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Wednesday, 09 May 2012 - 20:00
Charts
Is there Still Value in Local Retail Shares?
In nominal terms on the first trading day in May, the market moved up to a new high, closing at 34,482. New highs make many investors nervous, but typically they are bullish indicators. It is also interesting to note that this market high was made despite the fact that a large portion of the market – the resource sector – is still down over 35% from their 2008 recent highs. In other words the new market high has been driven by the financial and industrial sectors.
Ultimately business value is dependent on earnings growth, and as a sub sector certain of the general retailers have been exceptionally good at growing their earnings over the last 10 years. The sub-category of general retailer includes well known retail stores such as Cashbuild, Mr Price, Massmart, The Foschini Group, Truworths, Woolies, and Holdsport etc.
The chart below reflects the General Retail index relative to the earnings of this sub sector from 2000, both indexed to 100. Over this period, these companies have managed to grow their earnings by over 13.2% pa compounded. This compares reasonably well to the earnings on the overall market, which over the same time period have grown by a compounded 15%. From this starting point, the share prices have actually lagged earnings growth. However the starting valuations in January 2000 for this sector were expensive with the average PE at around 20.
At times investors become very enthusiastic about certain businesses and are willing to place higher and higher multiples on earnings. This was the case in January 2000 with these shares, and again from around March 2010 as prices relative to historical earnings moved through the 18 time level (i.e. PE above 18). Continuing growth in underlying earnings have, however, been supportive of the higher prices and the February official retail sales growth rate moved up firmly to an annual 7.2%.
While there may be some concern that this rate of retail growth, especially when combined with the high levels of unsecured debt, is not sustainable, a cursory view of some of this sector’s recent results and trading updates, gives a sense of generally firm growth:
• Mr Price, in its trading update for the year to March expects headline EPS to increase by between 18% and 23%.
• The Foschini Group will release its annual results to March at the end of May. It is expecting headline earnings per share to be up between 20% and 23%.
• Truworth’s interims reflected a 14% gain in headline earnings and it is planning 6% growth in trading space.
• Holdsport, the owner of Sportsman’s Warehouse and Outdoor Warehouse announced that its earnings for the year to February should be up around 20%.
• Massmart announced a 44 week sale update to the end of April with total sales growing by 14.7% and comparable store sales growth up 8.9%.
For a number of reasons, this sector continues to attract foreign investors, aided in no small measure by Wal-Mart’s acquisition of Massmart. These businesses have proven track records, good management, relatively low levels of government intervention, and a definite emerging market growth theme, making them attractive long term investments.
But as the historical PE moves back again to the 18 times level, more and more investors are pricing in strong growth over the next few years in order to justify these more steamier valuations. Investors should show some restraint.
Kind regards,
Ian de Lange
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966
Top News
![[IMAGE]](image.php@width=300&height=150&cropratio=2%253A1&image=%252Fnewsimages%252F2012-05-09T175133Z_1_AJOE8481DM100_RTROPTP_3_OZABS-MARKETS-SAFRICA-RAND-20120509.JPG "A worker shows his payment outside the Moses Mabhida stadium in Durban") South Africa's rand fell nearly two percent to a four-month low against the dollar on Wednesday, the second-weakest performer in a basket of emerging market currencies, as political and economic uncertainty in Europe dented risk appetite globally. Full story ![[IMAGE]](image.php@width=300&height=150&cropratio=2%253A1&image=http%253A%252F%252Fwww.sharenet.co.za%252Fimages%252Fprofile%252Foasis_crescent_pf.gif) Revenue increased to R59.5 million (R57.9 million). Operating profit rose to R46.4 million (R45.9 million). Net profit for the year improved to R47 million (R46.1 million). However, headline earnings fell to 91.2 cents per unit (99.6 cents per unit).
Distribution
Notice was Full story |
 Syrian rebels killed at least seven pro-government militiamen in a Damascus suburb on Wednesday, activists said, and an explosion wounded eight soldiers escorting U.N. ceasefire observers in the southern province of Deraa. Full story  A Russian Sukhoi passenger plane with 50 people on board, including businessmen and Russian envoys, went missing during a demonstration flight near a volcano on Indonesia's Java island on Wednesday, officials said. Full story  Serbia's reformist Democratic Party and the resurgent Socialists of late strongman Slobodan Milosevic agreed on Wednesday to renew a governing coalition that would keep the country edging towards the European Union. Full story |
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Markets |
European shares fell to a
four-month low on Wednesday as growing political uncertainty in
Greece and concerns over the Spanish financial system hit
markets,. . . Full story |
U.S. stocks rebounded from
session lows on Wednesday as optimism grew that Greece was
likely to get a bailout payment approved.. . . Full story |
Gold dropped below $1,600 an
ounce in heavy trading o n W ednesday, nearly wiping out gains for
2012 as political uncertainty in. . . Full story |
UK equities slumped to their lowest
level this year on Wednesday and faced further losses amid
downbeat corporate reports and concerns about the. . . Full story | |||
Global shares slid for a sixth
day while safe-haven U.S. and German government debt rose o n
We dnesday as the rising cost. . . Full story |
U.S. stocks cut losses heading
into the close on Wednesday of European markets, in choppy
trading driven by increased fears about Europe's debt. . . Full story |
U.S. stocks fell sharply in
morning trade on Wednesday, with indexes extending losses to
session lows, as political uncertainty hung over Greece and
concerns. . . Full story |
U.S. stocks fell sharply at the
open on Wednesday as political uncertainty hung over Greece and
concerns arose over the frail state of. . . Full story | ||||
SA Business |
South African stocks fell for a fifth straight session on Wednesday, tracking a global market that was dragged down by worries. . . Full story |
. . . Full story |
South Africa's rand extended losses against the dollar on Wednesday, touching a 3-1/2 week low as renewed worries about growth prospects. . . Full story |
Engen Petroleum has partially shut its 125,000 barrels-per-day (bpd) refinery in South Africa as maintenance cuts crude oil supplies, a company. . . Full story | |||
Kenya's Equity Bank could consider an overseas listing as rapid expansion puts it in danger of outgrowing its home stock market,. . . Full story | South Africa's ruling ANC
struggles to boost economic growth needed to spur job creation,
with the latest unemployment figures showing a quarter of. . . Full story | Africa-focused Petra Diamonds Ltd's quarterly production more than doubled as output from its Finsch mine in South Africa was taken into. . . Full story | The JSE Ltd, operator of Africa's biggest bourse, said on Wednesday it would have to completely rewrite a component of its. . . Full story |
The rand hit a fresh three-week low against the dollar on Wednesday, trading close to a resistance level of 7.95 that looks vulnerable given political uncertainty in Europe and signs of shaky domestic economic growth.. . . Full story |
Company News |
Unitholders were advised of the following changes to the executive responsibilities of directors of Oasis Crescent Property Fund Managers Ltd., the. . . Full story |
Fiuranium announced that it has completed and is in the process of delivering information circulars and forms of proxies to its. . . Full story |
The group has continued its strong performance for the first six months to 31 March 2012, with headline earnings per share. . . Full story |
Sentula shareholders were referred to the announcement released on SENS on Friday, 2 March 2012 and published in the press on. . . Full story | |||
Evraz gave formal notice of possible retrenchments on 4 May 2012. Formal consultations with employee representatives will commence on 9 May. . . Full story |
Shareholders were advised that the company is currently engaged in discussions which, if successfully concluded, may have a material effect on. . . Full story |
At the ninety fifth (95th) annual general meeting of the shareholders of Delta held on 9 May 2012, all the resolutions. . . Full story |
Omnia is delighted to announce the successful completion of its world class Nitric Acid Complex in Sasolburg, which started operating towards. . . Full story | ||||
Company Results | Revenue increased by 3% to R23.6 billion (R22.8 billion). EBITDA declined by 7% to R1.9 billion (R2.1 billion). Results from operating. . . Full story | Revenues 95.9 101.9. Operating earnings 37.7 37.5. Net earnings 4.5 14.0.. . . Full story | Revenue increased to R3.2 billion (R2.8 billion). Gross profit rose to R501 million (R347 million). Operating profit improved to R235 million. . . Full story | Turnover. . . Full story |
World Markets (Spot Prices)
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The JSE Today
| Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
|---|---|---|---|---|---|---|---|---|
| 09/05/2012 | 139 | 201 | 89 | 429 | 262,503,829 | R13,794,513,512 | 113334 | 3012661 |
| 08/05/2012 | 103 | 245 | 59 | 407 | 203,038,641 | R11,934,344,994 | 93831 | 2491924 |
| 07/05/2012 | 116 | 221 | 74 | 411 | 194,308,050 | R7,857,551,820 | 74467 | 1843188 |
| 04/05/2012 | 158 | 194 | 74 | 426 | 283,907,945 | R13,907,638,986 | 99738 | 3008486 |
| 03/05/2012 | 159 | 183 | 90 | 432 | 242,777,948 | R13,174,831,712 | 97054 | 2986850 |
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Index Summary
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Latest Consensus Changes**
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Stock Exchange News Service
| Date | Time | Headline |
| 09/05/2012 | 17:38 | GEN - FTSE/JSE Africa Index Series - Mercantile Bank Holdings |
| 09/05/2012 | 17:33 | Oasis Crescent Property - Changes to Executive Responsibilities of |
| 09/05/2012 | 17:29 | Exxaro Resources Limited - Trading of Exxaro ordinary shares on behalf |
| 09/05/2012 | 17:18 | Capitec Bank Holdings Limited - Dealing in securities by a director |
| 09/05/2012 | 17:16 | Oasis - Final Abridged Audited Results and Income Distribution |
| 09/05/2012 | 17:02 | MTN Group Limited - Dealing in securities by a director of a major |
| 09/05/2012 | 17:00 | African Rainbow Minerals Limited - Correction Announcement: Director`s |
| 09/05/2012 | 17:00 | Nu-World Holdings Limited - Unaudited Interim Report for the six |
| 09/05/2012 | 16:45 | Capital Shopping Centres Group Plc - Issue of Shares and Director and PDMR |
| 09/05/2012 | 16:39 | AWA/AWB - Arrowhead - Unaudited Interim Results for the six months ended 31 |
| 09/05/2012 | 16:14 | Pinnacle Technology Holdings Limited - Dealing in securities by the |
| 09/05/2012 | 16:12 | Zaptronix Limited - Posting of circular and notice of shareholders |
| 09/05/2012 | 16:05 | MWNT - Mine Waste Solutions (Proprietary) Limited - MWS and First Uranium in |
| 09/05/2012 | 16:01 | UUU - First Uranium Corporation - First Uranium in process of distributing |
| 09/05/2012 | 15:56 | MNDNIF - Nedbank - Dividend distribution announcement in relation to the MND |
| 09/05/2012 | 15:54 | MNPNIF - Nedbank Limited - Dividend distribution announcement in relation to |
| 09/05/2012 | 15:52 | Cashbuild Limited - Dealing in securities by a director |
| 09/05/2012 | 15:48 | ABN50 - Absa Bank Limited - New Financial Instrument Listing |
| 09/05/2012 | 15:45 | Capital Shopping Centres Group Plc - Notification of transactions of |
| 09/05/2012 | 15:38 | Optimum Coal Holdings Limited - Dealing in Securities by a Director |
| 09/05/2012 | 15:17 | BIIVU - iVuzi Investments Limited - Full Capital Redemption |
| 09/05/2012 | 15:15 | Tiger Brands Limited - Competition Commission announcement - Oceana |
| 09/05/2012 | 15:15 | British American Tobacco p.l.c.- Notification of transactions of |
| 09/05/2012 | 14:47 | BAW/BAWP - Barloworld Limited - Trading statement |
| 09/05/2012 | 14:46 | Nutritional Holdings Limited - Trading Statement |
| 09/05/2012 | 14:45 | Sentula Mining Limited - Announcement relating to The Broad-Based Black |
| 09/05/2012 | 14:36 | Evraz Highveld Steel and Vanadium - Evraz Highveld gives formal notice in |
| 09/05/2012 | 14:14 | Bowler Metcalf Limited - Director`s dealing in securities |
| 09/05/2012 | 14:09 | Metair Investments Limited - Dealings in securities by a director |
| 09/05/2012 | 14:08 | Cipla Medpro South Africa Ltd - Cautionary announcement |
| 09/05/2012 | 13:56 | Oceana Group Limited - Updated trading statement |
| 09/05/2012 | 13:55 | Oceana Group Limited - Consent agreement concluded with The Competition |
| 09/05/2012 | 13:41 | Delta EMD Limited - Report on proceedings at Annual General Meeting |
| 09/05/2012 | 12:47 | BIIVU - iVuzi Investments Limited - Listing of Tap Issue |
| 09/05/2012 | 12:24 | Capitec Bank Holdings Limited - Dealing in securities by a director |
| 09/05/2012 | 12:23 | Vunani Limited - Correction : Directors dealings in securities |
| 09/05/2012 | 12:00 | Omnia Holdings Limited - Omnia`s New Nitric Acid Complex on time and below |
| 09/05/2012 | 12:00 | RES - Resource Generation Limited - Resgen investor update presentation |
| 09/05/2012 | 11:51 | Vunani Limited - Directors dealings in securities |
| 09/05/2012 | 11:10 | THEE - The Competition Commission - Commission concludes settlement with Oceana |
| 09/05/2012 | 10:59 | Trencor Limited - First Quarter Update |
| 09/05/2012 | 10:31 | BIICL - Imperial Capital Limited - Full Capital Redemption |
| 09/05/2012 | 09:44 | BITRA - Transnet SOC Limited - Tap Issue Listing |
| 09/05/2012 | 09:25 | Firestone Energy Limited - Notice of change of interests of substantial |
| 09/05/2012 | 09:00 | PSG Group Limited - Dealing in PSG Group Limited shares by associates of |
| 09/05/2012 | 09:00 | Sun International Limited - Business Update for the Quarter and Nine |
| 09/05/2012 | 08:58 | Resource Generation Limited - Transcript of webcast by Paul Jury Managing |
| 09/05/2012 | 08:48 | Royal Bafokeng Platinum Limited - Directors` dealings in terms of the IPO |
| 09/05/2012 | 08:34 | Resource Generation Limited - Investor update webcast |
| 09/05/2012 | 08:30 | JSE Limited - Update on Systems Replacement Programme |
| 09/05/2012 | 08:28 | BITRA - Transnet SOC Limited - Tap Issue Listing |
| 09/05/2012 | 07:12 | SBR003 - The Standard Bank Of South Africa Limited - Interest Rate announcement |
| 09/05/2012 | 07:10 | British American Tobacco P.l.c - Transaction in own shares |
| 09/05/2012 | 07:06 | Harmony Gold Mining Company Limited - Harmony continues to generate |
| 09/05/2012 | 07:05 | Decillion - Trading Statement |
| 09/05/2012 | 07:05 | CPL003 - Capital Property Fund, a Portfolio in the Capital Property Trust |
| 09/05/2012 | 07:05 | The Spar Group Limited - Unaudited Interim Results for the six months |
| 09/05/2012 | 07:05 | Harmony Gold Mining Company Limited - Results for the third quarter fy12 |
| 09/05/2012 | 07:05 | INVS - Investec Bank Limited - The issue of hot enhanced dividend securities |
| 09/05/2012 | 07:05 | Trematon Capital Investments Limited - Joint announcement relating to the |
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