Chobe Holdings Limited (BSE: CHOBE) Part 1

Chobe Holdings Limited (BSE: CHOBE), referred to as “Chobe’s” for the remainder of this writeup, is a high return on capital business that owns and operates ecotourism lodges in Botswana. Revenues for FY 2024 were BWP 543 million, and net income was BWP 148 million which were YoY increases of 32% and 41.6%, respectively. Chobe’s is headquartered in the Chobe National Park in Kasane, Botswana.

History

Chobe’s timeline goes back to the early 1980s when Jonathan Gibson, the former CEO of the business, purchased the Chobe Game Lodge from a company called Southern Sun in 1983. The business continued acquiring other lodges and an aircraft business through the rest of the 1980s and 1990s. It went public in 1999 and has continued to acquire more lodges and ecotourism related businesses in Botswana and one in Namibia. As of the publishing date of this writeup, it counts 14 lodges under three different brands, a hotel, a wholly owned air charter, and an airplane maintenance business.

CEO

John Knox Gibson is the CEO of Chobe Holdings Limited and has acted in this capacity since August of 2022. Per Chobe’s 2024 Annual Report, “Mr. Gibson joined Chobe Holdings Limited on 1st February 2018 as the Senior Group Executive. Immediately prior to joining Chobe Holdings Limited he had established a specialized online tour operator focused on Botswana.

He holds a Bachelor of Business Science (Honours) degree in Finance, from the University of Cape Town in South Africa.” Mr. Gibson is the son of Jonathan Moore Gibson, the founder and former CEO of Chobe Holdings. The elder Mr. Gibson now serves as the Executive Director and Deputy Board Chairman.

CEO Compensation

Chobe’s remuneration policy is listed in its annual reports, but I did not find anything specifically related to the compensation of the CEO or other executive officers.

The elements of employee remuneration include a fixed and variable component. The fixed component includes a salary, pension benefits, and gratuity/severance payments. The variable portion of employee remuneration includes an annual bonus, a phantom share scheme, and bonuses for individual business units and group executive bonuses.

Regarding the annual bonus on p. 25 of the FY 2024 Annual Report, “An annual bonus, linked to an employee’s annual performance, is split between an employee’s December and January salary. Annual bonuses are paid according to an individual’s assessment grade in their Performance Evaluation. Calculated at 100 percent for A grades, 75 percent for B grades, 50 percent for C grades and not paid to D grades.” There was no additional information provided about the performance metrics for the Performance Evaluation.

Regarding the Phantom Share Scheme on the same page, “All employees are enrolled in Chobe’s phantom share scheme which allows Chobe’s employees to participate in the dividend distributions of the Company. The scheme allows all qualifying staff to share equally in a bonus which is calculated to be equal to the value of dividends attaching to three million shares in the Company. This bonus is usually payable in August.” Again, there was no additional information about how the shares are distributed or what the performance metrics were to achieve them.

The “Other Variable Bonuses” and “Group Executive Bonuses” are issued with the approval of the Human Resources and Remuneration Committee. The only additional information provided about either kind of bonus was for the latter on p. 25 of the FY 2024 Annual Report which stated, “Such bonuses must balance financial performance against overall long-term value creation and must be designed in such a way that they do not encourage risky or unethical behaviour.”

Mr. Gibson’s compensation for the last three fiscal years is shown in the bullet points below:

• 2022 – BWP 1,868,000

• 2023 – BWP 2,565,000

• 2024 – BWP 4,060,000

For those of you keeping track at home, his salary has CAGR’d at 29.4% over that time frame. In addition to the lack of disclosures about how performance measures for bonuses are calculated or determined, there have been no disclosures to date about the split between the fixed and variable payments in relation to his total remuneration.

The CEO doesn’t own a meaningful number of shares. Per the FY 2024 Annual Report, he owns only 6,000 shares of the business which is equal to BWP ~99,000 worth of the stock given its current stock price of BWP 16.51 per share.

His father and two other insiders own a considerable amount of the business. The elder Mr. Gibson directly owns 2,885,000 shares. Beacon Trust, a trust of which he is potential discretionary beneficiary, owns African Finance Holdings Limited which holds an additional 19,945,406 shares of the business. Alexander Whitehouse, a non-executive director at Chobe’s, owns 7,692,000 shares of the business through Angold (Pty) Ltd. Finally, JM Nganunu Macharia owns 131,000 shares directly, but also partly owns J.D.M. Investments which owns an additional 5,046,939 shares of Chobe’s. All total, these three insiders own or control ~40% of the outstanding stock.

What Does Chobe’s Do?

Chobe’s owns and operates its ecotourism lodges under three brands: Chobe Game Lodge, Desert & Delta Safaris, and Ker & Downey Botswana. I want to first define what Chobe’s means by ecotourism. Per p. 10 of the FY 2024 Annual Report, “Ecotourism is a type of nature-based tourism activity in which the visitor’s essential motivation is to observe, learn, discover, experience and appreciate biological and cultural diversity with a responsible attitude to protect the integrity of the ecosystem and enhance the well-being of the local community.

Ecotourism increases awareness towards the conservation of biodiversity, natural environment and cultural assets both among locals and the visitors and requires special management processes to minimize the negative impact on the ecosystem.”

The rest of this section will describe each brand’s offering and price range.

Chobe Game Lodge

The Chobe Game Lodge is the only permanent lodge located in Botswana’s famous Chobe National Park and nestled on the banks of the Chobe River. The park is home to 60,000 – 70,000 elephants, which is the highest concentration in Africa.

Experiences offered here include boat safaris, game drives, spa treatments, family safaris, and eco tours.

The price range per person per night for a standard room and a suite are shown in the screencaps below. The screencaps were taken from the Chobe National Park website which you can find here.

Desert and Delta Safaris

Per its website, linked here, Desert and Delta Safaris offers travelers access to the Okavango Panhandle, Tsodilo Hills (a UNESCO World Heritage site), Chobe Riverfront, the Savute Region, Okavango Delta, Moremi Game Reserve, and Makgadikgadi Pans National Park.

Nine different camps are available, and their locations are shown in the screencap below which was also taken from the Desert and Delta Safari website.

I have listed each camp and the experiences they offer below. The order of camps, marked as the greyish-blue dots on the map, follows from left to right.

Nxamaseri Island Lodge offers boat safaris, mokoro (canoe) excursions, guided island walks, Tiger fishing, and a cultural visit to Tsodilo Hills.

A video about the Nxamaseri Island Lodge can be found here:

Xugana Island Lodge offers boat safaris, mokoro (canoe) excursions, guided bush walks, fishing, bird watching, and helicopter rides which cost extra.

A video about the Xugana Island Lodge can be found here:

Camp Okavango offers boat safaris, mokoro (canoe) excursions, guided bush walks, fishing, and helicopter flights for an additional charge.

A video about Camp Okavango can be found here:

Camp Xakanaxa offers game drives, boat safaris, and bird watching.

A video about Camp Xakanaxa can be found here:

Camp Moremi offers game drives, boat safaris, and bird watching.

A video about Camp Moremi can be found here:

Savute Safari Lodge offers game drives and a visit to the San rock paintings in Gubatsa Hills.

A video about the Savute Safari Lodge can be found here:

Leroo La Tau offers game drives, boat safaris, day trips to or an overnight sleep on the Makgadikgadi Salt Pan, and an excursion to Khumaga Village although I’m not sure if this costs extra.

A video about Leroo La Tau can be found here:

Chobe Savanna Lodge is in Namibia, not far from the Chobe Game Lodge, and offers boat safaris, sunrise/sunset cruises on the Chobe River, fishing, bird watching, and a visit to villages on the Namibian side of the river.

Chobe Game Lodge was described previously.

A video about the Chobe Game Lodge can be found here:

Desert and Delta Safaris also offer multiday itineraries ranging from four to ten days across their camp portfolio. A link to the campsites and itineraries can be found here and here.

Prices per person per night are shown in the screencap below and was taken from InventTour, an African tourism database.

Ker & Downey Botswana

Per its website, linked here, Ker & Downey Botswana offers travelers access to the Okavango Delta, Moremi Game Reserve, and the Central Kalahari.

Seven different camps and three types of safaris (family, photographic, and walking) are available, and their locations are shown in the screencap below which was also taken from the Ker and Downey website.

I have listed each camp and the experiences they offer below. The order of camps, marked by the dots on the map, follows from left to right.

Kanana offers game drives during the day and night, motorboat access to Southern Africa’s largest heronries, mokoro (canoe) excursions, and walking safaris. It has five-star status from the Botswana Tourism Board.

A video about Kanana can be found here:

Maxa is slated to open in March of 2025 and will offer mokoro excursions, walking safaris, nature drives during the day and night, and “cultural insights”.

A video about Maxa can be found here:

Gray’s Eden is a luxury hotel, not a camp. Ker and Downey’s website states that it is a bed and breakfast with a private wine cellar, spa, and high-end restaurant to match.

Dinaka offers morning and afternoon game drives, night drives, walks with San Bushmen in and around the Central Kalahari Reserve. It has five-star status from the Botswana Tourism Board.

A video about Dinaka can be found here:

Okuti offers game drives, boat safaris, and bird watching. It has five-star status from the Botswana Tourism Board.

A video about Okuti can be found here:

Shinde offers day and night game drives, boat safaris, walking safaris, and fishing. It has five-star status from the Botswana Tourism Board.

A video about Shinde can be found here:

Shinde Footsteps offers day and night game drives, boat safaris, mokoro excursions, and walking safaris. A barefoot trip is offered for a “true” safari experience.

A video about the Shinde Footsteps can be found here:

Prices per person per night are shown in the screencap below which was taken from InventTour, an African tourism database.

What Makes Chobe’s Unique?

I haven’t been able to crack this yet. The only truly differentiating feature I’ve been able to find about Chobe’s is that it is the only publicly traded ecotourism/safari business in Botswana. It’s a unique asset.

Other than that, I haven’t been able to find much in the way of qualitative information that points to advantages it has against its competitors. From what I’ve analyzed, my gut tells me that Chobe’s differentiates on price with its higher end offerings and being in locations where competitors aren’t, but locating a indicator of true pricing power or a real estate advantage hasn’t materialized as of the publishing date of this writeup. Comparing Chobe’s to other ecotourism businesses in the country is made more difficult because rates vary, and safari packages are not standardized.

Along with that, I haven’t been able to figure out if Chobe’s operations are materially different or more efficient than the competition either.

The best course of action is to try and obtain scuttlebutt on Chobe’s, but that will take some time. The answer or as close to the answer of what makes Chobe’s unique will be addressed in Part 2 of this writeup that will be published next month. I wish I had better news, but it’s just going to take more time.

Valuation

Revenues

Chobe’s has expanded revenues from BWP 29.33 million in FY 2004 to BWP 543.13 million in FY 2024 which translates to a CAGR of 14.91%. Revenues in FY 2010, the first year an annual report was available on its website, were BWP 97.28 million. This translates to a revenue CAGR of 12.15% between then and FY 2024.

10-, 5-, and 3-year revenue CAGR’s were 10.13%, 7.75%, and 66.18%, respectively. The 3-year revenue CAGR jumps out due to starting from a very low base because the business was absolutely crushed during COVID and has bounced back considerably since. In aggregate, it does appear that revenue growth is slowing noticeably as time goes on.

The screencap below highlights Chobe’s segmented revenues. The data went back to 2009 and were taken from Chobe’s annual reports between FY 2010 and FY 2024. The business started consolidating lodge and camp revenues together after 2015; I have no idea why they were separated again in 2017. The combined revenues unsurprisingly make up a majority of Chobe’s overall revenue. The other notable increase has been in air charter revenues which have CAGR’d at 8.3% per year between FY 2009 and FY 2024.

Given its current market cap of ~BWP1.475 billion, Chobe’s trades at ~2.7x FY 2024 revenue.

Real Free Cash Flow

Chobe’s Real Free Cash Flow (RFCF), defined as Cash Flow from Operations minus CapEx, is shown in the screencap below. Stock-based compensation was not included because the business has not issued any to date.

Chobe’s Cash from Operations has gone up every year except during the GFC and the throes of COVID in 2021 – 2022. CapEx has varied over that period due to acquisitions and the upgrading of facilities. CapEx of BWP 132.74 million in FY 2024 was the most the business has spent by far in a single fiscal year. CapEx skyrocketed due to BWP 36.75 million in additions to its aircraft fleet and BWP 86.84 million in Capital work-in-progress. Just seemed like a big year for CapEx and major renovations at Chobe.

Given its current market cap of ~BWP1.475 billion, Chobe’s trades at ~22x FY 2024 RFCF. It’s tough to determine whether this is a reasonable valuation multiple or not because CapEx spending varies each year. I can’t gauge what “normalized” CapEx would or should be at Chobe’s.

Balance Sheet

I have posted the asset side of Chobe’s balance sheet below. The data were taken from TIKR. I made two separate screencaps because one screencap with 20+ years of data simply wouldn’t fit on the page.

The asset side of the balance sheet looks solid. Inventories and receivables haven’t been concerning to date. Net PP&E increased substantially due to additions to its leasehold improvements, aircraft fleet, vehicles and equipment and capital work-in-progress which are renovations and additions to existing facilities and those that have been acquired. Chobe’s has made 14 acquisitions since going public in 1999.

There was a point of contention between Chobe’s and PwC, its auditor at the time, between FY 2009 and FY 2015 when BWP 30.34 million of Goodwill appears on the balance sheet. This amount was written off in FY 2009. PwC stated there was no indication of impairment at the time, so the amount should’ve stayed on the balance sheet. Chobe’s claim, taken from the annual reports, was “At the financial year-end, the Group assessed the recoverable amount of goodwill, based on the present value of estimated future earnings and determined that goodwill was not impaired. The Group had however, elected to write off to the statement of comprehensive income in 2009, the total carrying value of goodwill. This write-off does not comply with the requirements of IFRS but has not been reversed so as to minimise the potential volatility of financial results through future impairment of goodwill.” Chobe’s then reversed its decision in FY 2016 to avoid penalties from the Botswana Stock Exchange. Neither Chobe’s Board nor management provided a more concrete reason why Goodwill was written off in the first place.

The liabilities and equity side of the balance sheet are shown below in the same two screencap format. The data were taken from TIKR.

I don’t see any real causes for concern on the liabilities and equity side of the balance sheet. Unearned revenues have increased substantially, but those are just prepayments for trips and experiences to and from Chobe’s properties. The only debt the business has are its capital leases. Its short-term debt has been negligible and there has been zero long-term debt added on to the business. This is a fantastic balance sheet.

Returns on Invested Capital (ROIC)

Chobe’s ROIC since 2004 is shown in the screencaps below. The data were taken from TIKR.

Chobe’s ROIC indicates that it is a very efficient business. It has managed to keep its ROIC above my threshold of 15% outside of 2004, 2005, the GFC years of 2010 and 2011, and the COVID years of 2021 and 2022. I was not able to determine what was negatively affecting the business in 2004 and 2005 because the annual reports for those years were not available.

Returns on incremental invested capital (ROIIC)

Chobe’s ROIIC is shown in the screencap below.

According to my calculations, Chobe’s has been compounding the value of its business by 19% - 20% per year since FY 2004.

I was unable to retrieve its closing stock price on 2/29/2004, the end of FY 2004, but I was able to find verified, audited data going back to FY 2009. My ROIIC calculations for FY 2009 – FY 2024 are shown below.

By my calculations, the business has been compounding its value by 15% - 20% per year since FY 2009. That fiscal year ended on a weekend, but the stock price on the Friday before and the Monday after was the same, BWP 2.24. This is the figure I used as the base for my CAGR calculation. Chobe’s stock price on 2/29/2024, the end of FY 2024, was BWP 15.27. This produces a CAGR of 12.75% indicating that the market had been slightly undervaluing this business. The stock price is up about 8% since the end of FY 2024, further tightening the spread between the stock price CAGR and the compounding rate.

Risks

Macro – These are risks every business faces, but impact tourism based businesses more than others. Almost all of Chobe’s visitors come from outside of Botswana. A slowdown in the global economy would negatively affect Chobe’s revenues more than most other businesses. We saw the effect COVID had on revenues too. Botswana’s geopolitical risk must be factored in as well, but I sang the praises of the country in my writeup on Choppie’s. I think this risk, while ultimately unknown, is lower than every other country in Africa. The base rate on political upheaval in a country like Botswana seems low, but I could be overlooking or not considering other factors.

Expansion – This risk was also mentioned in my writeup on Choppies. How much can Chobe’s really expand when it already has lodges and experiences in the major tourist destinations in Botswana? I’ll need to investigate this factor when trying to figure out what’s unique about the business in Part 2 of my writeup.

Visitors to Botswana – A related risk to expansion is the number of people visiting Botswana. Citing data from Statistics Botswana, a parastatal organization charged with responsibilities of collecting and disseminating all official statistics in Botswana, the number of tourists visiting Botswana for holiday/leisure decreased slightly between 2005 and 2023 from 314,109 to 312,030.

Irrational actor – Chobe’s leases its properties and has had to match competing offers to renew expiring agreements. I’m not sure what the pricing discipline is at the executive level and whether they’re willing to match an organization that comes in and overpays to lease a property.

Natural disasters – Sustained flooding and/or drought would be particularly bad for Chobe’s given its focus on eco-tourism and having its visitors experience the natural environment of Botswana. An outbreak of disease, like what is happening with Mpox in the Democratic Republic of Congo, could scare away potential visitors.

Maintaining balance – The industry that Botswana operates in is in somewhat of a catch 22 scenario. As more people visit its lodges, more pressure will be put on its natural environment that it strives to maintain. The end game for this is destruction of at least some of the natural environment or a reduced or fixed supply of visitors. On the flip side, this may or may not lead to pricing power.

Tailwinds

Diversification of Botswana’s economy – Tourism is one of the industries that Botswana’s government has focused on to help diversify its economy away from diamond mining.

Conclusion

Is Chobe’s a great business? It seems like one from a financial perspective. It’s a unique asset with financial performance to match. The balance sheet is robust, revenues have increased at a solid clip, and its ROIC and ROIIC are impressive. The business seems to be undervalued, although slightly, by the market too. I do need to find out more about what makes the business unique, so I’ll check back next month with my findings.

Thanks again as always for reading. If you liked this writeup, please feel free to share it and subscribe!

Please reach out to me at possiblevalueresearch@gmail.com, @PossibleValue on Twitter and @Heshy on MicroCapClub with any comments, concerns or questions. Lastly, don’t forget to tell someone that you love them.

*** Remember that this isn’t investing advice. Consult a trusted financial or investment advisor before making any kind of investment decision. ***

Disclosure: I do not own shares in Chobe’s Holdings