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SA retailer seeks Kenyan entry through Naivas

14 August 2013, 09:57 James Macharia

Nairobi  - South African retailer Massmart is in talks to take a majority stake in supermarket chain Naivas, as the unit of Wal-Mart stores seeks a foothold in Kenya.

Analysts said there was a significant growth potential in the sub-Saharan African region, with Kenya's economy expected to grow about 6 percent this year up from 5 percent last year.

Strong economic growth rates in Africa in recent years have given rise to a new breed of consumers, helping drive up sales and catching the eye of global retailers such as Wal-Mart, which acquired Massmart in a $2.4 billion deal two years ago.

Massmart is expected to take a stake of 50 percent plus one share, said Naivas Chairman Simon Mukuha, adding that both sides had yet to reach an agreement on the price.

Naivas has 28 stores, fewer than its rivals, Nakumatt and Uchumi Supermarkets, but Mukuha said it aims to open two more outlets by the end of the year.

Mukuha declined to give any financial details, including sales figures for Naivas, but rival Uchumi trades on a multiple of 11.6 times earnings, and the sector average is for 17.4 times earnings, according to Thomson Reuters data. Uchumi's annual sales rose by just under a third in 2012.

"They (Massmart) want to come in with a partner, someone who can show them how to navigate this market. On our part, we are looking for an investor to pump in fresh ideas, fresh blood," Mukuha said.

Massmart declined to comment on the Naivas stake, but its chief executive Grant Pattison said in an email last week that the company had "met with several important players in that market, building relationships."

But Nic Norman-Smith, chief investment officer of Lentus Asset Management in Johannesburg, cautioned that Massmart may have to pay a premium to get into Kenya, given the limited number of available retailers that would fit its business model.

"There is a lot of demand for these assets, I would be very surprised if they didn't overpay. If the price that Wal-Mart paid for Massmart is anything to go by, they clearly have an appetite to grow at almost any cost," he said.

- Reuters


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