SHP reported strong results for 1H23 with solid performances across all divisions. Its space expansion indicates the company’s growth vectors, with increased focus on Usave and Checkers. We think that SHP may be better able to absorb the additional loadshedding costs, and argue that a moderation in SHP’s trading margin can be used to gain significant market share from its competitors.
The Non-SA Supermarkets division’s rationalisation is now complete, with nine core countries remaining. The high turnover growth was mainly due to rand weakness and, although trading margins improved to 3.2%, we think it may be difficult to return to past highs of c. 5%.
SHP has been working on several initiatives to drive new revenue streams. Many of these are reported as Other income which showed high growth of 43.8% y-y. The exponential growth of marketing and media income confirms the tangible benefits of monetising SHP’s data insights. This revenue stream can grow substantially in the years ahead, from the current 0.2% of turnover to at least 1% of turnover, in our view.
We consider the impact of loadshedding, and although stock availability is a key risk, SHP can mitigate this through its extensive supplier network. It could also resort to more imports, although the weak rand makes this a last-resort option. We estimate that if loadshedding intensifies to Stage 8, SHP’s diesel costs could increase to R1.9bn. This would amount to 17% of its operating profit, whereas PIK’s R1.1bn additional diesel costs amount to 37% of its operating profit.