Af ter surging rapidly and peaking at 8 300c/share, Brait eventually pulled back from a mega-overbought position on its monthly chart. This correction occurred after the third phase of the primary bull trend lost steam, potentially forming a flag pattern. As an i nvestment holding company Brait has invested in Pepkor, Premier Foods and Iceland Foods. The company is being ‘ premium pegged’ thanks to its major holding in clothing retailer Pepkor.
Pepkor, which trades mainly through Pep Stores and Ackermans, has proven to be quite the gem in Brait’s portfolio because of its ability to trade in a perfect segment of the market. In times of economic expansion, where jobs are created, cheaper retailers like Pep and Ackermans are popular as they won’t take large chunks out of consumers’ disposable incomes. In weak economic conditions, people trade down to such retailers, making Brait an attractive investment in any economic situation. Pepkor is also expanding in Africa, and its low prices make it the preferred clothing retailer for millions across the continent. Also, 90% of its sales are cash based, which makes it far more defensive than credit-based retailers.
In June this year, Brait posted a positive set of full-year results, showing good growth in group net asset value (NAV) and strong cash generation. Pepkor, being a very cash-generative business, helps Brait fund further acquisitions. In a recent statement, the company announced that it has cash and facilities of R2.7bn available to make further deals, but did not mention the details of possible targets. Brait’s success comes from the fact that its major investments are all in unlisted consumer businesses. It also has the ability to identify sectors and companies, take large positions and drive the value in those companies in the longer term. Though all three of Brait’s major investments are successful, it acknowledged that Iceland Foods is facing difficult market conditions in the UK – it only grew sales by 3% over its last full year. POSSIBLE SCENARIO: Brait pulled back from a mega-overbought position on the monthly chart – a common correction when the third and f inal phase of a primary bull trend is overextended. If the correction is over, upside above 7 010c/ share would confirm a positive break out of the bullish continuation pattern, with potential gains to the 9 885c/share targeted mark – a short-term projection (one to six months). ALTERNATIVE SCENARIO: The f lag pattern would be negated below 6 020c/share or once the lower slope has been breached – thereby prolonging the correction. Brait could then retest its second support trendline – and possibly bounce there. Either way, a recovery at any point would make Brait an attractive share in the medium to long term as we expect it to launch another bull trend, consisting of another three phases.