Shoprite should stick to what it does best
There’s little doubt the relative strength of the Shoprite share price helped to persuade some shareholders to vote in support of the R1.7bn repurchase of Whitey Basson’s shares.
After all, last Friday, the day the proxies had to be in, the share price was close to a record high of R225, so it looked as though the company was going to make a nice profit when it bought out Basson at R201. But less than a week later, the share price has slumped to R214 — still a profit, if not as large — down from 12% to 6%. Of course, there was the R3.24 dividend payment made on Wednesday.
And no doubt, the national credit regulator’s ruling, released on Wednesday, may also have caused some jitters.
The share repurchase was not about profit, though. The possibility of making profit off shareholders is one of the good reasons share repurchases should be treated with circumspection. Another is that most companies are not in the business of share trading and so should not be doing it, even on an opportunistic basis.
The Shoprite repurchase was done to allow Basson to exit his investments speedily. Perhaps when this arrangement was being put in place, the company and Basson assumed the repurchase could be done quietly and almost unnoticed. No such luck, though. It has been one of the biggest events on the corporate calendar so far this year and it has helped to push SteinhoffWiese interest in Shoprite to just more than the crucial 50% level, Such a sweetener might help them cope with all the unwelcome attention.
Meanwhile, there is a growing sense of excitement about the listing of Steinhoff Africa Retail (Star). There will be relatively few shares available for the public, but the listing does provide a window into an impressive range of Africanbased retail outlets. Just how impressive tended to be forgotten when it was tucked away in the rapidly growing and unwieldy Steinhoff group.
Shares in low-key consumer goods specialist Nu-World Holdings crept up to a record high of R42 on Wednesday. While the company is not exactly plying its trade in the most favourable economic conditions, it seems the market is expecting a sound performance in the second half.
Nu-World trades in branded consumer goods, mainly in SA, although it has a growing offshore emphasis via operations in Australia, Brazil, Dubai, Hong Kong and Lesotho.
A trading update should be released any day soon.
But even if earnings were not materially different from the previous year, it would probably be viewed as acceptable in the prevailing conditions.
The solid sentiment for NuWorld is not difficult to understand considering the much overlooked counter’s deep value proposition. On a trailing basis, the earnings multiple is a modest 7.7 times, and on a forward multiple, it might be less than six times. The standout feature, however, is the sumptuous dividend yield of about 4.5% on a historic measure.
Headline earnings at the interim were 344c a share and even a neutral second half should mean earnings will reach 600c a share.
Based on a 2.5 times dividend cover, the payout should top 240c a share, potentially a yield of close to 6% — not too shabby for investors looking to lock in capital and income growth.