Mov­ing from mid cap to blue chip

Mr Price Group, with its wide ar­ray of of­fer­ings aimed at the mid­dle LSMs, has been grow­ing steadily, ex­pand­ing its stores and adding to its foot­print.

Finweek English Edition - - MARKETPLACE -

theMr Price Group is a self-ti­tled “fash­ion value” re­tailer, of­fer­ing ap­parel, home­ware and sports­wear pre­dom­i­nantly to the South African re­tail mar­ket. The busi­ness con­sists of out­let brands MRP, Mi­la­dys, MRP Sport, MRP Home and Sheet Street. In terms of sales MRP ac­counts for 59% of the group’s to­tal sales, MRP Home 19%, Sheet Street 8%, Mi­la­dys 8% and MRP Sport 6% thereof.

The group now boasts 1 200 stores across its di­vi­sions of which 108 (9%) are out­side of South Africa.

Fun­da­men­tals

The share is priced for growth on a cur­rent price-toearn­ings ra­tio (P/E) of 18.5 times (for­ward P/E 17). The com­pany has re­turned a his­tor­i­cal div­i­dend yield of 3.35% and pro­duced an as­tound­ing and mar­ket-lead­ing re­turn on eq­uity (ROE) of 47% and re­turn on as­sets (ROA) of 47.91%. A mar­ket cap­i­tal­i­sa­tion in ex­cess of R50bn sees the com­pany en­trenched in blue-chip ter­ri­tory af­ter hav­ing been a mid-cap counter for a num­ber of years.

Re­sults

In what has been a dif­fi­cult eco­nomic cli­mate, the group has man­aged to post an­other ro­bust set of full-year re­sults for the pe­riod end­ing 31 March 2016. Mr Price has man­aged to in­crease floor space through net in­crease of 31 stores (45 opened, 14 closed) while ex­pand­ing 26 of its ex­ist­ing stores. Rev­enue in­creased by 8% over the pe­riod while ad­justed op­er­at­ing profit in­creased by 15% with a higher op­er­at­ing mar­gin of 18.2%.

Head­line earn­ings per share in­creased by 13% de­spite a rel­a­tively soft first half for 2016, and the com­pany has man­aged to pro­duce dou­ble-digit head­line earn­ings growth ev­ery year for more than five years.

Cash sales in­creased over the pe­riod by 9%, while credit sales grew by a mar­ginal 2% in the 2016 fi­nan­cial year. The soft credit sales growth can in part be at­trib­uted to the more strin­gent reg­u­la­tions em­ployed in this depart­ment, but un­like most of the group’s com­peti­tors, Mr Price re­lies heav­ily on cash sales, which amount to around 80% of to­tal sales.

Strong cash sales and cash flow gen­er­a­tion re­main among one of the rea­sons the Mr Price Group might be able to fair bet­ter than its credit re­tail­ing coun­ter­parts should a ris­ing in­ter­est rate and more

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