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How Simbisa’s aggressive expansion drive adds value

The expansion drive should be, however, be guarded in the same manner as before to avoid shocks.

It is not enough to conclude an investment move without considering the price shareholders have to pay in order to acquire the asset in question.

There is no doubt that FFI is a jewel and a promising business in the mid to long term: its ability to innovate, create coupled with its ability to have organically exponential growth over the years are a rarity that cannot be easily matched. But it is the right price that matters to the existing shareholder, for any such acquisition.

Simbisa is expected to part away with shares valued at $40 million at full consummation of the deal which is subject to beating targeted profit levels.

At an expected profit of $4.2 million in 2021, the implied Price Earnings Ratio at year 4 (PER+4) for FFI is 10 times which compares more favourably to a price earnings ratio of 16 times at which Simbisa was trading at, around the time the offer was tabled.

However to achieve this profit level by 2021, FFI has to grow its bottom line at a compounded average growth rate of 14% per annum over the next 4 years which we also believe is beatable, making a strong case for acquisition.

The multiples valuation used is the closest to fair value given that no much detail is given with regards to FFI’s historical financial performance.

By Respect Gwenzi for The Source.


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