Only ben­e­fits ahead for Sho­prite

Finweek English Edition - - MARKETPLACE - *The writer owns shares in Sho­prite and Wool­worths.

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.

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