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In our weekly updates, we summarise key statistics in the spread of Covid-19 in South Africa. -
Despite the challenges in Nigeria, as the second-largest economy in Africa, we think it should have remained part of SHP's long-term strategy. Our detailed analysis shows that SHP Nigeria was surprisingly profitable in local currency. Despite restrictions on trade, SHP Nigeria generated a higher net margin percentage than the rest of the SHP Group. The resolve of SHP to leave a key market such as Nigeria raises the question if a similar outcome could occur in Angola. In SA, SHP hit a sweet spot with its innovations all firing at the right time. Checkers was well-positioned to benefit from the lockdown, with consumers compelled to dine at home. However, this element of growth could fade as the lockdown restrictions ease. -
Please see attached our Snapshot of Woolworths (WHL) FY20 results. -
Using our detailed local retail pricing data, we reveal AVI’s likely 1Q21 price movements across its food and personal care brands and find that the group has maintained its pricing strategy going into FY21. We find aggressive price increases within many divisions apart from Indigo and believe that AVI may be protecting its GPM against likely cost-push inflation later in FY21. We reflect on AVI’s financial performance during South Africa’s 2008/09 recession and believe that its food brands displayed significant resilience during that period. While margins were briefly negative during the recession, the margin recovery across most divisions was swift. SARS trade data points to encouraging hake export momentum going into 1Q21 while abalone exports had a poor start to the quarter, and implies that I&J may only stage a full recovery in FY22 -
Key points from the pre-close call with RFG CEO Bruce Henderson and CFO Tiaan Schoombie on 14 September 2020. -
In our weekly updates, we summarise key statistics in the spread of Covid-19 in South Africa.
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With Blue Label making significant progress on returning to their core business through the successful disposal of peripheral businesses and the deleveraging of their balance sheet, we turn our attention to potential future growth drivers for the business. Two growth vectors have been mooted – revenue assurance to municipalities relating to electricity and hardware device financing through a new CEC book. In the first instance, based on limited disclosure, it seems as though the revenue assurance business is still nascent. We investigate the potential profitability of a financing business in a low-interest rate environment and conclude that the profitability of such a business on a net interest income basis only is relatively low and needs to be supplemented with other income beyond interest to be profitable in the current environment. -
We are more concerned about the impact that a period of long-term low interest rates may have on Truworths’s credit business. We assess the long-term cost of accounts and conclude that TRU would need a repo rate of at least 5.5% for its credit business to breakeven. A sustained period of low interest rates may compel the company to be more discerning in credit granting, which could hamper sales growth. Alternatively, it may cross-subsidise the credit business which would require higher GP margins. The repo rate is currently at historic lows, and with the National Credit Act’s prescribed limits linked to the repo rate, we believe this may be the first time credit providers will face a situation where the cost of running a credit business could be higher than the interest income for an indefinite period. In our view, the dramatic scaling down of Office in concerning and could impact its future prospects. Office’s online business needs the support of physical stores to promote its presence and brand in the marketplace, and the reduction in the store footprint will also diminish the appeal of the “Click and Collect” option for customers. -
Please see attached our Snapshot of Shoprite (SHP) FY20 results.
