What floats atop oil pud­dle?

Shares in con­sumer dis­cre­tionary stocks have ral­lied this year, with the fall in the oil price boost­ing con­sumers’ dis­pos­able in­come. How­ever, in a mar­ket that al­ready looks pricey, gains may be limited. Stephen Gun­nion takes a look

Financial Mail - Investors Monthly - - Feature -

Oil’s fall from $115 a bar­rel last June to be­low $50 a bar­rel in Jan­uary has been noth­ing short of spec­tac­u­lar — spec­tac­u­larly bad for economies and com­pa­nies that build their for­tunes on the price of the slick, black hy­dro­car­bon and spec­tac­u­larly good for economies that rely on im­ports to fuel their econ­omy and for the con­sumer-fac­ing com­pa­nies that are likely to be ben­e­fi­cia­ries of the cash that mo­torists will be sav­ing at the petrol pumps.

Num­bers be­ing thrown around in­di­cate that US con­sumers saved $14bn on mo­tor fuel last year. The AAA, the US’s largest mo­tor­ing group, es­ti­mates they could save be­tween $50bn and $75bn this year. In South Africa, the fig­ures are far more mod­est. Lo­cal mo­torists spent R106bn on fuel last year, says Jo­hann Els, se­nior econ­o­mist at Old Mu­tual In­vest­ment Group. The petrol price drop will mean a sav­ing of about R20bn, or about 1% of to­tal con­sumer spend­ing, he says. Mike Schüssler of Econ­o­mists.co.za es­ti­mates the av­er­age mo­torist will have saved R580 a month from the cu­mu­la­tive cuts since Au­gust.

Lower fuel prices con­trib­ute to a lower rate of in­fla­tion, giv­ing the Re­serve Bank breath­ing space be­fore the next in­ter­est rate in­crease. The con­sumer price in­dex de­cel­er­ated to 5.3% in De­cem­ber and Els now ex­pects it to av­er­age 3,8% this year, from 6,1% in 2014.

“We are un­likely to see in­ter­est rate hikes dur­ing the course of 2015 as it will be dif­fi­cult for the cen­tral bank to jus­tify an in­crease, es­pe­cially when in­fla­tion is be­low 4% for a larger part of the year,” says Els.

In­vestors want­ing to take ad­van­tage of the more be­nign out­look for South African con­sumers may be too late, how­ever. In­vestec As­set Man­age­ment port­fo­lio manager Rhyn­hardt Roodt says in some cases the benefits of cheap en­ergy have al­ready been priced into stocks. Re­tail­ers, an ob­vi­ous ben­e­fi­ciary, ral­lied strongly early in the year, with some shares up as much as 20%.

“The horse has bolted,” he says. “While it’s still an en­vi­ron­ment where growth is fairly pedes­trian, the move you have seen is things get­ting slightly bet­ter at the mar­gin.”

Among the re­tail­ers, gains have been wide­spread since Jan­uary 1. At the time of writ­ing, the FTSE/JSE Food & Drug Re­tail­ers In­dex was up 7%, putting it on a PE mul­ti­ple of 25,6, while the FTSE/JSE Gen­eral Re­tail­ers In­dex was up 14% to reach a PE of 21,9. Year to date, Clicks climbed 9%, while Mr Price also gained 9%, Wool­worths

Pic­ture: THINKSTOCK

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