By David Whitehouse
Claims from Citron Research’s Andrew Left that Alibaba or Softbank are likely future investors in African e-commerce retailer Jumia have left analysts scratching their heads.
“There is no doubt that Jumia will need more capital to fund its expansion,” Left writes in research this week. “Citron believes that Alibaba and/or Softbank will come in as a strategic partner/investor, which will simultaneously validate the business model, put Jumia on the radar of the world’s largest investors and provide a direct channel for Chinese goods into the African market.”
“Jumia is now shipping over 20 million packages a year to cities and rural areas across 11 countries,” according to the latest Citron note. “Nigeria is benefiting from the logistics network, technology and product offerings that Jumia has brought.”
“The only way that this does not work is if this young, tech-hungry population of Nigeria decides that they do not want e-commerce.”
So Jumia stock, according to Citron, is set to advance to $100, from its current level of $17.27. Last year, Left was short-selling Jumia shares and claiming they were worthless. But in early October, he announced he’s buying the stock.
Asian corporate investors take a more stable approach to valuing companies.
“The better timing would have been before Jumia’s IPO if Alibaba ever planned the investment,” says Ming Lu, head of Chinese equities at Aequitas Research in Shanghai. “It’s unlikely that they would do it now or in the future.”
“Softbank seems very unlikely,” says Kirk Boodry, founder of Redex Research in Tokyo. “There is no strategic rationale at all. The company has transitioned almost completely to private equity investment and Jumia as a listed company is probably too late stage for them.”
“Alibaba has demonstrated an interest in expanding globally and there is synergy potential but Africa is one of many regions it could go to,” adds Boodry.
COVID-19
Citron now argues that the COVID-19 pandemic has “quickly shifted the purchasing habits of Africans and accelerated the acceptance of e-commerce”.
But the pandemic has not increased African Internet penetration and has reduced rather than increased the purchasing power of consumers. Jumia co-CEO Sacha Poignonnec was cautious on the second-quarter earnings conference call of 12 August.
The four African countries where lockdowns were implemented represent only about 24% of the company’s market, he said.
Localised lockdowns and partial curfews led to “less drastic changes in consumer lifestyles and behaviour,” said Poignonnec. “In other words, in those countries, we have not seen a surge in demand.”
“My view is that Citron’s report dramatically overstates the market and market potential for Jumia,” says Vicki Bryan, CEO at bond research shop Bond Angle, which publishes on Smartkarma. She questions why Alibaba and Softbank have not already invested in Jumia if they are interested.
“For Alibaba I would expect target regions to be Asia, Latin America and the Middle East before they expanded into Africa,” says Mio Kato, an analyst at LightStream Research in Tokyo. “For Softbank, they generally look for players they think will go global on a grand scale.”
“The idea is plausible but pushing plausible ideas as highly likely is a good way to try and pump a stock,” adds Kato. “I would personally take this with a grain of salt.”
Bottom line
Investors shouldn’t expect Alibaba or Softbank to bail them out of a risky punt on Jumia stock.