The Fos­chini Group: Next to be in vogue

Finweek English Edition - - INVESTMENT - moxima@the­money­

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.

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