Room for im­prove­ment

The group has been bat­tling to grow its op­er­a­tions on the con­ti­nent, while a tough eco­nomic cli­mate in South Africa has also weighed on per­for­mance.

Finweek English Edition - - MARKET PLACE - Ed­i­to­rial@fin­week.co.za Mox­ima Gama has been rated as one of the top five tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the re­search team in t

wal-Mart bought a 51% stake in South Africa’s Mass­mart for $2.4bn in 2011 as part of its strat­egy to gain a foothold in high-growth mar­kets in sub­Sa­ha­ran Africa. The idea was to ag­gres­sively ex­pand the group’s port­fo­lio of brands, which in­cludes Game, Makro, Dion Wired, Jumbo Cash & Carry and Builders Ware­house, on the con­ti­nent.

How­ever, it has been strug­gling to grow its foot­print of just more than 400 stores on the con­ti­nent (it had 38 stores in 13 coun­tries out­side SA at the end of the in­terim pe­riod in June 2016, rep­re­sent­ing about 9.3% of to­tal sales). Mass­mart’s at­tempts to ex­pand through ac­qui­si­tions have not borne much fruit ei­ther, with pos­si­ble deals with Botswana re­tail group Chop­pies and Kenya’s Naivas fail­ing. In con­trast, ri­val Shoprite op­er­ates more than 2 600 stores on the con­ti­nent. Its 23 stores in Nige­ria make Mass­mart’s en­tire foot­print out­side SA look small.

Mass­mart said last year that it an­tic­i­pates open­ing five new stores across Ghana, Mozam­bique, Nige­ria and Zam­bia in the next two years. Es­tab­lish­ing le­gal ti­tle to land and land pric­ing re­main chal­leng­ing, the group said.

Mass­mart hasn’t only been strug­gling to grow its op­er­a­tions, but also sales else­where on the con­ti­nent. The group warned in its lat­est trad­ing up­date for the 52 weeks to 25 De­cem­ber 2016 that growth in non-South African sales con­tin­ued to de­cline. It said to­tal sales for the pe­riod grew 7.7% year-on-year to R91.2bn, driven by a “slight pick-up in South African sales growth”. Com­pa­ra­ble store sales in­creased by 5.4%. Prod­uct in­fla­tion was es­ti­mated at 6.7%, it said. The group’s re­sults were set for re­lease on 23 Fe­bru­ary, af­ter this is­sue of fin­week went to print.

Though the South African eco­nomic en­vi­ron­ment is likely to con­tinue lim­it­ing con­sumer spend­ing across key group cat­e­gories, in­clud­ing gen­eral mer­chan­dise and home im­prove­ment/DIY, Mass­mart be­lieves its sub­stan­tial food and liquor cat­e­gories will con­tinue to out­per­form. It also be­lieves that trad­ing may be rel­a­tively bet­ter in 2017 than it was in 2016.

For a long-term in­vestor, Mass­mart will even­tu­ally find its feet as shop­ping malls in coun­tries like Nige­ria build crit­i­cal mass. I be­lieve the share is cur­rently trad­ing at at­trac­tive lev­els, and Mass­mart has room for mas­sive up­side when mar­ket sen­ti­ment fi­nally re­verts.

Tech­ni­cal view:

Mass­mart’s share price has been fall­ing since May 2013. Though it did re­gain some up­side at the be­gin­ning of 2016, bias re­mains pre­dom­i­nantly bear­ish. Mass­mart would have to trade above 15 655c/share to es­cape its long-term down­trend and re­claim its pre­vi­ous losses. Un­til then, in­vestors should hold. I fore­see range-bound trad­ing be­tween 10 500c/share and 15 000c/ share in the short term or for the re­main­der of the year un­til a break­out in ei­ther di­rec­tion oc­curs. Go short: Mass­mart would breach its cur­rent sup­port trend­line and ex­tend its bear trend be­low 9 920c/share. Such a move could see it retest its pre­vi­ous 2008 lows at 5 650c/share. Go long: Mass­mart would end its long-term bear­ish con­fine­ment above 15 655c/share, po­ten­tially pro­mot­ing a grad­ual 100% re­trace­ment to its all-time high at 20 800c/share.

A Makro store in Al­ber­ton.

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