In a short-term bear channel
After reporting relatively flat sales for the three months to end-September, Shoprite’s share price gave in by 4.6% to 17 450c/share (at the time of writing on 29 October), extending its losses to the lower slope of its short-term bear channel.
In an operational update, the company said it had experienced “product availability challenges stemming from the group’s largest distribution centre in Gauteng, which accounts for 53% of total centralised food distribution” for its supermarkets in SA.
This anomaly has resulted in a significant loss of sales opportunities, inevitably benefitting competitors, CEO Pieter Engelbrecht said in the update. Turnover has only grown 0.4% from the corresponding period in 2017 due to 0.1% internal food deflation, strikes and rand strength against other African countries.
The group’s core South African supermarket business grew sales by 1.7% while the rest of Africa operations suffered an 8.6% decline, measured in rand.The Angolan kwanza and Zambian kwacha have depreciated by 76.3% and 21% respectively against the US dollar since the beginning of 2018.The group’s hedging strategy is said to have softened the blow.
How to trade it:
Shoprite has been ranging between 19 800c/ share and 17 700c/share within its bear channel. Late October’s news saw it trade through key support at 17 700c/share on intra-day trade but managed to close above that level. Shoprite would have to trade above 19 800c/share to end this consolidation and retest the upper slope of its channel at 21 450c/ share. A move above 22 360c/ share would place it in medium-term bullish territory with potential gains to 25 540c/share at first, and then to the all-time high at 28 190c/share. Alternatively, continued downside through 17 700c/share could see Shoprite topple further to either the 15 000c/share-level or key support at 12 400c/share. ■ email@example.com