Although TFG’s 1H25 results were weak, there are some encouraging signs, with improving topline growth in early 2H25. The substantial GPM uplift is remarkable, given the contraction in turnover. However, we are concerned about the higher stock levels, which raises the risk of markdowns in the period ahead. TFG Africa’s stock in 1H25 was at levels previously considered ‘elevated’, which compelled management to trade out of those positions with aggressive inventory clearance in FY24. TFG London’s stock days are similar to pandemic levels, which adds to our concerns. The level of inventory provision, at 10.0%, is also the lowest in recent years.
We assess the impact of TFG London’s acquisition of White Stuff. Its older target customers could present interesting growth opportunities for TFG London. Most developed markets, including the UK, are experiencing ageing populations, and we show that while TFG London’s target market in the UK (age 30-54) is expected to drop by 0.2% in 2024-30, the 55-74 age segment targeted by White Stuff is expected to increase by 5.3% by 2030. TFG London can benefit from this higher growth in White Stuff’s target addressable market, in our view.
We question the track record of the bolt-on strategy in the UK, though. TFG has invested R4.1bn in acquiring five businesses in the UK since 2015, with R3.0bn subsequently impaired. While the bolt-on strategy was meant to build scale and provide opportunities for efficiency improvements, TFG London’s footprint dropped from 978 outlets in FY19 to 508 at 1H25. Management would argue that the UK business is smaller but much more profitable now; however, this ignores the significant capital cost and lack of growth over the period.