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Sasha Naryshkine
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Equities analyst at Johannesburg based asset management firm, Vestact. A contrarian only when markets are down and long term optimist on global economic growth and human innovation. Manage money in Johannesburg (the gateway to Africa) and New York (the gateway to the world).
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  • Shoprite Holdings, Growing Strongly Across Africa 0 comments
    Feb 21, 2013 8:26 AM | about stocks: SRHGY

    Shoprite has released results for the six months to end December 2012 this morning. Sales for the 6 months increased 13.2 percent to 46.723 billion Rands. That is a big number. Net profit for the period was 1.697 billion Rands, headline earnings clocked 1.690 billion, which was an increase of 18.9 percent. Growth in HEPS was more muted however, remembering that the company raised money through a share issuance last March. And extra 27 million shares were issued. Good for the company to raise money at what many would consider, a lofty share price. But we will get to that part later. Outside of South Africa (read as the rest of the continent) sales cracked on the pace, with turnover up 28.2 percent. Constant currency growth was very, very impressive managing to grow by 23,5 percent. See, stop worrying so much about the valuations.

    Shoprite is still very much a South African business, with the fast growing non RSA business contributing 12.3 percent of group sales in this first half. For the full year to end June 2012 that number was 11.0 percent. Phew, that is growing at a serious click. At the full year stage the presentation documentation suggests that 100 million folks went through their Non RSA stores. Wow, now that is a big number. Angola strangely at that point (June 2012) was their biggest contributor to non RSA sales. You might have been forgiven for thinking that Nigeria would be the place where it was happening for them. At June 2012 Shoprite had also only just opened their first store in the DRC. The DRC, which as Shoprite points out (and this all happens in a territory where extreme violence is a way of life) has shown nearly a decade of 6 percent real GDP growth, astounding. Many believe that the DRC could be the real Africa unlock of extreme wealth. The country possesses extreme mineral wealth but yet struggles with conflict after conflict. A young and violent population. But with major risks come potential great rewards, bearing in mind that the country is able to have these growth rates against that sort of backdrop. Imagine the potential.

    *Nice* little factoid, basically for every 1 ZAR in sales (imagine your Checkers basket) the company makes after all costs 3.6 cents. Retail is an incredibly tough old business folks, and these guys are amongst some of the best. Just bear that in mind next time you are standing in the queue, take a look around at the staff compliment and store infrastructure. And how well it runs, that does not just happen, that takes an enormous amount of skill.

    Shoprite points out that 74 supermarkets were opened last year, 56 of those in South Africa, the rest across our continent. The company creates employment for 109 thousand people, those shops opening and also further beefing (and not horsing) up their infrastructural development saw another 6700 jobs being created. Retail jobs. If you do a quick analysis of the South African economy over the last decade plus, that is one of the strong growth points. At the expense of the old traditional part of the economy, mining and manufacturing. Shoprite reported that they had managed to continue to gain market share, South African sales increased 11.5 percent, which is comfortably ahead of the 8.2 percent growth rates in local food sales across the industry.

    Valuations. I told you that I would get to this part. The company reported headline earnings per share of 315.9 cents per share, with an interim dividend of 123 cents. Last years HEPS was 590 cents. The stock trades at 170 odd Rands and is down over four percent this morning as these results clearly disappointed "investors". OK, but this perhaps explains more than anything else why the stock trades at a premium. Their shareholder analysis breakdown, first a list of who really owns the stock, Shareholder Analysis:

    (click to enlarge)

    So, as you can see from that table, 61 shareholders own 83.58 percent of the company. And most of those as you can see from the second part that I hacked are "committed" long term holders.

    (click to enlarge)

    These are the entities or shareholders that own more than one percent of the shares in issue. So, what you can see here is that Christo Weise, the GEPF, Shoprite Checkers and Whitey Basson are the South African shareholders. The international institutional shareholders are the other main shareholders. And in their world, paying between a 20 and 25 multiple for these growth rates is not out of line. Most especially when taking a much longer term view on the stock. So, I suspect without thinking too hard about the current valuations, these shareholders find Shoprite as a great investment for leveraging off the low base that is African retail sales.

    Disclosure: I am long OTCPK:SRHGY.

    Stocks: SRHGY
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