NAIROBIST ANALYST REPORT: SAMEER AFRICA LIMITED
Disclaimer
Do not solely rely on this information for your investment decisions; seek more clarification from a financial advisor. Remember to consider every piece of investment information you read on Nairobist, not as a final recommendation, but as an idea for further consideration.

Date 1/12/2006

Current Price:
Sh. 27.25

Share Issued
278,342,393

Market Capitalization
Ksh 7.58 Bn

Nairobist Analyst
Info@nairobist.com

SAMEER AFRICA LIMITED

• Sameer Africa, previously operating as Firestone EA Ltd is the sole manufacturer of tyres in Kenya, now producing Yana tyres for the local and regional market.

• The company currently commands about 60% of the local new tyre market, after entry of international brands ending the company’s near monopoly.

• Turnover for the company gradually picking following the successful rebranding of the company as a wholly Kenyan producer.

• Half year results for 06 indicate a decline in sales and profitability, an after tax profit of Ksh 41Mn down from Ksh 104 over similar period under consideration in the previous year.

• Financial year 06 is a difficult year for the company as there are high expenses associated with re-branding of its products, and sharp increase in energy costs up to 31% especially in the first half of the year.

• Declining sales as a result of competition from cheaper imports, reduced profitability is associated with non-recurrent expenditure in this financial year.

• Emerging markets within regional blocks like COMESA and EAC countries has offered the company a new expansion opportunity having lost some of the local market share to competition.

• The company is producing about 2,500 tyres a day, new investment in plant is set to boost the production capacity to satisfy the anticipated wider market.

• Through innovation and re-engineering, the company hopes to reduce production costs while maintaining quality so that its products remain competitive in the market.

Sameer Africa Limited

The Company
Sameer Africa Limited, part of the Sameer Group of Companies has been in operation in Kenya previously as Firestone EA (1969) Ltd and is the only local manufacturer of tyres and tubes. The change of the corporate identity followed the pullout of Bridgestone Corporation of Japan, in 2005. The company manufactures most of the tyres it deals in at its Nairobi factory, though a few brands that are not locally manufactured are imported from the company’s international strategic partners.

Over the last year the company has invested heavily in the rebranding and in the expansion of its production capacity. The company produces about 2,500 tyres a day, and still hopes to boost the capacity.

The Business
Sameer Africa is in the business of manufacturing tyres under trade name Yana tyres, it is however trading in a few brands to complement the locally manufactured brands. It has distributors in throughout the major towns in Kenya and Uganda where it controls about 40% of the market. Other markets in the East African region include Tanzania, Malawi, Rwanda and Mozambique. The company is exploring the newly found market in Sudan, with prospective in other COMESA countries.

Its product range covers the whole consumer categories from passenger car tyres, light and medium commercial vehicle tyres, heavy commercial tyres for buses and trucks, agricultural (tractor) tyres as well as off-the-road tyres, all produced under brand name Yana tyres.

Market Share
Yana tyres are a local market leader, recent statistics showing the company has an aggregate market share of about 60% of the new tyre sales. The change of brand from Firestone eroded its market share, but the new brand name is reclaiming the lost ground following an aggressive marketing strategy put in place, including a guarantee that comes with the tyres.

The company operated in a near monopoly in the local market but the regulatory authorities have since allowed importation, which has seen the entry of major European tyre manufacturers like Pirelli of Italy and Michellin of France exporting their products to Kenya. Later entrants from Asia have also made significant in-roads through brands like Hankook, Dunlop, Goodyear and Bridgestone. The imports have a combined market share of 40% upwards.

Regionally, Yana tyres are cutting a niche in the market that is occupied by international brands produced by among others Pirelli, Michelin and Continental tyres. They are however set to compete successfully owing to the company’s specific production targeting the African market and the products’ unique stability. The company has already established a presence in Eastern Africa countries, with a respectable 40% market share in Uganda. With increased output capacity following additional investment in plant, the company is looking forward to sell its products even beyond the COMESA region, to the whole of Africa.

Future Outlook
The company has had declining sales in the local market, and is looking to make up for the lost ground in the regional markets. Exports account for about 30% of the company’s production, and it projects a higher percentage based on the acceptance of the products in the new markets. The company is now targeting to sell its products in most countries in Africa. This is to be achieved through:-

• Investment in the production plant to increase the production capacity from the current 2,500 a day to over 4,000.

• Trading in reputable imported brands to supplement the company’s range, this will ensure it does not lose out on the brands it does not produce.

• Innovation and re-engineering the production process to enhance productivity while minimizing costs associated with production.

• A more elaborate distribution network to ensure availability to consumers, and aggressive marketing to stress visibility of the products in the market.

Operational Challenges
High production costs associated with fuel and power have kept locally manufactured tyres at an economical disadvantage to competitors in other countries where energy costs are up to five times cheaper than Kenya.

The company’s target market locally and regionally is very price-sensitive; this has allowed cheaper imports of lesser quality erode the company’s market.

Unfair trade practices under importation protocol within the COMESA trading block have seen some countries export finished tyres to Kenya, usually at a much lower cost than would have cost if they were produced within these countries.

The market needs are constantly shifting with some cars being engineered to use only specific tyres that the company would not be producing.

Appreciation of the Kenyan Shilling against other regional currencies is hurting the value of exports which are set to increase to about 40% of total production; this is however mitigated by counter-effect on the importation price of raw materials.

Financial Ratios

Profitability
As indicated by both ROA and ROE, the company’s profitability is declining over the previous year, the trend is however expected to be reversed following the successful re-branding and expansion in production capacity and exploration of new markets.

Liquidity
The company’s ability to meet its short-term monetary obligations is sound, above the local manufacturing industry average current ratio of 1.8.

Efficiency
The company has a lot in spare capacity of the assets to generate revenue. The re-launching of its products is likely to exploit the available assets more as there are emerging markets to be satisfied.

Valuation
A reputable company whose profitability has been eroded by fierce competition and high production costs. A turn-around on declining profitability is certain following heavy investment in plant to boost the production capacity and satisfy new markets’ demand.

Disclaimer

Do not solely rely on this information for your investment decisions; seek more clarification from a financial advisor. Remember to consider every piece of investment information you read on Nairobist, not as a final recommendation, but as an idea for further consideration.

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