IN OR OUT OF FASH­ION

Finweek English Edition - - Companies & markets - SHAUN HAR­RIS

IN­VESTORS WHO HAVE RID­DEN out the fall and rise in Ed­con’s share price over the past year have to ask them­selves: Is this as good as it gets? There are two con­sid­er­a­tions. Sales growth in the third quar­ter was rea­son­able (up 12% for the quar­ter and 14% for De­cem­ber) but it’s slow­ing. In­ter­est rates will prob­a­bly in­crease fur­ther, which for a re­tailer like Ed­con – with a fair share of its book based on credit – im­plies in­creas­ing bad debts. Credit sales are cycli­cal and the cy­cle is now go­ing down.

The sec­ond is­sue is the cau­tion­ary, re­newed in Jan­uary, that dis­cus­sions with a num­ber of private eq­uity in­vestors are on­go­ing. The first cau­tion­ary in Oc­to­ber boosted its share price, but if there’s a firm of­fer will it come in at any higher than R40/share? We sus­pect not – so now could be the time to go. OP­POR­TU­NI­TIES With more than 900 stores in south­ern Africa, 4m cus­tomers and mar­ket share of 31%, it’s the dom­i­nant cloth­ing, footwear and tex­tile re­tailer. Re­mark­ably, CNA seems to have come right, though it should still be called Cen­tral His­tory Agency be­cause it takes so long to get mag­a­zines out on to its shelves. RISKS There are prob­lems at dis­counter Jet. Seems it’s got its buy­ing all wrong. It’s dif­fi­cult and ex­pen­sive for credit re­tail­ers to re­coup bad debts. If the private eq­uity deal doesn’t hap­pen, the share price will prob­a­bly re­treat.

EDGARS CON­SOL­I­DATED STORES

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