Only benefits ahead for Shoprite
I have written a lot about recession/low growth-proofing your portfolio – lots of offshore earnings and being careful of local SA Inc. stocks. But there is an exception: lowLSM food retailers.
Everybody has to eat and Shoprite has the footprint to be available to every shopper looking for cheap food. What we’ll also see happening is shopping down. Those fancy Woolworths* stores are great when we are feeling rich. But when the pocket is being squeezed even those Woolies shoppers will be wondering how to make their rands go further and they too start wandering into Shoprite stores. So, Shoprite will benefit from extra shoppers who are shopping down, and they’ll keep their existing shoppers. The last benefit is again the rains. The rain has reduced input cost for the food producers and this gives Shoprite pricing power with the producers but also space for their own internal margins. The retailer held up well in the last recession of 2008. Current forward valuations put the stock on a price-to-earnings ratio (P/E) in the high teens; not stretched and hence I am a buyer with my fair value around R250.