IN OR OUT OF FASHION
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.