Tinashe Mukogo Profile picture
Oct 3, 2023 24 tweets 9 min read Read on X
1/24 OK's results are out, and they are not pretty.

OK blames the environment & competition from informal traders.

But maybe there is another a hidden issue that has been a blind spot for OK for over 10 years — Capital Allocation.

A thread🧵 with background & analysis. Image
2/24 For large companies it is IMPOSSIBLE to maintain a competitive edge if you don't do Capital Allocation well.

Harvard defines Capital Allocation below but hyper simplified Capital Allocation is how a company decides to invest or spend its money to generate returns. Image
3/24 Generally there are 4 ways to allocate capital.

1. Invest in organic growth
2. Mergers & Acquisitions
3. Strengthen the Balance Sheet (e.g. pay off debts)
4. Return cash to shareholders (e.g. Dividends)

I think OK may have had some missteps on the above. Image
4/24 The first capital allocation decision that is hard to understand is the interim dividend.

The interim dividend was US$ 0.13 per share & the final dividend was 6.5 times smaller US$0.02 per share.

This is unusual. Interim dividends are usually smaller than final dividends. Image
5/24 Interim is like halftime in a football match. You may be doing well but you don't know what may happen in the 2nd half.

So normally companies leave some buffer to avoid paying too much cash as an interim dividends halfway through the year.

In the past that is what OK did. Image
6/24 Below are OK's USD dividends. Only in 2015 was the interim bigger than the final (by a small amount).

This year it was 6.5x bigger 🤯.

This probably means they couldn't really afford to pay the $0.13c/share ($1.6m in total) at interim.

A capital allocation misstep? Image
7/24 The challenge with paying out too much dividend is effectively you are giving away the biggest advantage a large company has against informal traders - CAPITAL.

Especially in Zimbabwe where there isn't much lending to informal traders, capital is a massive advantage. Image
8/24 OK knew it was having a capital-intensive year with buying Food lovers, launching their pharmacies & a big store refurbishment program.

In 2016 management decided to pause on paying dividends to invest in the business.

Wouldn't it have made sense to do the same this year? Image
9/24 Had OK not paid dividends & saved capital, it could have allocated capital to strengthening the balance sheet by paying creditors quicker countering the issue they now are facing with shorter credit terms from suppliers. Image
10/24 They could have paid down debt or invested the $1.6milion elsewhere.

Even OK acknowledges that one of their constrains is "High interest rates and limited access to funding affecting capital expenditure and investment plans" Image
11/24 Moving on from the dividend, at least philosophically it is good that OK is being more adventurous e.g. acquiring Food Lovers, starting the Pharmacy business.

I think OK in the past could have been more aggressive in investing in new business opportunities. Image
12/24 Below is a comparison between Innscor and OK looking at major transactions between 2009 - 2022.

Innscor on the right. OK on the left

Innscor has continually invested in new and diverse opportunities. OK has remained the same. Image
13/24 I believe Innscor's ability to allocate capital to new opportunities has helped to to grow more and be more resilient as shown in the below.

I actually think OK's revenue has declined in real terms as the $451m is derived from the average official rate. Image
14/24 OK could have diversified while remaining true to its retail core.

A common trend is that businesses where the shareholders are actively involved such as Innscor tend to be more ambitious.

OK's major shareholders are passive investors Datvest, NSSA, Old Mutual. Image
15/24 Instead, OK paid out over $30m of dividends between 2010-2017 more than the market cap of many listed companies on the ZSE. Image
16/24 OK is now struggling with competition from small players & unfortunately their new Pharmacy business is just as exposed to fierce competition.

The number of pharmacies has increased from 287 in 2011 to 933 in 2020.

Was this the best opportunity to chase?

Time will tell. Image
17/24 OK has placed a lot of blame on the operating environment and a lot of their concerns are valid.

But it will always sounds strange hearing Goliath complain that the fight against about David is not fair. Image
18/24 To succeed OK is going to need to find opportunities and allocate capital extremely well.

This is not easy because capital allocation is a skill that you don't really need to excel at until you are in executive management. Image
19/24 Overall, I hope OK can navigate successfully and this challenging season actually helps drive them into a period of innovation that will see OK transforming into a broader and more ambitious FMCG retail group. Image
20/24 Disclaimer: These thoughts are based on my interpretation of publicly available information and so I may be missing something.

Please comment let me know what you think.

Opposing views are more than welcome! Image
21/24 I hope you found this insightful. If you did please leave a comment or repost this thread.

I write on the finance & strategy behind the most important companies impacting Africa + 🌍.

Follow me @tmukogo for more.

Repost or Comment on the first tweet below if you can.
22/24 if you found the above interesting you should definitely check out these threads as well.

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More from @tmukogo

Jun 17
1/23 Edgars just released some really interesting financial results, and so I will be publishing something soon.

In the meantime, here is a recap from the archives to get you up to speed!

🔄🔄

Truworths And Edgars Were Never Clothing Retailers

They were more like banks with a side business of selling clothes.

Understanding how to identify this can help you save your business from sudden failure and find your biggest opportunities!

🧵 THREAD 🧵

(from the archives).Image
2/23 People often define companies by the products they sell. For example, if I sell paint, I'm seen as a paint manufacturer.

The issue is that the visible product or service may not truly drive the business's economics.
3/23 For example, Meta (Facebook) is described as a social media company, but in reality, it is an advertising business that owns a social network.

If Facebook was popular but couldn’t run ads it would be in trouble since 97.5% of its revenue is from advertising. Image
Read 23 tweets
Jun 9
1/16 In 2023, OK spent millions to acquire Food Lover’s franchises in Avondale, Borrowdale, and Bulawayo.

Last week, the stores in Avondale and Borrowdale announced they are closing down.

Why is this happening? What went wrong, and what happens next?

Let’s unpack. Image
2/16 How Did We Get Here?

Back in 2023, OK Zimbabwe (OKZ) acquired Talwant Trading, which operated three Food Lovers Stores.

The idea behind the deal was to help OKZ get more into the “premium retailing of gourmet food as well as fruit and vegetables categories.” Image
3/16 The stores included in this deal were Food Lover’s stores in Harare's suburbs of Borrowdale and Avondale and one in Bulawayo.

Worth noting this deal excluded Food Lover’s Greendale, which is still independently owned.

Determining how much OKZ paid for Food Lover’s is not easy from public information as the financial statements hightlights a cash outflow of ZWL 3.7 billion for the purchase.Image
Read 16 tweets
Jun 8
1/7 Comrades' Marathon Great Race, Better Business

The Comrades Marathon is an iconic race but could it be an even better business?

I looked through the race's latest financial statements, and this is what I found.

The race has been growing in revenue. Between 2023 and 2024, revenue increased by 22% from R53.9 million to R65.6 million.

This is impressive.

The big jump was driven by an increase in sponsorship, with Cell-C coming on board with a four-year sponsorship deal.

This indicates the brand of the Comrade's Marathon is growing well.

Further evidence is that for the latest edition, entrants were up 10% from
20,574 in 2024 to 22,670 in 2025.Image
2/7 What is even more impressive is that the event is comfortably profitable.

Worth noting, the race is not actually a "business" in the strictest sense, but an not for profit association.

So the "profit" is the difference between income and expenses, which called a surplus in the financials

In 2023, the surplus was R11 million dropping to R7 million in 2024.

The drop off in 2024 was reportedly due to once of the expense related to a settlement with the previous race manager.

As a result, there is reason to believe the 2025 edition should be more profitable and have a bigger surplus.Image
3/7 What you also see is that there is a healthy reserve of R42.8 million.

This is essentially the surplus (profit) of previous year's races.

This highlights two things.

1. Comrades has been profitable for some time
2. The race is a healthy position with some buffer to handle any emergencies (it had an operating contingent of R41 million in 2024).

This should not be taken for granted.Image
Read 7 tweets
May 29
1/14 Over half of Zimbabwean property owners have more than 80% of their net worth tied to property, compared to about 39% in the United States.

This is a problem that can also have a damaging impact for businesses and in the long run for property owners.

Here is what every property owner, investor and entrepreneur needs to know.

🧵 THREAD🧵Image
2/14 More Money, More Property

The chart below is from an online poll that asked property owners what portion of their net worth was tied up in property.

Of the respondents, 56% responded that more than 80% of their net worth was held in property. Image
3/14 This is not surprising.

Based on the research conducted in the last few articles, (see below for example) we identified that individual and institutional investors have disproportionately invested in property.

This is understandable, but may also present a big problem from an economic and business growth perspective.

For businesses to thrive, “risk capital” is needed.

Risk capital is money invested in new ventures, growing companies, or any entity that has a higher risk profile than the norm but also offers the opportunity for much greater returns.

Money invested in property is what I would call “idle capital”.

Property is not easy to divide or sell quickly, so that capital doesn’t “move” much; it essentially stays idle.

It also tends to be less risky, especially in markets like Zimbabwe.

If most of your net worth is tied up in property, you are less likely to invest much in other ventures.
Read 14 tweets
May 22
1/17 Major retailers in Zimbabwe are struggling.

OK is in distress. Choppies is out. Others are scaling back.

But one store—Food Lover’s Greendale—is not just surviving. It’s booming.

I partnered with @InjectaAnalytic to uncover the hidden data behind this growth.

THREAD🧵 Image
2/17 One of the most important elements in retail is location, as it drives foot traffic.

The data below shows the number of upper to high-income homes within 2 km of the Honeydew Shopping Centre, where Food Lovers Greendale is based.

The data shows approximately 2,089 upper-middle to high-income homes near Food Lovers.

This indicates a strong base of customers with strong spending power, which is good.

But how does that compare to others?Image
3/17 Below is a comparison of Food Lovers Greendale, which is privately owned, and the other two Food Lovers' Outlets in Harare, which OK Zimbabwe owns.

The data shows that the Avondale branch has marginally more residential properties nearby than Greendale, which may indicate a more favourable location.

The low number of homes nearby in Sam Levy is likely due to the larger property sizes in Borrowdale, which may also indicate slightly higher spending power.

From this, it is not clear that Greendale has a significant advantage, although one trend that may also benefit the location is "densification."Image
Read 17 tweets
Apr 25
/1 Demergers and Butcheries

Demergers have become quite popular, with companies like Innscor, Econet, and Meikles pulling them off in recent years.

The goal of a demerger is often to unlock value, which, interestingly, is similar to what butcheries do.

Let's unpack!🧵 Image
/2 Demergers are essentially when a company splits off one of its businesses to operate independently and often to list separately.

These transactions "unlock value" because the parts of the business, when separate, are often more valuable than the whole.

A bit like a cow. Image
/3 Imagine the stock market as a place to buy meat, and you own a butchery where you are trying to sell a whole cow.

Now, most people don't want the whole cow because they don't know what to do with it.
Read 10 tweets

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