Cambria Africa: Trading Update & Sale of Hotel

Cambria Africa has announced a trading update for the full year that shows revenue and gross profit growth of 11%. The Southern Africa focussed investment company has also announced the sale of its Leopard Rock Hotel, as expected, for a total effective consideration of $2.7m. While both revenue and gross profit figures came in below our expectations, growth rates are still strong - with exceptional growth demonstrated in Q4 - especially when considering that these were achieved during a period where the Zimbabwean economy was struggling. Furthermore, we feel that Cambria and its investments have made a number of key developments, including completing the divestment of its Hotel, and therefore marking the end of a significant cash drain on the company and enabling capital to be allocated elsewhere in the business. We are keeping our FY15 forecasts unchanged for the time being and reiterating our stance of buy, with a target price of 13.86p.

Trading Update

For the 12-months ending 31st August 2014, revenue and gross profit from continuing operations, being the Payserv and Millchem investments, were $9.4m (FY13: $8.5m) and $5.1m (FY13: $4.6m), respectively. On an individual basis, Payserv grew its gross profit by 11% to $4.22m (FY13: $3.81m) as revenue grew by 10% to $4.60m (FY13: $4.16m). Cambria added that Payserv has significantly increased its EBITDA. Millchem grew its gross profit by 10% to $848k (FY13: $770k) as revenue grew by 11% to $4.81m (FY13: $4.32m). The fourth quarter in particular saw high year-on-year revenue growth of 54%, boosted by the previously reported signing on of high-profile new suppliers. It also saw Millchem become a full member of both the NACD and the FECC, making it the only African chemical distributer to do so. Post period end, Millchem also made its first sales in Namibia.

Sale of The Leopard Rock Hotel

The Leopard Rock Hotel has been sold to African Ventures Limited for $2.5m in cash and $0.2m in assumed debt. The proceeds will be used to further Cambria’s remaining investments and ongoing working capital. During the period, the hotel’s EBITDA loss was c.$370k, prior to write downs and costs incurred in the sale process.

Valuation

We had associated no value for the hotel, and are therefore making no changes to our DCF model and keeping our target price of 13.86p unchanged. We have associated no value for the firm’s Southerton properties, which have been valued at up to $1m or 0.62p/share. We see the settlement of the legal claims as potential drivers of the shares in the short/medium term. Key risks to our forecasts relate to the execution of Cambria’s growth plan and the improvement in the Sub-Saharan Africa region taking longer than expected.