The Foschini Group: Next to be in vogue
After a rocky start to 2013 due to weak consumer demand and spending in South Africa, The Foschini Group is f inally making headway. Though the entire retail index took quite a knock last year, Foschini has managed to outshine its peers throughout the free fall. Having recently breached the upper slope of its falling wedge, which is a bullish continuation pattern, buyers are gradually trickling in. It seems that selling RCS, Foschini’s consumer finance business, for about R2.65bn to European personal loan firm BNP Paribas Personal Finance, was simply water off a duck’s back as shares continued to rise. Foschini owned 55% of RCS, which has more t han 1m cardholders and services a network of more than 18 000 retail outlets including Game, DionWired, Makro, Pick n Pay, Shoprite and Clicks. This sale proved to be noble, as it would allow Foschini to attend more closely to fashion retail fundamentals while reducing its gearing and exposure to the unsecured lending market – and also removing a large portion of its debt from its balance sheet.
Foschini is expanding into Sub-Saharan Africa, which already accounts for 25% of the group’s revenue growth. It expects to have around 300 stores outside of SA by 2018 – from its existing 116. With Woolworths pulling out of Nigeria because of high rent and marketing diff iculties, Foschini has found a beneficial gap, as analysts expect the continent’s consumer-facing industries to grow by $400bn by 2020.
POSSIBLE SCENARIO: Once a positive break out of the falling-wedge pattern is confirmed above 11 860c/ share, I expect Foschini to gradually appreciate to the 22 550c/share targeted level in the long term (one to five years). However, the relative strength index (RSI) must simultaneously breach the upper slope of its own symmetrical triangle to avoid short-term volatility. ALTERNATIVE SCENARIO: Foschini would commence a new bear trend should it fail to trade above 11 860c/share, and breach the 8 200c/ share support level instead.