3 Things anyone buying Sameer Africa shares needs to know

Sameer Africa Plc (SMER) hit headlines recently over its decision to exit tyre business, which contributes 90% of its total revenue. In addition to selling vehicle tyres, the company’s other business is leasing and renting out residential and commercial properties. The rental business will become Sameer’s main business once it shuts down the tyre unit.

Here are three things anyone buying Sameer shares now needs to know.

1. Sameer shed its loss-making tyre unit in a major business restructuring

Sameer’s tyre business has been struggling for a long time, driving the company into huge financial losses. The tyre business particularly faced tough competition from an influx of counterfeit products and subsidised imported tyres from Asian countries that sold cheap in Kenya and Sameer’s other markets.

In 2016, Sameer shut its tyre factory in Nairobi and outsourced its tyre production to contract manufacturers in China and India in an attempt to cut costs and better compete with the rival selling cheap products.

But the remedy did little to turn around the Sameer’s fortunes. The company managed to turn a profit of $13 million in 2017 but the following year it plunged into a huge loss of more than Ksh500 million.

Last month, Sameer’s board met and resolved that the company should quit the tyre business. As a result, Sameer will send home more than 70 workers. Since the tyre business contributed 90% of Sameer’s revenue, shutting it down will narrow the company’s focus to the rental business – a small but profitable operation.

Sameer owns residential and commercial rental properties in Nairobi. The rental business generated revenue of Ksh240 million in 2018 and turned a profit of Ksh45 million. The profit increased from Ksh36 million in 2017.

The chart below shows Sameer’s rental revenue for the past several years.

2. Sameer sees profit with striking distance with the loss-making tyre business out of the way

Sameer estimates that closing its struggling tyre business will cost Ksh223 million, comprising of Ksh60 million in severance payments to the affected workers and Ksh163 million impairment charge. The company expects to book the one-off cost tied to the closing of the tyre unit in its financial report for the period ended December 2019.

With the loss-making tyre business out of the way, Sameer sees a path to profitability. And hopefully dividends for shareholders. The company expects to turn a profit of Ksh69 million in 2020 and $185 million in 2021.

In addition to the remaining profitable rental business, Sameer has a massive holding of prime land in Nairobi. The company revealed in its 2015 financial report that its land bank was worth Ksh2.3 billion.

It went on to discuss in that report how land prices in Nairobi had shot up in a space of 7 years. For example, it explained that the price of an acre of land had jumped from Ksh30 million in 2007 to Ksh170 million in 2015. In some places like Upper Hill, an acre cost as much as Ksh470 million, the company explained.

The huge land bank is the reason some investors have continued to put their money in Sameer stock despite the company’s financial losses. According to the Business Daily, Sameer owns about 85 acres of land in Nairobi’s Embakasi Area worth Ksh7.8 billion. Sameer’s liabilities, including bank loans, stood at Ksh1.2 billion as of June 2019.

3. Investing in Sameer stock
Sameer stock gained 16% in the past week to close at Ksh2.55 on Friday. At this point, Sameer shares are down 26% from where they started the year.

Over the past 12 months, the stock has dropped to a low of Ksh1.91 and peaked at Ksh4.69. Mounting losses in Sameer’s tyre business kept some investors away from the stock.