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Cambria Africa: Keyed into Zimbabwe’s recovery

While Cambria has plenty staked on a Zimbabwean turnaround, it is not simply a story of a country’s recovery alone. Management changes, a restructuring of the business and a recent corporate re-launch also make this story about the recovery of a company.

 

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There can’t be many better examples of an out-of-favour company than AIM-quoted Cambria Africa (LON:CMB). 

With the shares currently trading at 9.88p, Cambria is worth nearly £6 million, which is less than it paid to buy the iconic Leopard Rock hotel resort in 2009.

A comparison against the rest of the firm’s assets reveals a truly stark discount to NAV (just shy of $40 million).

It is true that as an investor and business leader in Zimbabwe there have been a bagful of reasons for investors to look upon the stock negatively, and the African nation could remain a political hot potato for some time yet.

Zimbabwe was once an economic powerhouse in Africa, before hyper inflation and volatile politics brought the country to its knees. 

But financially Zimbabwe has steadily been turning around in the years since the ‘dollarisation’ of the country’s economy back in 2009. 

And more recently this has accelerated markedly, particularly with the progressive lifting of international sanctions. 

And after posting GDP growth rates just shy of 9 per cent in recent years Zimbabwe is now considered among the best African countries to invest in, according to Cambria.

While Cambria has plenty staked on a Zimbabwean turnaround, it is not simply a story of a country’s recovery alone. 

Management changes, a restructuring of the business and a recent corporate re-launch also make this story about the recovery of a company.

The changes began slowly around two years ago, but more recently there has been a complete reboot of the business, with a more distant relationship between it and former parent Lonrho.

Cambria, formerly known as LonZim, brought in several new faces at board level in February and in the past six months the company’s strategy has accelerated.

It has taken an axe to a number of business units which were deemed to be non-core. And in February it reported an $11 million write-off to its intangible assets to ‘better align actual valuations with book values’.

Cambria is now focused on four key businesses the Payserv transaction processing business, a hospitality business centred on the Leopard Rock Hotel, value-added chemical distributor Millchem and the Celsys printing business.

The emphasis is now on focussing the businesses that can etch out a strong or ‘leading’ position in their respective industries.

Two years ago, each LonZim company had many more investments, and many of them were trying to do three or four different things at once.

“Cambria now has a very different philosophy. The idea is for each company to do one thing and do it very well,” said one person familiar with the strategy.

“The plan is for each company to be a market leader - to be skilled, to be profitable and be the best at what they do.”

Cambria’s interim results, released in May, revealed the strength and potential of these remaining businesses. Revenues and profits were reported to be 39 and 64 per cent better than the same period of last year.

Meanwhile, Cambria has been selling off the rump of the old LonZim business. Deals have already been struck to offload assets of LonZim Air, CES Zimbabwe and the ForgetMeNotAfrica mobile phone messaging business.

And there is also the matter of a $7 million claim, referred to in the accounts as ‘contingent assets’ relating to the airlines assets, not accounted for on the balance sheet.

Meanwhile, with the emphasis on expansion, Cambria recently decided to make a further investment into the Celsys unit, announcing it will acquire the remaining 40 per cent to take full control of the business. 

The deal in itself brings a poignant milestone for both the company and Zimbabwe.

Celsys is listed on the Zimbabwe stock exchange. This listing is being inherited and maintained by the AIM quoted parent - making Cambria Africa the first secondary-quoted European firm in Zimbabwe since 1999. 

It will position Cambria among the leading companies listed on the exchange. And it is expected to boost the shares, which have been ailing on the AIM market.

Analysts reckon that investors in Zimbabwe are better placed to appreciate just how undervalued the London listed shares are, as they know the operating businesses well. 

As such Zimbabwean brokers believe the Harare listing should bring greater liquidity.

Investors will demand Cambria continues to demonstrate an ability to continue the initial turnaround, shown in the interims, and continue to rapidly grow its businesses.

Though with the initial transition period now behind it, the company is due a more settle period with organic growth likely being the priority.

Quick facts: Cambria Africa PLC

Price: 0.275 GBX

AIM:CMB
Market: AIM
Market Cap: £1.5 m
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