Tag: shares

SA’s fast food industry in crisis

The South African fast food industry has come under severe pressure of late. The management of these fast food retailers keep telling us that in an economy that is not growing as it should, making money is becoming increasingly harder.

These companies should also acknowledge that increased competition in the South African market is becoming ever more prevalent. Recent entrants into the markets include chains such as Chesa Nyama and Pizza Perfect.

Famous Brands

Famous Brands, who owns household brands Steers, Wimpy and Debonairs among others, has seen its share price drop over 40% over the last year. The biggest reason is that investors are extremely negative on their Gourmet Burger Kitchen (GBK) acquisition in the UK. Having paid R2.1bn for GBK, the expectation is for GBK to contribute considerably to bottom line earnings.

Unfortunately, the opposite has happened. GBK only made a profit of R16m before interest and taxation. Management has cited reasons such as investor uncertainty due to Brexit. However, the fast food competition in the UK has also intensified and growing market share is becoming increasingly harder.

Taste

Taste Holdings owns the fast food brands Dominos Pizza, Starbucks and Zebro’s. Outside of food, Taste also has jewellery interest in NWJ, Arthur Kaplan and World’s Finest Watches.

Taste has been trying to become profitable and hopes that the international brands of Starbucks will do exactly that.

For the six months ending August 2017, Taste posted a loss of around R65m. Unfortunately, Starbucks has not yet pulled Taste into profit. Worse yet, Taste’s jewellery division, which has historically made profits, has also posted a loss of R769 000.

Taste needs to turn profitable as the balance sheet is very weak. With debts relatively high, Taste might consider issuing rights to bolster their cash position as the Starbucks roll-out is very cash hungry.

The share price of Taste declined from R2.15 in May to 75 cents recently.

Grand Parade Investments

Recently Grand Parade announced that it withheld dividend payments for 2017. As with Taste, Grand Parade is still rolling out its Burger King, Dunkin’ Donuts and Baskin-Robbins stores. These roll-outs are very capital intensive and are still leading to company losses.

Grand Parade has a profitable gambling interest but is planning to disinvest from those in time as it targets food to be the future of the company.

In March 2017 Grand Parade Investments was trading at R4.00 per share. Currently, the price is trading at R2.71. This is a great entry point for investors as the company is actively deleveraging its balance sheet and has a debt to equity ratio of 16.8%.

Spur

Spur has been a South African household name for years. As all of the other fast food chains, Spur has seen its share price drop considerably. It traded down from R36 per share to around R28 in less than a year. Recent numbers show like for like sales down 9.9% and headline earnings from continued operations declined by 26%.

Spur’s roll-out of the RocoMamas franchise has been extremely successful and has been a great hedge for Spur in a declining environment. RocoMamas increased profits by 34%.

Other brands in the Spur group include Hussar Grill and John Dory’s.

Woolworths

Although not as much fast food, Woolies does offer customers a sit-down and take-away option. The Woolies share price seems to have found some support around the R60 level with investors buying the share a lot cheaper than they did 2 years ago. In November 2016, Woolies was trading at around R104 per share.

Like Famous Brands, Woolworths tried to achieve scale by entering an offshore market. The David Jones acquisition in Australia is providing problems with reported management differences and questions over the price paid for the acquisition.

However, Woolworths does sell superior products to its competitors and will rocket when the South African economy turns and the Australian acquisition gets bedded down properly.

By Kirk Swart for Fin24

Shoprite to vote on Whitey’s R1,7bn share sale

Shoprite shareholders will vote on whether to approve a proposed repurchase of about R1.7bn of shares from former chief executive officer Whitey Basson.

Basson exercised a put option on May 2 that meant Cape Town-based Shoprite would buy 8.58 million shares from the ex-CEO, who stepped down as head of Africa’s biggest food retailer at the end of last year.

The original sale price of R211.01 a share was later reduced to R201.07, the 30-day weighted average price up to when Basson decided to use his put option. At least 75% of voting shareholders have to be in favour of the repurchase for it to be approved.

Shoprite shares fell 0.5% to R222 at the close in Johannesburg on Monday, valuing the company at R133bn.

Billionaire Christo Wiese, Shoprite’s largest shareholder and South Africa’s fourth-richest person with a net worth of R72.6bn, said August 22 he wasn’t expecting significant opposition from investors.

The put option, agreed to in 2003, ensured Basson didn’t “flood the market” with shares while he worked for the company and was also part of an incentive to retain him in the role, which he held for almost four decades, Wiese said at the time.

If the deal isn’t approved, Basson should have no difficulty selling the shares to money managers over the next few months, Syd Vianello, an independent retail analyst in Johannesburg, said by phone. The stock has risen since the put option was triggered, meaning Basson could get even more cash if he sells independently.

Wiese owns about 15% of Shoprite’s ordinary listed shares and a further 30% in voting rights. The Public Investment Corp, which looks after state pensions and is the continent’s biggest money manager with assets of R1.6trn, holds about 10% of the company and is its second-largest shareholder.

By Janice Kew forBloomberg News

South Africa’s tough retail environment ate into Mr Price earnings over the past year, as consumers kept a firm hold on their wallets due to the current economic climate.

The group on Tuesday reported a decrease of 10.4% in its diluted headline earnings for the year to 1 April 2017 compared to the previous year.

Mr Price’s poor year corresponded with competitors Truworths, Woolworths and Foschini’s weak sales numbers, highlighting the struggles of the sector.

“This was the group’s first earnings decrease in 16 years during a very difficult trading period,” said CEO Stuart Bird.

Total revenue rose 0.7% to R19.8bn, with retail sales decreasing 0.5% to R18.6bn.

The results were not unexpected, as the Durban-based retailer’s pre-Christmas performance had been dismal. Mr Price attributed the losses at the time due to last year’s unseasonably warm winter as well as promotional markdowns by competitors to clear stock. Foreign retailers such as H&M and Cotton On also ate into the retailer’s market share.

Despite its retail woes Mr Price remained cash generative, providing a good return on average equity to shareholders. Free cash flow increased 131% to R1.8bn and cash resources at period end were R1.8bn. The annual dividend per share stayed at 667c, with the final dividend of 438.8c per share up 4.7%.

Annual dividends of the group have not declined in the last 31 years.

The group said its cash-based business model has enabled it to maintain its dividend track record. It also used the model to fund capital expenditure of R2bn in the last two years to build the necessary infrastructure to support growth plans.

The no-frills retailer said the year proved to be exceptionally challenging for the retail sector.

“Consumer confidence remained low as a result of the poor state of the local economy and a lack of faith in the current political leadership’s ability to set high standards of governance and deliver inclusive growth.”

It also blamed the Cabinet reshuffle and credit ratings downgrades for causing exchange rate volatility, which led to higher prices the consumer ultimately had to absorb.

“As a result, the retail environment has become more competitive, with any growth in a stagnant market coming from increased market share,” Mr Price said.

“This has led to retailers in our sector increasing their promotional activity to drive sales and manage stock levels.”

The merchandise gross profit margin decreased by 1.3% to 40.6%, mainly due to higher markdowns in MRP Apparel, the group’s largest chain. The apparel division, which accounts for around 70% of group sales, has struggled to attract sales.

However Mr Price’s sales growth in the fourth quarter improved, buoyed by sales in the Easter school holidays. Local online sales also continued to perform well and were 13.0% higher than last year.

MRP Sport increased its sales by 7.7% to R1.4bn, performing strongly in the first half with sales gaining 13.3%.

Mr Price singled out MRP Apparel and Miladys as its underperforming units, but added that the new financial year presented new hope, with the best sales performances coming from these two units.

MRP Apparel’s performance, with a decline in operating profits, was an especial cause for concern with sales of R10.9bn 1.7% lower. In the first quarter its product offerings did not resonate with customers, Mr Price said.

Miladys sales of R1.3bn were 5.3% lower. Operating profit increased in the second half, but fell on an annual basis despite a higher gross profit percentage and good cost control.

Although there was limited overhead growth below the inflation rate, it was not sufficient to counter the decline in sales and gross profit.

The retailer said any improvement in the consumer environment is likely to be gradual. Its recovery plans centres on regaining its lost market share, which it believes is the most significant near-term opportunity.

Mr Price’s share price jumped 5.28% to R153.91 at 11:20 on the JSE.

By Yolandi Groenewald for Fin24

South Africa’s general retailers index posted its biggest daily loss in nearly two weeks on Monday, capping gains on the bourse after ratings downgrades last week knocked the rand currency, raising the prospect of inflation curbing consumption.

The rand extended its recent losses as the credit downgrades to “junk” by two ratings firms last week following the sudden firing of the finance minister kept investors jittery.

The general retailers index shed 2.77% on Monday, bringing its decline to around 12% since March 27 when President Jacob Zuma recalled finance minister Pravin Gordhan from an overseas investors roadshow, before firing him in a cabinet reshuffle.

Massmart, majority-owned by Wal-Mart, lead the way, falling 4.85%.

“It looks like people are starting to realise that these downgrades will cause the economy to slow down, that’s generally a negative for retailers,” said Cratos Capital equities trader Greg Davies.

Overall, the market closed higher. Advancers included Anglo American, which closed 1.6% higher after announcing it would sell its Eskom-linked thermal coal operations in South Africa for $166 million, marking an important step in strategic overhaul to sharpen its focus.

The broader All-Share index increased 0.54% to 53,139.86 points, while the benchmark Top-40 index added 0.73% to 46,422.49 points.

On the foreign exchange market, at 23:50 the rand traded at 13.9501 per dollar, 1.20% weaker from its New York close on Friday.

In fixed income, the yield for the benchmark government bond due in 2026 climbed 7.5 basis points to 9.005%.

By Olwethu Boso for www.moneyweb.co.za

Massmart’s shares fall

The share price of Wallmart’s South African subsidiary Massmart fell 4.4% to R111 on Tuesday morning after it reported overall sales growth excluding new stores failed to keep pace with inflation.

Massmart reported sales for the 44 weeks to October 30 excluding new stores was 5.3%, lagging behind product inflation of 6.4%.

Including new stores, sales grew 7.6% to R73.2bn from matching 44 weeks in 2015.

“Sales growth has declined, reflective of the tough trading conditions in SA and, more recently, in most African countries where we have stores,” the company said in its sales update on Tuesday.

“Although slowing marginally food and liquor sales continued to perform well and Massbuild is showing signs of a sales recovery. General merchandise sales remain compromised by low consumer confidence, drought-affected food inflation and higher-priced imported products.”

Massmart splits itself into four divisions.

Fastest sales growth of 10.7% was reported by Masswarehouse which houses the Makro and Fruitspot chains. Excluding new stores, sales growth was 7.5%.

Next was Masscash whose brands include Jumbo, Shield, CBW, Rhino Cash & Carry, Tridant, Saverite and Cambridge Food. It increased by 7.9%. It appears to have closed numerous outlets since same-store sales growth was 8.5%.

Massbuild — which houses Builders Warehouse, Builders Express, Builders Superstore and Builders Trade Depot — grew sales 5.7%. Excluding new stores, sales growth was a more muted 1.1%.

Game and DionWired division Massdiscounters increased sales by 4.6%, but only by 0.5% when excluding new stores.

By Robert Laing for www.businesslive.co.za

Amazon: the comeback king

Wall Street’s love affair with Amazon has been rekindled following shares climbing by nearly 10% on Friday after Amazon reported a better-than-expected profit.

Amazon shares have been on a tear since early February, surging about 45%. Amazon is now back in breakeven territory for the year and less than 2% below the all-time high it hit in December.

Warren Buffett is a big fan of the company too apparently – even though his Berkshire Hathaway does not own the stock.

Buffett went out of his way several times to praise Amazon and CEO Jeff Bezos during Berkshire’s annual shareholder meeting on Saturday. He did so again on CNBC Monday morning.

Amazon’s triple-digit P/E ratio probably scares off Buffett – who is a consummate value investor.

But it’s telling that he is willing to admit how successful Amazon is – especially since it would appear that much of that success is coming at the expense of Walmart, which is one of Berkshire’s biggest investments.

Amazon passed Walmart in market value for the first time ever last July. It is now worth about $320-billion – nearly $110-billion more than Walmart.

Analysts think Amazon has a lot more room to run too. The consensus price target is just shy of $800 a share. That’s almost 20% higher than current levels.

R.J. Hottovy, an analyst with Morningstar, says that Amazon’s international units are starting to pick up steam. He expects that Amazon will add a lot more Prime members in Europe and Japan in the coming quarters.

He added that Amazon seems a little more focused now and is less prone to invest in non-core businesses that may not really help boost Amazon’s revenues and Prime member base. Remember the Fire Phone flop?

“The biggest investment risk with Amazon is Jeff Bezos’ brain. It all depends on how aggressive Amazon wants to be,” Hottovy says. “As long as Amazon’s investments build the user base, then I still think there is some upside to the stock.”

Clothing is one of those investments that should boost revenue and profits.

The company recently has started to sell its own private label clothing brands. John Blackledge, an analyst with Cowen, wrote in a recent report that he expects Amazon to become the biggest apparel retailer in the U.S. as early as next year.

Yes, Amazon often gets criticised for heavy investments in free shipping and new businesses.

But Michael Pachter, an analyst with Wedbush Securities, says those initiatives appear to be paying off. Gross margins surged in Amazon’s most recent quarter.

The stock is extremely expensive. It trades at nearly 130 times 2016 earnings estimates of $5.33 a share. But Pachter says that investors buying Amazon today are taking a much longer-term view.

“You’re not paying this much for Amazon because you like the quarter. You’re paying this much because you think earnings are going to go up a lot,” he says.

“The only reason for it to trade at this valuation is because people think Amazon will make $20 to $30 a share a year someday,” Pachter adds.

Buffett might even believe that. But don’t hold your breath waiting for him to buy the stock anytime soon. It’s still way too rich for his blood.

By Paul R. La Monica for www.abc17news.com

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