Shoprite delivered good results for 1H26, although there was a slowdown in top-line momentum. While the Checkers chain continues to gain market share, its high space growth suggests LFL-volume growth may have been less impressive. We believe the group’s lower-income chains may have experienced declining trading densities, which would put their trading margins under pressure.
The enhanced segmental disclosure reveals that SHP RSA Supermarkets’ gross margins are higher than at Woolworths Food, but its considerable cost base results in a lower trading margin. We believe this may be due to extensive internal servicing (R4bn in turnover) and the cost of its ‘Precision Retail’ initiatives.
We assess the potential impact of higher oil prices on SHP by reviewing its past performance under similar circumstances. Generally, there is a low correlation between oil prices and SHP RSA’s internal inflation, sales growth, GPM and TPM. We show that a 30% increase in fuel costs may increase internal inflation by only around 90bps. We think SHP has the ability to withstand a shock oil price increase, as it can draw on other levers to counter the negative impact of higher fuel costs. In our opinion, the greater risk is fuel supply disruption.
Management has trimmed capex, and we believe this prudent measure could lead to improved ROEs.