Shoprite de­liv­ers solid re­sults

Finweek English Edition - - IN BRIEF - BY SHOKS MZOLO

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.


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