Is Choppies Enterprise Limited good for dividend or value investing

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This is the final company for this series, we’ve analyzed about 7 companies for investing, and Choppies is the last. Next week we will dive into the meaning of some phrases used to describe the factors on the Investment lessons

1. Business Model

Choppies is a Botswana-based multinational supermarket retailer (listed on the BSE and JSE) focused on fast-moving consumer goods.  It operates hypermarkets/supermarkets (over 160 stores) primarily in Botswana, Namibia and Zambia .  The company offers a broad range of products – from fresh food and groceries to household and personal-care items – including both leading international brands and its own private-label value lines .  Choppies positions itself as a one-stop-value retailer: its strategy is to provide a “large bouquet” of goods and services, combined with low prices, to serve urban and rural customers alike .  In fact, management highlights its vast footprint and “best total value” offering .  This approach – targeting price-sensitive consumers with high-volume basic goods – has made Choppies the largest grocery retailer in Southern Africa outside South Africa .  In summary, Choppies’ model is a high-volume, low-margin supermarket chain serving everyday needs across key southern African markets.

2. Management Capability

Choppies is led by a founding management team with deep industry experience.  The long-time Group CEO, Ramachandran Ottapathu (with Farouk Ismail as Deputy Chairman), has steered the business since its rapid expansion in the 2000s.  The company emphasizes strong governance and continuity: it describes itself as “committed to sound corporate governance” .  For example, Vidya Sanooj (Acting CFO) is a Chartered Accountant with over 16 years at Choppies, spanning finance, restructuring and M&A .  Under this leadership, Choppies has pursued a turnaround strategy (exiting loss-making regions, renegotiating debt and refocusing on core markets).  Recent actions – such as a major rights issue in 2023 and the sale of unprofitable subsidiaries – suggest management is actively shoring up the business.  Overall, the team’s track record is mixed (past aggressive expansion followed by retrenchment), but current management appears disciplined: it has prioritized stabilizing cash flow and repairing the balance sheet.  Key founder-management remain highly vested in the outcome, which aligns interests with shareholders.

3. Historical Free Cash Flow Growth

Choppies’ free cash flow (FCF) has been modest and uneven.  In FY2021–2023 the company generated roughly flat-to-slightly growing cash from operations but spent heavily on expansion.  For example, FY2022 cash from operations was BWP 463m while capital expenditures were BWP 120m (implying FCF ≈343m). In FY2023, operating cash increased to BWP 484m, but capex jumped to BWP 181m (FCF ≈303m).  Thus, despite a larger business, higher store openings and investments kept FCF roughly in the same range.  In short, historical FCF growth has been limited – roughly flat over the last 2–3 years.  (Note: FY2024 saw a surge in revenues with new acquisitions, but integration costs and working-capital needs will test actual FCF.)  For a value investor, the key is that Choppies has positive cash flows, but not rapidly growing ones; sustainability of cash flow depends on controlling capex and inventory as sales rise.

4. End Market (Botswana & African Retail/FMCG)

Choppies operates in the southern African retail/FMCG sector.  Its core market, Botswana, is a small, relatively stable economy (GDP growth ~3–4%, inflation ~5% in 2023).  Choppies has become a dominant domestic player (estimated multi‑tens-of-percent share) by targeting lower- and middle‑income shoppers.  Outside Botswana, Choppies reached into Zambia and Namibia (growing markets with less saturated retail sectors), and until 2025 maintained operations in Zimbabwe.  The retail environment varies by country: Zambia and Namibia have moderate inflation and normal competition; Zimbabwe proved highly volatile (hyperinflation and forex controls).  Consumer demand in these markets is driven by population growth and rising incomes, but also challenged by inflation and the growth of informal traders.  Notably, management has found the Zimbabwe market difficult (shuttering its Zimbabwe chain in 2025 due to a “hostile economic environment” with currency instability) .  Overall, Choppies’ end market is the southern African FMCG space, where it competes mainly on low prices/volume.  Key trends include modest population/income growth in Botswana/Zambia, but significant macro risks (currency swings, import costs) especially in higher-inflation markets.  Choppies’ value-oriented position should help it weather consumer spending cycles, but competitive discounting (both from formal competitors and informal traders) is intense .

5. Main Risks

Choppies faces several material risks in its operating environment:

• Macro/Currency Risk:  Multi-currency exposure is a risk.  Zimbabwe’s economic instability (new ZiG currency volatility) was particularly damaging – formal retail footfall fell ~30% as customers fled to informal shops  .  In future, other markets could also impose exchange controls or suffer inflation surges. A devalued currency can erode margins and inflate local‐currency costs.

• Competition and Pricing Pressure:  The retail sector in these countries is competitive.  Choppies’ own reports note competitor discounting has compressed margins .  Lower-tier international chains, local supermarkets and small independent grocers all vie for the same customers, and they may undercut Choppies on price or offers.

• Demand Volatility:  Consumer spending in Botswana and the region is sensitive to commodity prices and GDP growth. An economic slowdown or high inflation could cut spending on non-essentials, impacting Choppies’ sales volumes.

• Operational/Execution Risk:  Rapid expansion (new stores, acquisitions) strains resources and may lead to integration challenges or overcapacity if not managed. Likewise, a heavy lease footprint (large fixed costs) means revenue shortfalls hit profits hard.

• Balance Sheet Leverage:  The company remains highly leveraged (see next section), which is a financial risk. If profits dip or refinancing is needed, solvency could be pressured.

• Governance/Ownership Risk:  A concentrated shareholder base (founders with big stakes) can be a governance concern. The company’s turnaround plan hinges on founder commitment and credit agreements; changes in strategy or ownership could impact stability.

6. Balance Sheet Health

The balance sheet has only just been stabilized and remains stretched.  As of June 2023, group equity was a meager BWP 42m (positive after years of losses) .  This follows a major rights issue (stated capital rose to BWP 1,207m) that reversed a deficit .  However, total liabilities (~BWP 2.135bn) still far exceed equity.  Long-term borrowings were reduced (to BWP 216m in 2023 from BWP 530m in 2022) , thanks to debt repayments, but short-term and lease liabilities are very large (current debt BWP 153m + overdraft BWP 79m; lease obligations ~BWP 828m total ).  On the asset side, current assets (BWP 847m) are well below current liabilities (BWP 1,236m) , suggesting working-capital stress.  Cash on hand improved to BWP 222m by mid-2023 , but is modest relative to total debt.  In summary, Choppies’ gearing is high and equity cushion thin.  The rights issue has given it a fighting chance, but any sales/cashflow setback could strain liquidity.  Balance-sheet health hinges on continued debt reduction and new equity buffers.

7. Capital Allocation Strategy

To date, Choppies has reinvested nearly all cash into the business rather than dividends.  In FY2023, the company raised fresh capital (BWP 301m from a rights issue) and used it to pay down bank debt (note long-term borrowings fell by ~BWP 314m) .  Capital expenditure remains high (store rollouts, warehouses), and management also spent on acquisitions – notably purchasing 108 liquor/hardware stores from Kamoso (completed in FY2024) .  In contrast, no dividend was declared in FY2022/FY2023 (the board explicitly withheld payout to conserve capital) .  By FY2024, Choppies signaled a return of dividends: in early 2024 it announced a small interim payout (1.6 thebe per share) with a 3× earnings cover .  This reflects a cautious policy – only excess cash is being returned.  The stated strategy is to continue restructuring debt through 2026 and to fund measured expansion in profitable regions .  Overall, Choppies’ capital allocation has favored strengthening the balance sheet and selective growth. It has sacrificed payouts to shareholders (0 dividends in FY23) in order to deleverage and build new assets. A dividend was only resumed once cash flows proved stable.

8. Past and Projected Growth

Historical growth (FY2021–FY2023):  Choppies saw only modest organic growth. Revenue rose from BWP 6.042bn in FY2021 to BWP 6.433bn in FY2022, and to BWP 6.486bn in FY2023 (about +6% for 2022–23).  Profit attributable to owners grew from ~BWP 140m to BWP 147m . Growth was largely driven by adding a few stores; comparable-store sales were roughly flat.  Gross margins held around 21%, but were pressured by costs and discounting.

Recent acceleration (FY2024):  The first half of FY2024 (ending Dec 2023) and FY2024 saw a sharp jump, largely from acquisitions and new stores.  The company reported a 31.8% rise in retail sales to BWP 8.48bn in FY2024, driven by 14 new Choppies outlets, the Kamoso stores and inflation .  This shows that if expansion goes well, growth can accelerate.

Looking ahead (FY2025+):  Management’s strategy is “slow and managed expansion” in profitable markets . They plan more new stores and formats: for example, opening the first cash-and-carry wholesale outlet in Lobatse in H1 FY2025, and standalone liquor shops in Namibia . With Zimbabwe exited and Kenya off the table, core growth will come from organic store count increases in Botswana, Zambia, Namibia and in-fill (e.g. distribution centers).  Analysts and company disclosures suggest modest mid-single-digit sales growth excluding M&A.  There is no official long-term guidance, but the revised five-year plan emphasizes debt-reduction and compounding store network, implying continued but cautious growth .

9. Dividend Sustainability

Historically, Choppies did not pay dividends during turnaround years.  For FY2021–FY2023, no dividends were declared (the Audit Committee explicitly recommended none) .  Only when the balance sheet improved did management resume dividends: in Feb 2024 the board announced an interim dividend of 1.6 thebe/share (the first since FY2017) .  This payout was funded from reserves and had a 3× cover relative to interim earnings.  Given FY2023 EPS of ~10.9 thebe , the 1.6t dividend implies a low payout ratio (~15%).  In other words, Choppies has prioritized retaining earnings over distributions. Going forward, dividends will likely remain conservative.  The declared policy (3× cover) suggests dividends can be supported so long as profits are sustained. But with only marginal net equity and heavy leases/debt, Choppies must keep most cash internally. For a dividend investor, Choppies’ track record is weak: yield is very small now (2–3% on current price) and payments are not guaranteed unless the company re-commits to regular distribution.

10. Current Valuation and Value Assessment

Choppies’ stock is currently trading at very low multiples, reflecting the market’s view of risk.  Based on the ~1.345 billion shares in issue and the ~BWP 150m profit for FY2023, FY2023 EPS was only about BWP 0.109 (10.9 thebe) .  Market quotes around late 2025 show a share price near BWP 0.70.  This implies a trailing P/E of only ~6–7×, which is extremely low for a retailer (i.e. a deep value multiple).  By contrast, book equity is almost zero: total equity was BWP 42m (≈BWP 0.031 per share), so P/B is on the order of 20× (the stock trades far above net book value) .  These metrics suggest the market views Choppies as distressed: you are essentially paying a small multiple of earnings but a huge multiple of book.  The implied dividend yield (based on the 1.6t interim) is only about 2–3%.

For a value investor, this valuation is a double-edged sword.  On one hand, a sub-7× P/E and equity at book value provide a margin of safety if the turnaround succeeds.  The market capitalization (low hundreds of millions Pula) might not fully reflect Choppies’ long-term cash flow potential in southern Africa, so upside exists if growth stabilizes.  On the other hand, these multiples reflect significant unresolved issues: high debt, volatile earnings and weak governance.  Without a clear path to sustained high cash generation, the stock could just as easily languish.

Assessment: Choppies may be of interest to a value investor willing to bet on a recovery. The current price is low relative to normalized earnings, hinting at possible undervaluation. However, one must be comfortable with the execution risk and dependence on management’s restructuring plan. For a dividend investor, Choppies is less appealing. Its dividend yield is negligible, and payments have only just resumed at a very low level. Until profits and cash flows are consistently strong, dividends will remain discretionary. In summary, Choppies could be a speculative value play (with potential upside if the turnaround sticks), but it does not presently fit a classic dividend-growth profile.

Sources: Choppies FY2023 audited results and commentary , plus company disclosures on strategy and dividends .