02: guys, you're like, you've invested in all these businesses.
• 7:00
  SPEAKER_02: Why aren't you bringing them to market, right?
• 7:01
  SPEAKER_02: That path to exit, and it's not just a Kenya problem.
• 7:03
  SPEAKER_02: I see this as well in capital markets in Nigeria, the path to exit.
• 7:06
  SPEAKER_02: But now we're interested in seeing what else is out there.
• 7:34
  SPEAKER_01: Yes.
• 7:34
  SPEAKER_01: And in fact,
• 7:35
  SPEAKER_01: I think we need to demystify the issue around liquidity because today,
• 7:39
  SPEAKER_01: as we speak, I think we're looking at a much deeper broader capital markets.
• 7:43
  SPEAKER_01: I think you'll have seen the local component of trading that
• 7:46
  SPEAKER_01: the exchange has elevated and overshadowed.
• 7:49
  SPEAKER_01: Overall, I think the markets have provided solid returns for investors.
• 7:53
  SPEAKER_01: So definitely showcase that exiting through equity capital markets is really one of
• 7:57
  SPEAKER_01: the main options that should be considered.
• 8:00
  SPEAKER_01: I think even for companies that are not necessarily looking for capital,
• 8:03
  SPEAKER_01: I think it's still one of the key need to follow some of the exit options
• 8:07
  SPEAKER_01: that even other businesses that have private equity and others want to look
• 8:12
  SPEAKER_01: at those type of exit opportunities.
• 8:14
  SPEAKER_02: Greg, I want to turn to the business specifically, at least on the Philly side.
• 8:18
  SPEAKER_02: Who are the investors behind Stokoni Retail Kenya,
• 8:21
  SPEAKER_02: which is,
• 8:22
  SPEAKER_02: as I understand it, that's a holding company that owns QuickMart in the country?
• 8:25
  SPEAKER_02: And how much are each of these founding parties,
• 8:28
  SPEAKER_02: the QuickMart and the Tumani Founders and then Adenia Capital Partners,
• 8:31
  SPEAKER_02: how much is each selling?
• 8:32
  SPEAKER_02: What are they going to retain?
• 8:34
  SPEAKER_02: And after listing post-IPO, what is their involvement in the business going to look like?
• 8:40
  SPEAKER_01: So I think you may have seen in the disclosure around the shareholding
• 8:43
  SPEAKER_01: that Sokone Retail Kenya Limited is effectively the holding company for
• 8:48
  SPEAKER_01: the shareholding group behind QuickMart.
• 8:50
  SPEAKER_01: So that comprises of another vehicle where Denia holds its insurance.
• 8:55
  SPEAKER_01: And the founders are still in the business holding their respective stakes
• 8:58
  SPEAKER_01: through Soconi Retail.
• 8:59
  SPEAKER_01: In terms of the offer structure, it is a
• 9:10
  SPEAKER_01: 50% selldown effectively at the so-called retail level,
• 9:14
  SPEAKER_01: which would effectively result in a prorata selldown by each of
• 9:18
  SPEAKER_01: the various shareholders.
• 9:19
  SPEAKER_01: It is expected that without the Greenshoe option,
• 9:22
  SPEAKER_01: they would therefore retain a 50% shareholding.
• 9:24
  SPEAKER_01: But once a Greenshoe is exercised, that shareholding would drop to about 42.5%.
• 9:30
  SPEAKER_02: So walk us to the mechanics of that.
• 9:32
  SPEAKER_02: How does that over-elotment option work?
• 9:34
  SPEAKER_02: Is this one of the scenarios where you're coming to the market?
• 9:36
  SPEAKER_02: I'm selling 2 billion shares,
• 9:38
  SPEAKER_02: but you get demand for,
• 9:39
  SPEAKER_02: I don't know, 2.5,
• 9:40
  SPEAKER_02: 2.2 billion,
• 9:41
  SPEAKER_02: and therefore you then say,
• 9:42
  SPEAKER_02: okay, well, we'll sell an additional, that extra 200 million, 500 million shares.
• 9:46
  SPEAKER_02: That's how the over-elotment option would work, right?
• 9:48
  SPEAKER_01: Yeah, it's typically classic green shoe.
• 9:51
  SPEAKER_01: I think you can consider it in that light.
• 9:52
  SPEAKER_01: I think we'll probably have additional disclosures on the mechanics
• 9:56
  SPEAKER_01: in these prospectors which investors can look at.
• 9:58
  SPEAKER_01: But that's essentially the underlying rationale.
• 10:00
  SPEAKER_02: The sale then is essentially providing a bit of exit liquidity to Edenia and
• 10:04
  SPEAKER_02: the founding parties on Kwikblat and to Maini, right?
• 10:06
  SPEAKER_02: Because the proceeds of the transaction are going to existing shareholders.
• 10:11
  SPEAKER_02: They're not actually going to other general business purposes within the retailer.
• 10:14
  SPEAKER_01: This is the secondary offer where the proceeds of the offer would be to the account
• 10:19
  SPEAKER_01: of the selling a shareholder as a vendor of the shares.
• 10:22
  SPEAKER_01: The company is not raising capital in this instance.
• 10:25
  SPEAKER_01: And I think we,
• 10:26
  SPEAKER_01: as described earlier,
• 10:27
  SPEAKER_01: the offer proceeds will provide a partial sell down by the entire shareholder group
• 10:32
  SPEAKER_01: that would then bring on board new investors into the business.
• 10:35
  SPEAKER_02: That leads me to my next question,
• 10:37
  SPEAKER_02: because most of the time,
• 10:38
  SPEAKER_02: at least for a lot of retail investors,
• 10:40
  SPEAKER_02: the question would be, okay,
• 10:41
  SPEAKER_02: if you're coming to the market and you're raising money,
• 10:42
  SPEAKER_02: usually it goes into general business process, right?
• 10:45
  SPEAKER_02: We're paying down debt, we're using this capital to invest in X, Y, Z.
• 10:48
  SPEAKER_02: And in that sort of instance,
• 10:49
  SPEAKER_02: it sounds like this is a retail business
• 10:51
  SPEAKER_02: that doesn't actually need external capital per se,
• 10:54
  SPEAKER_02: which then leads to the next question of why this?
• 10:56
  SPEAKER_02: Walk me through the response to that.
• 10:58
  SPEAKER_01: So I think there are different reasons why a listing can be sought.
• 11:01
  SPEAKER_01: And one of the reasons,
• 11:02
  SPEAKER_01: as you correctly alluded to,
• 11:04
  SPEAKER_01: is when a business is actually raising capital or its own growth capital,
• 11:08
  SPEAKER_01: which we would term as a primary transaction where the proceeds would go into
• 11:12
  SPEAKER_01: the business.
• 11:13
  SPEAKER_01: The use of proceeds would be disclosed as such.
• 11:15
  SPEAKER_01: But in this instance,
• 11:16
  SPEAKER_01: this is an offer for sale,
• 11:18
  SPEAKER_01: which is essentially what you'd call a secondary offer by selling a shareholder as
• 11:22
  SPEAKER_01: a vendor of the shares.
• 11:23
  SPEAKER_01: And that also tells you something.
• 11:25
  SPEAKER_01: If you look at the numbers, it has been growing quite significantly.
• 11:28
  SPEAKER_01: And part of the equity story is to validate that the business is able to self-fund.
• 11:32
  SPEAKER_01: You don't go to the market to raise capital if you don't really need it.
• 11:35
  SPEAKER_01: And I think those numbers will be there for investors to look at even
• 11:38
  SPEAKER_01: in greater detail as disclosed in the reporting accountants report.
• 11:42
  SPEAKER_01: So listing mechanics.
• 11:43
  SPEAKER_01: There are different routes to listing.
• 11:44
  SPEAKER_01: I think there are companies at least through production.
• 11:47
  SPEAKER_01: So there are various pathways to a listing that can be sought.
• 11:50
  SPEAKER_01: I think in this case,
• 11:51
  SPEAKER_01: the company and the selling shareholders to consider as a viable path to
• 11:55
  SPEAKER_01: the liquidity event.
• 11:56
  SPEAKER_01: As you correctly said earlier on,
• 11:57
  SPEAKER_01: we've seen private sales in the market as trade sales,
• 12:01
  SPEAKER_01: but this creates an opportunity for other investors to come in and enjoy being part
• 12:06
  SPEAKER_01: of a truly Kenyan growth story.
• 12:08
  SPEAKER_02: With respect to the sort of growth rates that Greg was mentioning a little earlier
• 12:11
  SPEAKER_02: with the scale of the business growing,
• 12:13
  SPEAKER_02: let me just bring in Eric Mokai to speak on those particularly trend lines,
• 12:16
  SPEAKER_02: because we've been looking at,
• 12:17
  SPEAKER_02: I think, the same memo from the firm a little earlier today.
• 12:20
  SPEAKER_02: 15.9% revenue growth, that's a forecast.
• 12:23
  SPEAKER_02: What else stood out for you, Eric?
• 12:38
  SPEAKER_00: Just comparing with the various supermarkets that traditionally have figures.
• 12:42
  SPEAKER_00: For FY35,
• 12:43
  SPEAKER_00: Naivasan revenue is around $111 billion,
• 12:46
  SPEAKER_00: $2.4 billion in profits,
• 12:47
  SPEAKER_00: so net margin of 2%,
• 12:49
  SPEAKER_00: CICMAT at $50 billion,
• 12:51
  SPEAKER_00: $125 billion in profits,
• 12:53
  SPEAKER_00: then you get $3.4 billion in margin,
• 12:55
  SPEAKER_00: CICMAT for revenue of $50 billion,
• 12:58
  SPEAKER_00: also of $0.63 billion in net operating profit after tax, so 1.3% margin.
• 13:03
  SPEAKER_00: So there will be a bit of differences in terms of net profits that generally...
• 13:08
  SPEAKER_00: I think the margins are around what you expect for a retail player,
• 13:11
  SPEAKER_00: around less than 5% as usual.
• 13:14
  SPEAKER_00: It's a margin business, so to speak.
• 13:16
  SPEAKER_02: Graham, what level of additional details should investors expect once
• 13:19
  SPEAKER_02: the information memorandum comes out in about a week's time,
• 13:22
  SPEAKER_02: especially with respect to lease obligations,
• 13:24
  SPEAKER_02: to supplier balances, related party transactions, and so on?
• 13:28
  SPEAKER_01: So, yes, Rama, there will be a lot more detailed disclosures.
• 13:33
  SPEAKER_01: First of all, there will be the offer statistics, offer details, terms of the offer.
• 13:37
  SPEAKER_01: There will be a legal opinion,
• 13:39
  SPEAKER_01: reporting accountants report,
• 13:40
  SPEAKER_01: and other corporate general disclosures that would be required to satisfy
• 13:45
  SPEAKER_01: the disclosures required.
• 13:47
  SPEAKER_01: So yes,
• 13:50
  SPEAKER_00: there will be also disclosures around
• 13:52
  SPEAKER_01: the properties and covering
• 13:54
  SPEAKER_01: the various aspects of the business that will be contained in
• 13:56
  SPEAKER_01: the information memorandum,
• 13:57
  SPEAKER_01: which investors should also review as they make the decision around the offer.
• 14:02
  SPEAKER_02: The memo that came out today had some interesting lines in it,
• 14:04
  SPEAKER_02: described QuickBart as having, quote, strong operating cash conversion.
• 14:08
  SPEAKER_02: So for the financial information reviewed for this transaction,
• 14:11
  SPEAKER_02: can you give us a bit more colour on that?
• 14:12
  SPEAKER_02: What's the retailer's cash conversion cycle like?
• 14:15
  SPEAKER_02: How much does it depend on payment terms being negotiated with suppliers
• 14:19
  SPEAKER_02: and really clever inventory management?
• 14:21
  SPEAKER_02: You know,
• 14:21
  SPEAKER_02: you get stuff very close to when it's needed by consumers based on what we've seen,
• 14:25
  SPEAKER_02: their buy habits alike over the last 60, 90 days or thereabouts.
• 14:30
  SPEAKER_01: Without taking enough from management who might be better to say that,
• 14:34
  SPEAKER_01: I think the real thing is looking at the business and their discipline
• 14:37
  SPEAKER_01: in working capital management, how they manage the inventory.
• 14:41
  SPEAKER_01: But I think the bottom line is making sure that the business is well managed,
• 14:45
  SPEAKER_01: which I think it's quite evident.
• 14:46
  SPEAKER_01: At the end of the day, what you want to have is a business that is able to convert cash.
• 14:50
  SPEAKER_01: I think we discussed earlier regarding the cash position of the business
• 14:54
  SPEAKER_01: and how it has been able to grow and sell finance.
• 14:56
  SPEAKER_01: So I think those are the very critical element, even as part of the equity story that I think.
• 15:00
  SPEAKER_01: I think might be attractive as an investor looking at the sector,
• 15:03
  SPEAKER_01: which has its own nuances around how the business is run
• 15:06
  SPEAKER_01: from negative working capital point of view.
• 15:09
  SPEAKER_01: But more importantly,
• 15:10
  SPEAKER_01: is to also assess the difficulty in how the business is managed from
• 15:14
  SPEAKER_01: a working capital and how it's able to generate and convert
• 15:17
  SPEAKER_02: cash flow.
• 15:18
  SPEAKER_02: And that leads me to my next question,
• 15:20
  SPEAKER_02: because I can see some individuals in this space here who've been all hands in
• 15:23
  SPEAKER_02: the capital market for many decades,
• 15:26
  SPEAKER_02: called Tusker, for example, who's with us at the moment.
• 15:28
  SPEAKER_02: And they will remember being burned by Uchumi.
• 15:30
  SPEAKER_02: There was a time Uchumi was pretty much treated like a beautiful stock.
• 15:33
  SPEAKER_02: Of course, that went under NACOMAT's battles with its unpaid suppliers.
• 15:37
  SPEAKER_02: So from the due diligence that you've been doing at SPG for this listing,
• 15:41
  SPEAKER_02: what can you tell us about QuickMAT's operational structure,
• 15:44
  SPEAKER_02: its financial structure,
• 15:46
  SPEAKER_02: its governance that would help investors assess
• 15:48
  SPEAKER_02: if those risks are being managed differently in this case?
• 15:52
  SPEAKER_01: Looking at the business,
• 15:53
  SPEAKER_01: thinking big picture,
• 15:54
  SPEAKER_01: one of the very critical things that needs to be right in the business
• 15:57
  SPEAKER_01: as your diligence is governance.
• 15:59
  SPEAKER_01: I think governance is super critical.
• 16:00
  SPEAKER_01: You've seen very strong institutional shareholding,
• 16:03
  SPEAKER_01: bringing discipline in capital management and making sure that from
• 16:06
  SPEAKER_01: a governance point of view, the right practices are being followed.
• 16:09
  SPEAKER_01: There are very successful retailers out there and there's nothing really wrong with the sector.
• 16:14
  SPEAKER_01: It's just really how the businesses are being run.
• 16:16
  SPEAKER_01: I think you can look at case studies in South Africa and elsewhere.
• 16:19
  SPEAKER_01: Where they have more mature retail businesses, retail sectors.
• 16:23
  SPEAKER_01: And even as the market grows,
• 16:24
  SPEAKER_01: because remember Kenya is still a relative low penetration in terms of retail.
• 16:29
  SPEAKER_01: So I think it's an opportunity for the industry to grow,
• 16:32
  SPEAKER_01: but also for businesses that are well managed,
• 16:34
  SPEAKER_01: well run to also provide opportunity for investors to participate in
• 16:38
  SPEAKER_01: the growth theory,
• 16:39
  SPEAKER_01: especially because the penetration is still quite low compared to developed markets.
• 16:43
  SPEAKER_02: And you go into a bit more detail on that because I keep hearing that line when
• 16:46
  SPEAKER_02: the retail sector in Kenya is being described and say,
• 16:48
  SPEAKER_02: you know,
• 16:48
  SPEAKER_02: the penetration of the formal retail sector is relatively low,
• 16:51
  SPEAKER_02: around 30% or thereabouts,
• 16:52
  SPEAKER_02: because most of us will still go to our corner shops, right?
• 16:55
  SPEAKER_02: And buy the groceries we need there,
• 16:56
  SPEAKER_02: buy the milk we need there,
• 16:58
  SPEAKER_02: buy So when we say there's still a lot of headroom here to expand formal retail,
• 17:03
  SPEAKER_02: how do we arrive at that conclusion?
• 17:05
  SPEAKER_01: Walk us through the math here.
• 17:06
  SPEAKER_01: There is increased formalization that is taking place.
• 17:09
  SPEAKER_01: I think you can see the evidence in other markets,
• 17:11
  SPEAKER_01: how they have transitioned from low And part of the appeal,
• 17:16
  SPEAKER_01: especially for quick match,
• 17:17
  SPEAKER_01: perhaps even offering convenience,
• 17:19
  SPEAKER_01: which I think is quite important in that transformation from
• 17:22
  SPEAKER_01: the low penetration levels that are there today to how it can evolve as it has
• 17:26
  SPEAKER_01: in other markets.
• 17:28
  SPEAKER_01: I think there are various elements that contribute to that evolution in growth in retail.
• 17:31
  SPEAKER_01: I think modernization is there,
• 17:32
  SPEAKER_01: but I think a large chunk of trade is still happening outside the formal retail.
• 17:37
  SPEAKER_01: But I think those are the things which as part of even the prospectors,
• 17:39
  SPEAKER_01: you'll probably see more details around that.
• 17:44
  SPEAKER_01: So retailers tend to operate on
• 17:51
  SPEAKER_02: relatively thin margins, right?
• 17:52
  SPEAKER_02: Even if we use much larger foreign companies as points of comparison,
• 17:56
  SPEAKER_02: Walmart, I think is around 3%.
• 17:58
  SPEAKER_02: That's one part of the equation.
• 17:59
  SPEAKER_02: And then you've got
• 18:13
  SPEAKER_02: I mean, looking at all of these things combined,
• 18:15
  SPEAKER_02: isn't that dividend payout target of at least 80%?
• 18:28
  SPEAKER_02: If you look at the history, I think some of the disclosures in the
• 18:43
  SPEAKER_01: They're trying to float announcements actually prove that you're very disciplined
• 18:47
  SPEAKER_01: in your store rollout, in your planning, working capital management.
• 18:51
  SPEAKER_01: And when you do have a chance to declare this with management,
• 18:53
  SPEAKER_01: they can walk through the math and how business model supports that kind
• 18:57
  SPEAKER_01: of cash conversion.
• 18:58
  SPEAKER_01: And at the same time, providing ample capacity for dividend payout.
• 19:01
  SPEAKER_01: So I think there is an element of strong operating discipline,
• 19:05
  SPEAKER_01: which is quite evident in how the business has been managed.
• 19:08
  SPEAKER_01: And I think one of the things that is also important when looking at
• 19:11
  SPEAKER_01: the investment key or actually the reason for...
• 19:13
  SPEAKER_01: For considering retail,
• 19:15
  SPEAKER_01: especially as a sector that is well managed,
• 19:17
  SPEAKER_01: first of all,
• 19:17
  SPEAKER_01: how it's positioned,
• 19:18
  SPEAKER_01: the business itself in terms of its positioning,
• 19:21
  SPEAKER_01: its ability to scale and grow in terms of same store growth and really underpins
• 19:25
  SPEAKER_01: the growth, right?
• 19:26
  SPEAKER_01: If you can roll out stores with high return on invested capital,
• 19:30
  SPEAKER_01: I think those are the very critical elements that provide the building blocks for
• 19:33
  SPEAKER_01: the equity story for this company in particular.
• 19:36
  SPEAKER_02: And Sarkoni will retain a relatively solid stake after the sale because
• 19:40
  SPEAKER_02: the intent here is to sell half all Sarkoni retail into the market.
• 19:43
  SPEAKER_02: But I know there was a reference in the memo to a lock-up period, right?
• 19:46
  SPEAKER_02: So how long will that lock-up period last?
• 19:48
  SPEAKER_02: What restrictions apply to Sarkoni and its underlying investors, right?
• 19:51
  SPEAKER_02: Tumani and the Quikmat founders, Placidenia.
• 19:54
  SPEAKER_02: Are there any circumstances in which those lock-up conditions could be lifted early?
• 19:58
  SPEAKER_01: You're right.
• 19:59
  SPEAKER_01: The shareholding would still be quite meaningful in the business.
• 20:02
  SPEAKER_01: And obviously,
• 20:03
  SPEAKER_01: when designing an offer,
• 20:04
  SPEAKER_01: you require a careful balance of liquidity in the markets,
• 20:07
  SPEAKER_01: but also making sure that you've got a meaningful shareholding by
• 20:10
  SPEAKER_01: the current shareholder to continue all in the aftermarket.
• 20:14
  SPEAKER_01: So I think we know there was reference to the lockup provisions
• 20:17
  SPEAKER_01: and those would be further contained.
• 20:19
  SPEAKER_01: I think the details will be finalized and fully disclosed in the information memorandum.
• 20:23
  SPEAKER_01: I think that is also quite standard to have lockup agreements where
• 20:27
  SPEAKER_01: a secondary offer is being made to the market.
• 20:30
  SPEAKER_01: So those will be further set out in the information memorandum.
• 20:33
  SPEAKER_02: That may help to keep incentives aligned as it were.
• 20:37
  SPEAKER_02: One of the interesting things that came out of the memo was the presentation that
• 20:40
  SPEAKER_02: the overall tone,
• 20:41
  SPEAKER_02: I think the company is relatively low debt and that was positioned as a strength,
• 20:45
  SPEAKER_02: but we're looking at net finance charges of around a billion chilies a year
• 20:48
  SPEAKER_02: between fiscal 22 and fiscal 25.
• 20:51
  SPEAKER_02: What exactly makes our And what should we expect in the forecast about
• 20:58
  SPEAKER_02: where financing costs should go,
• 21:00
  SPEAKER_02: given what we've spoken about in terms of the annual expansion plan,
• 21:03
  SPEAKER_02: 10 to 15 new physical stores, there's a plan to also invest quite heavily.
• 21:07
  SPEAKER_02: I think you're probably referring to the least cost and depending
• 21:09
  SPEAKER_02: on how various investors look at them,
• 21:11
  SPEAKER_02: whether as an operating expense item or finance
• 21:22
  SPEAKER_01: So just to be careful,
• 21:23
  SPEAKER_01: like say for example, I'm just looking at the audited numbers for 2025 here.
• 21:25
  SPEAKER_01: So a big chunk of these net finance charges are 1.28 billion shillings.
• 21:29
  SPEAKER_01: Most of that, if I understand you correctly, and lease items.
• 21:51
  SPEAKER_01: Yeah, I believe you're referring to the lease items because there's no debt at the moment.
• 21:55
  SPEAKER_01: So that would likely be referring to the operating lease charges.
• 21:59
  SPEAKER_02: How sensitive are these forecasts to higher rates?
• 22:01
  SPEAKER_02: Because as we've probably seen over the last couple of weeks,
• 22:04
  SPEAKER_02: right, we're now getting into a rate hiking situation.
• 22:06
  SPEAKER_02: Can this growth rate continue at a time when cost of capital is going up?
• 22:22
  SPEAKER_01: Yeah, but I think Rama,
• 22:23
  SPEAKER_01: they need to differentiate between typical debt and operating leases,
• 22:29
  SPEAKER_01: which have fundamentally different structures.
• 22:31
  SPEAKER_01: Those nuances will be there.
• 22:32
  SPEAKER_01: As I said earlier on,
• 22:33
  SPEAKER_01: if you do have a chance to host management,
• 22:36
  SPEAKER_01: they can walk you through some of the Cost economics and align the operating model
• 22:40
  SPEAKER_01: and how that is expected to evolve.
• 22:42
  SPEAKER_01: At the end of the day,
• 22:43
  SPEAKER_01: the important thing is to make sure that the margin profile of
• 22:46
  SPEAKER_01: the business remains robust.
• 22:48
  SPEAKER_01: It's defensive.
• 22:49
  SPEAKER_01: I think we've seen margin profile improving.
• 22:51
  SPEAKER_01: That's one of the key positive attributes of the business today.
• 22:55
  SPEAKER_02: And it'll certainly be interesting to talk to the operators at some points
• 22:58
  SPEAKER_02: for you once prospectors does eventually come out.
• 23:01
  SPEAKER_02: Just going back to the revenue forecast,
• 23:02
  SPEAKER_02: 15.9% revenue growth forecast for this year,
• 23:05
  SPEAKER_02: 16% growth in operating income forecast,
• 23:08
  SPEAKER_02: and a 35% jump in net earnings also forecast as well.
• 23:12
  SPEAKER_02: Can you walk us through these assumptions that underpin faster earnings growth?
• 23:16
  SPEAKER_01: So I think it's different components
• 23:18
  SPEAKER_01: and I think different investors will have different drivers for growth,
• 23:22
  SPEAKER_01: will drive their models differently.
• 23:23
  SPEAKER_01: I'm not necessarily going to walk through the full assumption sets,
• 23:27
  SPEAKER_01: but I think fundamentally speaking,
• 23:29
  SPEAKER_01: depending whether you're looking at what are the sales drivers,
• 23:32
  SPEAKER_01: What are the growth drivers for the revenue, for the margin profile?
• 23:35
  SPEAKER_01: I think all those elements are really key.
• 23:37
  SPEAKER_01: I think it's important that like-for-like sales growth is factored in.
• 23:41
  SPEAKER_01: It is also important to the thorough out as a key driver,
• 23:44
  SPEAKER_01: the operating cost intensity So ultimately,
• 23:52
  SPEAKER_01: I think the headline numbers are there for a preliminary assessment on
• 23:56
  SPEAKER_01: the business model.
• 23:57
  SPEAKER_01: And the focus actually do present positive trajectory for 2026 and 2027.
• 24:02
  SPEAKER_01: As that continues,
• 24:03
  SPEAKER_01: there's also disclosure around how the business is expected to perform on
• 24:06
  SPEAKER_01: a net earnings basis and some of the expected dividend payouts for 2026 and 2027.
• 24:13
  SPEAKER_02: Indeed, it's going to be really interesting to see a lot of these details,
• 24:15
  SPEAKER_02: especially the sensitivity analysis around what revenue might look like,
• 24:19
  SPEAKER_02: given how constrained the kind of pressure the Kenyan household is facing at
• 24:22
  SPEAKER_02: the moment.
• 24:23
  SPEAKER_02: Really love to read that once prospectus that eventually come to market.
• 24:26
  SPEAKER_02: Let's talk about pricing though.
• 24:27
  SPEAKER_02: So you've put it out there with the ITF,
• 24:29
  SPEAKER_02: there's two billion shares on offer,
• 24:32
  SPEAKER_02: but how's the offer price going to be determined?
• 24:34
  SPEAKER_02: What valuation benchmark should you be thinking about in trying to value this business?
• 24:39
  SPEAKER_01: Different investors have different ways of looking at this business here.
• 24:42
  SPEAKER_01: I think there's an opportunity for investors to develop their models
• 24:46
  SPEAKER_01: and run their TCF analysis,
• 24:48
  SPEAKER_01: peer comparables,
• 24:49
  SPEAKER_01: whether on an EBITDA or PE basis,
• 24:52
  SPEAKER_01: and also really look at I think that is probably part of the exercise.
• 24:56
  SPEAKER_01: And as I alluded earlier,
• 24:58
  SPEAKER_01: it's an opportunity for investors to do more sector work,
• 25:01
  SPEAKER_01: particularly by looking at the other peers,
• 25:03
  SPEAKER_01: for instance,
• 25:04
  SPEAKER_01: in South Africa,
• 25:04
  SPEAKER_01: particularly those that probably have the same qualitative underpin
• 25:09
  SPEAKER_01: because I think peers that investors are looking at also do matter.
• 25:12
  SPEAKER_01: So I think it's really an opportunity for investors to also take a deep dive
• 25:15
  SPEAKER_01: into how some of the peers are performing and run their comparisons
• 25:19
  SPEAKER_01: across different peer groups.
• 25:20
  SPEAKER_01: We've got some operators east in Europe, maybe less relevant.
• 25:24
  SPEAKER_01: So I think, look, it's also an opportunity for investors to really take a look at the sector.
• 25:33
  SPEAKER_01: You said earlier,
• 25:34
  SPEAKER_01: there's probably less familiarity compared to banks,
• 25:37
  SPEAKER_01: which I think investors in Kenya are very I think it will be a cross-section
• 25:41
  SPEAKER_01: of different methodologies.
• 25:43
  SPEAKER_01: And for us,
• 25:43
  SPEAKER_01: we'll have to take as advice together with the company and the selling shareholders,
• 25:47
  SPEAKER_01: take cognizance of a lot of factors that would be considered in setting
• 25:51
  SPEAKER_01: the offer price that would be contained in the final
• 25:53
  SPEAKER_02: offer memorandum.
• 25:55
  SPEAKER_02: Indeed.
• 25:55
  SPEAKER_02: And just to your point with respect to where the sort of stocks and counters
• 25:59
  SPEAKER_02: that do have a lot more liquidity,
• 26:00
  SPEAKER_02: if you just look at today's counters,
• 26:02
  SPEAKER_02: for example,
• 26:02
  SPEAKER_02: top 11 counters that were traded today,
• 26:04
  SPEAKER_02: there are only two energy firms in there, right?
• 26:06
  SPEAKER_02: Kendon and Kenya Power.
• 26:08
  SPEAKER_02: Everybody else is effectively a financial services firm,
• 26:11
  SPEAKER_02: of course,
• 26:11
  SPEAKER_02: with the exception of Safaricom,
• 26:13
  SPEAKER_02: which still would like to remind us that they're a telco and not necessarily
• 26:16
  SPEAKER_02: a financial services firm, but that's a conversation for another day.
• 26:19
  SPEAKER_02: Once applications open for this particular offer, how do individuals participate?
• 26:24
  SPEAKER_02: How will shares be allocated if demand,
• 26:25
  SPEAKER_02: of course, exceeds what's available out of this pool of 2 billion shares?
• 26:29
  SPEAKER_02: How are you splitting that pool between the retail investors,
• 26:32
  SPEAKER_02: domestic institutional investors in East Africa,
• 26:34
  SPEAKER_02: and of course, investors outside those regions?
• 26:37
  SPEAKER_01: In order to participate, investors would require CDS accounts.
• 26:40
  SPEAKER_01: So I think it's an opportunity for investors to make sure that the CDS accounts
• 26:44
  SPEAKER_01: with their respective brokers are active and can participate in the offer.
• 26:48
  SPEAKER_01: So from a participant point of view,
• 26:49
  SPEAKER_01: I think that is critical that investors do take the necessary steps.
• 26:52
  SPEAKER_01: Ahead of the launch,
• 26:53
  SPEAKER_01: and even during the launch,
• 26:54
  SPEAKER_01: you've asked about the various provisions around allocations.
• 26:57
  SPEAKER_01: As it is customary,
• 26:58
  SPEAKER_01: you would expect there to be an allocation policy in the information memorandum
• 27:02
  SPEAKER_01: that you would then seek to balance the different investor pools from retail, ECBs.
• 27:07
  SPEAKER_01: I would be remiss if I didn't ask you this because I know there's some of
• 27:08
  SPEAKER_01: the young retail investors are on this particular call.
• 27:11
  SPEAKER_01: ZD Trader would be also one avenue through which they can invest in this PIO.
• 27:37
  SPEAKER_01: Presumably, yes.
• 27:37
  SPEAKER_01: So we are looking at it.
• 27:38
  SPEAKER_01: We are considering core channels that can also reduce any friction
• 27:42
  SPEAKER_01: that might be there,
• 27:43
  SPEAKER_01: including the possibility of opening a CDS account for the offer in
• 27:47
  SPEAKER_01: a more efficient manner for those who may not have that.
• 27:49
  SPEAKER_01: We are really considering all options to support investors to fully participate in the offer.
• 27:54
  SPEAKER_01: And you're right,
• 27:55
  SPEAKER_01: OCD is definitely one of the platforms that we are looking at in terms
• 27:58
  SPEAKER_01: of how do we support investors to fully participate in the offer.
• 28:02
  SPEAKER_02: One last question for you, Greg, before we wrap up the conversation.
• 28:05
  SPEAKER_02: Before deciding whether to take part in this share sale,
• 28:08
  SPEAKER_02: what would you tell prospective investors?
• 28:10
  SPEAKER_02: If you have a list,
• 28:11
  SPEAKER_02: what are the top three things you need to examine in
• 28:13
  SPEAKER_02: the information memorandum that's going to come out a week from now?
• 28:17
  SPEAKER_01: Disclosures are important, especially around the company, the legal opinion.
• 28:21
  SPEAKER_01: It's important investors,
• 28:22
  SPEAKER_01: if they do have access to advisors, they can also consult various advisors.
• 28:26
  SPEAKER_00: But I think investors should pay attention to the various disclosures that are there.
• 28:30
  SPEAKER_01: Usually there's quite a lot of disclosure There's a lot of information
• 28:34
  SPEAKER_01: that will be coming out in the IM,
• 28:35
  SPEAKER_01: even in the general corporate disclosures of the company.
• 28:38
  SPEAKER_01: So I think they need definitely to take a holistic look at
• 28:40
  SPEAKER_01: the key reasons why one would consider the investment,
• 28:43
  SPEAKER_01: particularly from an equity story point of view and make a decision.
• 28:46
  SPEAKER_01: Indeed,
• 28:47
  SPEAKER_01: and hopefully we'll have you back once the IM is out and of course with someone
• 28:50
  SPEAKER_01: from management over at Quigmart to get a real deep,
• 28:52
  SPEAKER_01: nitty-gritty understanding of the retail operation as it were.
• 29:10
  SPEAKER_01: Gregor Eero,
• 29:11
  SPEAKER_01: CEO of SBG Securities,
• 29:13
  SPEAKER_02: thank you very much for your time spending the last hour with us here on
• 29:16
  SPEAKER_02: the Mwango Capital Spaces.
• 29:18
  SPEAKER_02: And of course, thanks to you all
• 29:19
  SPEAKER_02: for giving us the last hour of your day.
• 29:22
  SPEAKER_02: Santenislav.