Bull trend

Finweek English Edition - - INVESTMENT -

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.

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