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You're listening to Strictly Business
Podcast with Lindsay Williams.

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With me is Atumile Mashalaba from 91 in
Cape Town.

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He's an Assistant Portfolio Manager at
that institution.

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And we're recording a podcast about Black
Friday on Black Friday.

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It's a relatively new phenomenon, Atumile,
but at the same time, very important in

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the retail calendar, isn't it?

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Yeah, morning, Lindsay.

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I mean, today is a massive day for
retailers.

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Not just today.

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going into the weekend because it's
extended into Black Friday weekend, but

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also on Monday being Cyber Monday.

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It's a massive day for retailers, and all
retailers will be tracking their numbers

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hourly as the day and the weekend

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progresses.

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Yeah, and I recently conducted a podcast
with a colleague of yours, and we spoke of

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the importance of, at 91,

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investment evaluation process of earnings
revision.

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So we're going back to retail now, the
retail sector of the JSC.

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And whether these earnings revisions have
been good or bad is terribly important to

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you.

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Have you seen any such revisions in the
retail sector that have made you and your

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team sit up and take notice?

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Yes, that's a great question.

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I think the past, let's say, year and a
half has been tough for most retailers

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getting consistent earnings downgrades.

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But now, over the past, let's say, three
months, you've started seeing positive

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revisions coming through.

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And that's for the likes of Mr.

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Price, Pepco and TFG.

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just to name a few, because what we're
seeing now is that the top line growth, so

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sales growth, is starting to come through
strongly.

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And hence what the market consensus is
expecting is being revised upwards, which

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is good for us.

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I mean, we've been owning some of these
stocks since the start of the year.

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So it's nice to see these earnings
upgrades start to come through strongly.

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Yes, and it is.

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I mean, we're a consumption-based economy
in South Africa.

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So the retailers are terribly, terribly
important, not just for the...

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economy but also the socio-economy as
well.

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On that note the two-pot system very very
recently introduced and very important to

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the economy as I said is

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looming large.

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What we don't know definitively is, yes
anyway,

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is where the redeemed savings might go.

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In other words people that take out in
order to I don't know pay off debt or to

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splurge with a bit of retail therapy.

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Are you getting any ideas?

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as to which of those two or other things
these surveys might go to?

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Yeah, I mean, that's a great question,
Lindsay.

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I mean, I've been engaging with all these
retailers for the past month, just trying

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to figure out where this money is going
to.

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Because if you look at the SARS
announcement on the 18th of November,

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they were saying that $35 billion has
already been withdrawn, Bruce.

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And if you speak to these retailers, some
say, okay, it's been used to pay down

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debt.

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Some say it's been used to buy appliances
like air fryers.

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And some say...

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They're saying that they're seeing it in
food with increased volumes, but also

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seeing it in apparel and clothing.

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So it's a bit of a mixed bag.

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But what we're seeing when we take a step
back is that it's starting to impact the

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numbers positively across the board.

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And I'll give you a few examples.

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I mean, ShopRite, the best food retailer
in the country, their latest numbers for

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Q1 were up 11.4% top line.

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If you look at Mr.

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Price, October and November, so seven
weeks of trade, they were up top.

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0.4%.

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And then if you look at TFG, similar
period as Mr.

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Price, they were up 8.3% from a top line
perspective in South Africa.

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So I think it's a bit of the two part, a
bit of the rate cuts starting to have a

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mild impact, but more importantly,

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sentiment is getting much better.

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So the consumers are spending and I think
it's across the board for now.

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It's very interesting, actually, when you
talk about the rate cuts, and we won't

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dwell on that now.

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But I noticed that PPI this week came out
at minus 0.7%, whether that filters

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through to CPI.

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consumer price inflation, I don't know.

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But certainly, I don't think we'll be
getting any rate rises in 2025.

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The base effect may mean that inflation
starts to tick up.

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But anyway, as I said, let's not dwell on
that.

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There are sectors within sectors, the
retail sector is important on the JSC

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securities exchange.

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But you can't just sort of do a shotgun
approach and just buy anything because

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interest rates are falling.

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There are, as I said, sectors within
sectors, whether it be apparel or

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groceries or furniture.

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What do you like at the moment?

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Yeah, I mean, so at the moment we're
liking apparel because we think our view

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is that the consumer has been under strain
for so long.

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I mean, we know what's happening in South
Africa from a job growth perspective.

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So we think that rates coming down, I
mean, we can debate how much, I mean, this

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rate cutting cycle will be.

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Two-part coming through lower inflation,
lower petrol costs.

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And, I mean, we know South Africans tend
to spend any disposable income.

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So we think that'll support.

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support the apparel retailers and less so
the food retailers.

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So how we're thinking about

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SA Retail at the moment is we pro the
apparel retailers and we negative the

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food retailers.

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Not that we think that, I mean, those
companies won't grow.

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I mean, ShopRite will grow.

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It's a phenomenal company.

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But we think that for bang for buck, the
apparel retailers will work out our

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portfolios.

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Well, I hope you're right.

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And talking about the grocers, the food
retailers.

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I mean, look at Boxer and Pick and Pay.

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That came out this week.

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I mean, the offering came out and it was
oversubscribed.

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And it means that Boxer, from a market
capitalization point of view, is actually

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bigger than the parent Pick and Pay.

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It's a fascinating story.

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And it's a sign of the times, I think.

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Yes, I think it's also a sign of the
times, the fact that Pick and Pay as a

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group, excluding Boxa,

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hasn't been run well.

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The corporate business within Pick and Pay
has been struggling and they owned, I

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think they bought Boxa in early,

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I think 2001 or 2002.

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And it's a gem of a business.

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I mean, top line growth is in the teens, I
think 13, 14 percent, no debt, cash

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generative.

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So they had this gem within the Pick and
Pay group and the market is very positive

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on this company.

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So hence why the big valuation relative to
pick and pay, because the market is still

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saying that the core pick and pay business
will

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continue to struggle, and it will take a
number of years for us to start seeing

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that business moving into profitability.

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So hence why you're seeing this
discrepancy from a market cap perspective.

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It's quite interesting, and I think it
opens up interesting trading

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opportunities, if you are looking at that
space.

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Yeah, trading opportunities is one thing,
but long-term investing is another.

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Are you at 91% interested in Boxer?

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Yeah, so we are interested in Boxer.

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We like the story.

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We do own a bit post the IPO.

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And we think, I mean, if you look at this
valuation, I mean, it did shoot up

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yesterday when on its listing, I think
17%.

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So the valuation is around, my numbers are
around 20 times forward.

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It's not expensive.

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The growth is there.

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The cash generation is there.

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And we like that story.

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Okay.

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Do you like the story of...

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Black Friday diluting the year-end
spending spree, which we've been so used

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to before Black Friday, do people say,
okay,

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I've got a 25% discount opportunity at my
favourite shop,

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and I was going to buy at the end of the
spending season or before Christmas for

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presents, whatever it is,

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but now I'm going to do it on Black
Friday.

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Is it just reassigning spending to another
day?

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Yeah, that's a great point, Lindsay.

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And if you speak to all these retailers,
they all tell you, I mean,

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And they didn't like Black Friday when it
used to be a big event, big promotions,

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50%, 60% off on average.

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So what these retailers have been doing,
especially on the apparel side over the

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past two to three years,

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is that they've reduced the number of
products they're discounting, and they've

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also reduced the depth of the discounts.

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So now on average, you'll see 20% off,

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and that allows them to have more
full-price sales, but also to not

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concentrate the spend.

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over the weekend on Friday for this year.

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So what the retailers are doing is that
they're reducing their discounts and they

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use it as an opportunity to clear excess

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stock or obsolete inventory and then make
sure that you're still getting full price

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sales.

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So Black Friday is not as big as it was
three, four years ago.

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And these retailers actually saw that
actually now you're front-loading your

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sales into November instead of December
and

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you're selling the product at big
discounts, which doesn't help the price.

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profitability for the retailers.

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So it's good that actually now the
retailers are saying, okay, we're not

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going to have deep discounts.

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And rather, let's spread our sales across
November and into December.

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Yeah, it'd be fascinating to see the
trading updates that come out in the first

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part of the new year 2025, January in
particular,

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to see how various retailers have done.

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Maybe it's all to do with advertising.

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Maybe it's to do with genuine discounts.

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I don't know.

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But we will find out.

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Right.

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Final question.

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You've hinted at it already.

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during our chat.

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How are you positioned?

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Just summarise if you would.

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Yes, so from a retail perspective,
Lindsay, we like in the apparel retailers,

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generally like the likes of Mr.

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Price, TFG, Truerts.

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So those are the ones that we most bullish
on for a number of reasons.

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And we're not big in food retail.

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I mean, I told you about Boxer, we like
the story there.

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But I mean, we're not.

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bullish on food retailers declining food
inflation um we that's not where we think

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you'll make a lot of money going into

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2025.

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Atwimile Mashalaba is an assistant PM at
91 in Cape Town.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors and do not reflect
the policy

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position or opinion of any other agency
organization employer or company

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associated with

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strictlybusinesspodcast.com Assumptions
made on the analyses are not reflective of

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the position of any other

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entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change,

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revision and rethinking at any time.

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Please do not hold us to them in
perpetuity.