Two analysts have issued bleak outlook for Uchumi Supermarkets in research notes to investors. Cytonn Investments has made a U-turn from its earlier note advising investors to buy the retailer’s stock, and has entirely dropped it from its recommended portfolio.
Exotix Frontier Research has advised investors to sell Uchumi share with a target price of Sh5.30 apiece.
“Given the recent developments in Uchumi, we have suspended Uchumi from our recommendations list pending comprehensive review,” Cytonn said in a coverage note dated March 27, 2016. “We currently have a SELL recommendation based on a target price of Sh5.28,” Exotix said, noting that Uchumi faces brand equity erosion, poor execution in expansion strategy and a poor revenue mix.
Uchumi share has shed more than half its value since beginning of the year, and closed at Sh5.10 on Friday. Cytonn defended its decision saying the review follows Uchumi’s closing of five branches in Kenya and lawsuits with suppliers in Kenya and Uganda over non-payment of debts.
“For Uchumi Supermarket, we recommended an ‘Accumulate’ for purely speculative purposes,” Cytonn had earlier said in a coverage note dated March 20, 2016.
Analysts at Cytonn had given Uchumi a target price of Sh6.20 a share, an upside of nearly 20 per cent, saying “buying should be restrained and timed to happen when there are momentary dips in stock prices.” Uchumi’s total equity is in a negative position of Sh181 million as at December 2015 from a positive Sh739 million in June 2015.
“This is primarily explained by accumulated losses that stood at Sh4.3 billion as at December 2015,” analysts at Exotix said in their note.
Cytonn had started its coverage of Uchumi in December 2015 with a buy recommendation and a target price of Sh9.70 per share. Uchumi went on to touch a high of Sh10.65 on New Year’s Eve, giving investors a 31.5 per cent return for those who bought the share in early December.
“Our view is that the company will continue to struggle in its core business going forward as it lacks the necessary cash flows to support the daily operations,” Cytonn said after reviewing its position on Uchumi.
Uchumi collapsed on Madaraka Day, 2006 only to be rescued by the State and its suppliers. In recent years, it has been grossly mismanaged to nearly revert to its earlier position.