Bata By Choice: Value becomes Elusive for the Shoe Maker

I recall the time when I was a young lad and my parents would get me the black Batas that would last me an entire school year. The company’s product back then and now have been known for being robust, durable and quite trendy.

Bata has been the choice footwear for many middle and low income households in Zambia. Its formidable supply chain and geographical reach throughout Zambia places it as a prime store for sourcing footwear. In fact, in recent times, they have also expanded their options to attract premier clients by introducing international brands into its plethora of footwear.

Like many of the companies we have covered thus far, the last 2 financial years have been difficult. Hernan Vizcaya, its chairman, admits that sales targets for 2015 were very difficult to meet. Disappointing sales in the Copperbelt which has been the its prime destination for fantastic sales fall short due to the fall in employment figures and evaporation of purchasing power due to currency pressures. Seasonal sales were also disappointing due to the impact of the drought (less gumboots being purchased due to less rain). However, back to school sales continue to be there current prime source of value. The chairman sees a lot of potential that still remains to be exploited in this area.

Shareholders must be twiddling their thumbs at what the prospects of their investments are. In the years under review, their equity remained stagnant as no earnings were plowed back (zero value growth). Their net margin was down from 10% in 2014 to a dismal 4% in 2015. The problems get worse. Return on capital employed and Return on equity also fell by 13% and 9% respectively. EBITDA being volatile implied its management of fixed costs is also an area of concern hence why the Chairman rightly notes that need to start living with their means. Austerity coming to Bata!! However, to achieve this, keeping an eye on administrative costs (General expenses, exchange losses, and security expenses) will be key as these inflated the costs in 2015.

What is interesting is that although there no major investments in beefing up their factories, their return on current assets fell from 32% to 16%. What is going on here? However, there are some signs of efficiency on the working capital front. Inventory holding days, although still high, fell by 70 days. In addition, the stores held less inventory in 2015 compared to 2014.

A turnaround is inevitable for sure up prospective shareholder confidence. Keeping an eye on management’s strategy will be key in decision making. They are currently hoping the Bata Loyalty Program (BLP) may inspire a lot more return sales. At the moment, this stock is uninspired.