Dubai, Equity, Retail

Marka Holding: Coming up for Air

Marka Holding

Marka Holding

Marka Holding has been without a full time CEO since December 2016. On Sunday last week the company announced it hired Benoit Lamonerie to fill the spot. Benoit was previously the CEO of GGICO’s retail division.  Though we don’t have a breakout of the retail segment itself at GGICO, their recent financials and their annual reports since 2013 reveal an overall poorly performing business. Revenue across practically all segments has been falling every year for the past 4 years. Anyway, Marka Holding needs a CEO, so let’s see if Benoit can resuscitate them (GGICO is a prime candidate for a future post).

According to Q1 2017 financial statements it appears Marka Holding has entered into a binding agreement to sell Retailcorp to GMG Holding Limited for AED 200mn.  The transaction value is subject to adjustment so that figure may change.

As previously discussed here, we believe this transaction is absolutely vital to Marka Holding remaining solvent into 2018.

We looked up GMG Holding Limited and note the entity is incorporated in the DIFC and controlled by Gulf Marketing Group (GMG), owned by Dubai’s Baker family. GMG has some complementary business lines, particularly Sun & Sands Sports a multi-brand sport apparel retailer with over 200 outlets in 6 markets across the Middle East. If anyone, GMG probably in the best position to help salvage Retailcorp’s floundering business.

Given how desperate Marka must be to sell it we still believe the price tag of AED 200mn is a little high.

The AED 200mn figure implies an approximate valuation of:

  • 2.25X revenue
  • 5X Gross Earnings (which assumes GMG has no operating costs; we need to add in staff and rent costs, so this multiple is definitely higher)
  • 0.9X NAV, jumps to 2.2X NAV if one strips out the huge amounts of Goodwill on Retailcorp’s balance sheet. Note we don’t know how attractive the brand distribution agreements are that make up some of this Goodwill.

Our belief is that GMG could probably force a much steeper discount, particularly seeing as Marka is in desperate need of the cash. Marka’s goal to raise its capital to AED 1bn is far from guaranteed, particularly given its poor operating track record. Existing shareholders may be getting fatigued if recent heavy selling after the founders lockup expiry is anything to go by.

With a new CEO on board, and a capital raise in the pipeline, it’ll be interesting to follow developments.

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