Shoprite delivers solid results
Despite the group producing what the market interpreted as good results for the full year to end June 2015 on 18 August, shares in Shoprite took a knock in intraday trade before turning around to end on a high note.
Part of the problem is that the stock – markedly off its all-time high, and lagging industry peers – has been “inherently expensive for a long time”, says Vestact portfolio manager Byron Lotter.
On 4 August, Shoprite was the best performer on the bourse after vaulting a hefty 4.2%, with Woolworths collecting 3.3% on the day. But, while the Shoprite stock flirted with R190 earlier this year, it’s since pulled back to R160. That, in turn, puts its market cap at R92bn, three times that of Pick n Pay. Although Shoprite’s priceto- earnings ratio sits at 20, Lotter feels the current level offers an opportunity to punters keen on Shoprite, whose growth prospects, he adds, remain positive.
“They have produced a solid set of results,” he says.
The supermarket chain had bemoaned load-shedding and an economic slowdown i n South Africa and beyond, he adds. However, despite what CEO Whitey Basson terms “trying market conditions”, Shoprite saw an 11.2% surge in sales, to R113.7bn, and a tiny rise in market share for the ninth year in a row. This illustrates that the food
CEO of Shoprite retail titan is still on an upward trajectory, says Cratos Wealth portfolio manager Ron Klipin.
Headline earnings per share came in at 772.9c, or 10.8% higher, following a 10.5% surge in net profit to R4.1bn.
Shoprite’s footprint currently spans 15 countries, with only three of these outside Southern Africa. With more than 2 100 of its almost 2 500 outlets in SA, revenues are concentrated in the country.
Klipin warns against moving into Africa too quickly, noting, “Massmart’s expansion into Africa hasn’t been without challenges.”
While Lotter shares this sentiment, he singles out Shoprite’s move to open a net 34 stores outside SA as a step in the right direction. Despite currency devaluation in three countries, including the populous Nigeria, the non-SA segment continued to outperform the local business.
Regarding diversification of revenue streams, Klipin notes that Basson’s team should put more focus on the furniture division, whose 471 stores, overwhelmingly in SA, grew turnover by 13%. This was helped along by setting up in some of the spots that were previously occupied by the now- defunct Ellerines. If Shoprite is to maintain its good – albeit softening – momentum, a winning formula to diversify will have to become a top priority now.