Shoprite’s share price tops 52-week high, as SA operations shine
The share price of Africa’s largest food retailer Shoprite topped a 52-week high on Monday, with the stock gaining almost 4.5% on the back of a very strong trading update and the market digesting news of its planned R1.35 billion acquisition of Massmart’s Cambridge Food, Rhino and Fruitspot businesses.
Its share price closed at R177.23 a share, valuing the group at more than R100 billion.
Shoprite’s latest update reveals that the group’s mainstay South African business showed double-digit sales growth in the second half of the 53-week period to July 4, 2021.
Read: Massmart sells most food assets to Shoprite for R1.35bn
Dubbed Supermarkets RSA, the local division contributes 79.7% to sales from continuing operations.
Sales growth
In the first half of its financial year, Shoprite’s core business saw sales grow 5.6%. That was during its busiest part of the year – the June to December period which includes Black Friday and the festive season.
But in the second half (of the 53-week period), Shoprite saw sales surge 13.2% in ‘Supermarkets RSA’.
This is more than double the sales growth it achieved in the first half of its financial year, which saw overall sales growth in its SA business increase to 9.3% for continuing operations. The group noted however that like-for-like sales growth for the division came in at 7.3% for the 53-week period.
Shoprite’s upper market Checkers and Checkers Hyper chains, as well as its furniture division (OK Furniture and House & Home), are seeing the strongest growth. However, the lower end Shoprite and Usave supermarket chains did report a stronger second-half, with sales growth of 12%.
Acquisition
The group is set to expand in the lower end of the retail market, with its acquisition of Massmart’s poor-performing Cambridge Food, Rhino and Fruitspot businesses in something of a surprising deal announced late on Friday.
Rival Pick n Pay was also in the running for Massmart’s lower end food retail chains.
Shoprite is known for taking over struggling chains and turning them around, leveraging off its position as the continent’s largest food grocer.
The deal with Massmart will see Shoprite acquiring 71 food stores, 43 liquor shops, the Fruitspot business and a meat processing facility. It is expected to be finalised early in the first quarter of 2022, in the second half of Shoprite’s next financial year.
Exits
Shoprite has changed its direction in recent years, choosing to double down on its core home market and cut back, close or dispose of its operations in countries like Nigeria and Kenya.
The group’s Supermarkets RSA business opened a net of 87 stores during the 53-week period according to its latest trading update.
Shoprite also notes in the update that “in line with the group’s Non-RSA [business] review process” its operations in Madagascar and Uganda have now been classified as discontinued.
“Supermarkets Non-RSA continued to operate in regions challenged by macroeconomic and consumer affordability constraints, exacerbated by the impact of Covid-19 restrictions and regulations. Notwithstanding these factors, constant currency sales from continuing operations [in this division] increased by 6.8%.”
However, Shoprite says currency devaluation continues to weigh on reported sales in its rest-of-Africa operations.
“In rand terms, Supermarkets Non-RSA’s sales from continuing operations declined by 7.5%,” says the group.
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Source: moneyweb.co.za
