Shoprite Holdings results

A breakdown of the group’s sales shows double digit growth across all its divisions. The standout performance was realised by the Non-RSA Supermarket operations which grew sales by 32.3% over the six month period.

Shoprite Holdings in the context of a weak consumer environment has delivered a strong set of results for the six months ending December 2016.  The group has managed to increase turnover by 14% whilst growing diluted headline earnings per share by 15.5%. Shoprite has also increased the dividend cover by a similar margin to the earnings growth achieved (15.4%).

A breakdown of the group’s sales shows double digit growth across all its divisions. The standout performance was realised by the Non-RSA Supermarket operations which grew sales by 32.3% over the six month period. The Non-RSA operations consist of 221 stores and 13 liquor shops in 14 countries across the rest of Africa. The Angolan and Nigerian operations were the outperformers within the division with the group citing that “Despite the chronic shortage of foreign currency in especially the oil-producing countries, the Group enjoyed a significant competitive advantage in that it could fund its stock requirements from its external balance sheet, unlike many other traders in the region”. It would appear that Shoprite is now one of the few South African companies to be succeeding in its expansion into the Nigeria, the second largest economy on the African continent (only marginally smaller than South Africa in terms of nominal GDP).

Merger termination

Monday’s (20 February 2017) announcement that the proposed merger between Steinhoff Internationals African operations and Shoprite Holdings had been terminated which was welcomed favourably by the investment community as it was seen to be potentially earnings dilutive for the company.  

Comments

The group is proving not only its defensive nature by performing well in a tough economic climate, but also that it remains able to achieve earnings growth in the current environment. The momentum achieved in 1H2017 is expected to be continued into the latter half of the financial year. The Investments into the rest of Africa are paying dividends for Shoprite and becoming material, accounting for nearly 20% of total group revenue. The operations outside of South Africa remain a large potential catalyst for future growth. Trading on a forward Price to Earnings multiple (P/E) just north of 16 times, Shoprite does offer a discount to its SA listed food retail peers, suggesting a relative value in the current market place. 

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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