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Trade insight example

Shoprite Holdings Ltd

15 July 2014 

Yesterday Shoprite released an operational update for the 12 months to June 2014. The Group increased total turnover by 10.5% to R102.2 billion, compared to the corresponding 12 months of 2013. Growth on a like- for-like basis was 5.1%. The Group saw an improved turnover growth of 11.4% in the second half of the year, compared to 9.7% in the first half.

The continued pressure on consumers’ disposable income reflects in the slow-down in sales in the South African supermarket division, the largest division in the Group (contributed 75% to the groups revenue), which grew sales by 8.7%. The furniture division (contributing around 4% to group turnover) grew by 12.2% even though the highly competitive market conditions remained unchanged. Shoprite remains a high quality retailer with a strong balance sheet and a consistently high ROE and is focused in a defensive industry.

Caution ahead of the SA Reserve bank interest rate decision later this week (Thursday 2pm) as retailers will be sensitive to the Monetary Policy Committee statement. A poll from Reuters showed 31 economists surveyed expect the MPC to hold rates at 5.5%, but seven of them expect a hike of 25 basis points and another six see a 50 point increase. - Travis Robson, Head of Premium Client Managemet

Technical Analysis

The price of Shoprite has broken out of an inverse head and shoulders formation (labelled L, H & R). The pattern suggests a bullish reversal of the preceding downtrend. The pattern predicts a target at 16900 by measuring the height of the formation and projecting an equal distance from the breakout level at 16000. Traders that have missed the initial breakout might wait for a possible retracement towards the breakout level at 16000 for long entry. The price closing below the right shoulder at 15550 (labelled R) would consider the inverse head and shoulders formation to have failed. - Shaun Murison, Market Analyst

Source: ProRealTime charts

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