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South Africa-listed retailer Truworths was among the top performers on the Johannesburg exchange at the start of the week, even though it has warned its profits for the half-year to the end of December will most likely fall by as much as 9%. BizNews speaks to independent analyst Christopher Gilmour, who specialises in consumer industrial stocks, for his take on what’s driving the Truworths share price – and how he sizes up South African retailers. – Jackie Cameron
Christopher Gilmour on what’s driving the Truworths share price:
It’s very difficult to try and work out what the next six months are going to bring. This is the first clothing retailer to bring out six months worth of results that haven’t been affected by proper lockdown in South Africa. As far as South Africa is concerned, it’s difficult to make any meaningful comparisons with the likes of TFG or Mr Price, for example, with different year ends.
Their last set of results incorporated quite a lot of lockdown. Now you’ve got, what I would call, a pretty clean six month period in Truworths. So now, what you’ve got to do is try and extrapolate that out for the next six months. A very quick and dirty analysis of mine, I reckon if they can do R5,40 – which will take them back to where they were two years ago – in the absence of any further, meaningful lockdowns in South Africa.
I think that’s a reasonable assumption. I think the economy now in South Africa is so shot, that the ANC government realises that you can’t really go for the meaningful lockdown option anymore. That being the case, then I think this set of results – it’s not a good set of results by any stretch of the imagination – but I think it will be good enough to give them of the order about R5,40 for the year as a whole.
On TFG (The Foschini Group):
I like TFG – and I particularly like the technology they’re using. Things like RFID, for example. So that their stock control is way ahead of any competition. They’re able to do a stock count in real time, and get 100% accuracy. Compared to what they used to do, the old method. Maybe doing it two or three times a year and getting 65-70% accuracy. That is wonderful.
Yes, they have a similar problem to Truworths, in the fact that they’ve expanded overseas. But I think they did it more intelligently. Yes, they’re struggling – no doubt about it. But I do think that the areas that they’re in, in the UK – and particularly the segment in Australia. Australia is going quite nicely for them. So, I think they’ve immortalised a lot of their assets in a far better way than Truworths have.
On Mr Price:
I still like Mr Price. It’s very much at the low end of the spectrum. They’ve pretty much got out of the rest of Africa, and are concentrating pretty much fully on South Africa now. They’re offering a really good value proposition to the South African consumer. I still like that. They’ve had a tough time like everybody else, but I think – like TFG – they’ve handled it superbly.
On the food retailers:
I think Spar is looking better than most, but that’s not a particularly good comparison to make, because it’s more of a franchise operation than anything else. Shoprite is forging ahead. Pick ‘n Pay won’t hang around, I don’t think. It will be interesting to see what happens with the new CEO who is coming in, in April. He’s got big shoes to fill. Only time will tell as to whether he’s got the mettle to do a good job.
On Lewis furniture stores:
I think Lewis – the furniture retailer – will come out with surprisingly good results. Again, it all depends on how long the pandemic goes on. You’ve got big demand for furniture, big demand for luxury goods all around the world, as well. As people have travelled less – as you’ve gone for this home body economy, so to speak – they’ve put a lot of money into their kitchens. They want to have a comfortable and functional environment. So I think Lewis, at least temporarily anyway, will have a good showing.
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