Business Day

Bargain hunters fire up retailer shares on JSE

Mr Price trading statement adds to buoyant mood towards sector

- Retail Correspond­ent

MR PRICE, Woolworths and Truworths rallied yesterday as bargain hunters rushed back into the market after last week’s retail shares sell-off following dismal consumer spending data. The surge in these share prices helped the JSE’s general retailers index close 3.64% higher. Mr Price said yesterday that its full-year earnings were likely to be 20% higher than the previous correspond­ing period. The company’s shares rallied 6.06% to close at R122.50.

ZEENAT MOORAD MR Price, Woolworths and Truworths rallied yesterday as bargain hunters rushed back into the market after last week’s retail shares sell-off following dismal consumer spending data.

The surge in these share prices helped the JSE’s general retailers index close 3.64% higher.

Further, Mr Price said yesterday that its full-year earnings were likely to be 20% higher than the previous correspond­ing period. The company’s shares rallied 6.06% to close at R122.50, while Woolworths closed at R69.46, 3.80% up, and Truworths ended 3.07% higher at R92.20.

“There is a bit of a bullish tone on the JSE today — a bit of a bounce from the market more than just Mr Price’s trading statement,” PSG Konsult portfolio manager Drikus Combrinck said. “Their statement … only said they expect more than 20%; they didn’t give any band, we could still be disappoint­ed.”

Local retailers have been cautious about their growth prospects as consumers remain under pressure because of elevated debt levels and rising utility costs. On Tuesday, an index compiled by the Bureau for Economic Research, showed consumer confidence had plunged to a nine-year low in the first quarter of this year.

Mr Price said a more detailed trading update would be released by the end of next month.

Independen­t Securities CEO Simon Fillmore said the Mr Price trading update provided limited informatio­n. “It looks like it was in line or a little bit better than what the market was expecting.

“But because they didn’t give a definitive range, it’s difficult to say where they exactly stand. We’ll only know when they firm up on the numbers and when we get clarificat­ion on the actual range.

“That could potentiall­y be the needle mover for the stock.”

Durban-based Mr Price reported a 35% increase in headline earnings per share in the 26 weeks ended September 29. But the group’s third-quarter — September 30 to December 29 — update released in January showed a slowdown, as the retailer curtailed its credit offering.

Noah Capital Markets retail analyst Roger Tejwani said “the group’s investment story” was likeable. “The valuation has become a little bit more reasonable over the last few months.

“The only concern I have at the moment is rand weakness — they’re a lower priced player who imports quite a lot, you get import inflation and if you can’t pass that through the supply chain through higher price points, you may have to take that to margins.”

Another concern was that over the last year the group’s “strong” turnover growth had been a lot more credit-linked, Mr Tejwani said. “They have been growing the credit quite aggressive­ly, playing catch-up and that was what boosted their topline growth.

“Obviously, they’ve had to scale back their credit growth, because their impairment was rising aggressive­ly, so that could create a little bit of a drag on topline growth.”

In contrast, Pick n Pay issued a disappoint­ing trading statement yesterday. It said it expected its diluted headline earnings per share from continuing operations in the 52-week period ended March 3 to decline 25%-35% versus the comparativ­e period ended February 29 last year.

Pick n Pay is in the midst of implementi­ng a turnaround strategy after several years of poor performanc­e resulted in the Cape Town-based retailer losing market share to its rivals.

Pick n Pay said it had experience­d a challengin­g trading year, with turnover growth for the period‚ excluding the additional trading days‚ at 6.3%.

The growth in comparable stores came in at 3%. Turnover growth‚ plus the additional trading days‚ was 7.1%.

Equity analyst Daniel Isaacs of 36One Asset Management said the trading statement contained few surprises. “Quite a few people expected a negative outcome.

“Some expected it to be a bit more negative and to some extent a bit less, so it’s pretty much evenly balanced — I think everyone expected worse.”

Pick n Pay’s earnings before interest tax, depreciati­on and amortisati­on from continuing operations are expected to fall between 5% and 15%.

The company said the second half of the trading period resulted in “encouragin­g” turnover growth of 8.2%‚ compared with the 5.9% achieved in the first half.

“Coming off the low base that they’ve been coming off, it’s not such a difficult thing to show,” Mr Isaacs said.

Pick n Pay’s share price closed 0.85% higher at R41.50.

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