You're listening to Strictly Business Podcast with Lindsay Williams.
With me is Atumile Mashalaba from 91 in Cape Town.
He's an Assistant Portfolio Manager at that institution.
And we're recording a podcast about Black Friday on Black Friday.
It's a relatively new phenomenon, Atumile, but at the same time, very important in
the retail calendar, isn't it?
Yeah, morning, Lindsay.
I mean, today is a massive day for retailers.
Not just today.
going into the weekend because it's extended into Black Friday weekend, but
also on Monday being Cyber Monday.
It's a massive day for retailers, and all retailers will be tracking their numbers
hourly as the day and the weekend
progresses.
Yeah, and I recently conducted a podcast with a colleague of yours, and we spoke of
the importance of, at 91,
investment evaluation process of earnings revision.
So we're going back to retail now, the retail sector of the JSC.
And whether these earnings revisions have been good or bad is terribly important to
you.
Have you seen any such revisions in the retail sector that have made you and your
team sit up and take notice?
Yes, that's a great question.
I think the past, let's say, year and a half has been tough for most retailers
getting consistent earnings downgrades.
But now, over the past, let's say, three months, you've started seeing positive
revisions coming through.
And that's for the likes of Mr.
Price, Pepco and TFG.
just to name a few, because what we're seeing now is that the top line growth, so
sales growth, is starting to come through strongly.
And hence what the market consensus is expecting is being revised upwards, which
is good for us.
I mean, we've been owning some of these stocks since the start of the year.
So it's nice to see these earnings upgrades start to come through strongly.
Yes, and it is.
I mean, we're a consumption-based economy in South Africa.
So the retailers are terribly, terribly important, not just for the...
economy but also the socio-economy as well.
On that note the two-pot system very very recently introduced and very important to
the economy as I said is
looming large.
What we don't know definitively is, yes anyway,
is where the redeemed savings might go.
In other words people that take out in order to I don't know pay off debt or to
splurge with a bit of retail therapy.
Are you getting any ideas?
as to which of those two or other things these surveys might go to?
Yeah, I mean, that's a great question, Lindsay.
I mean, I've been engaging with all these retailers for the past month, just trying
to figure out where this money is going to.
Because if you look at the SARS announcement on the 18th of November,
they were saying that $35 billion has already been withdrawn, Bruce.
And if you speak to these retailers, some say, okay, it's been used to pay down
debt.
Some say it's been used to buy appliances like air fryers.
And some say...
They're saying that they're seeing it in food with increased volumes, but also
seeing it in apparel and clothing.
So it's a bit of a mixed bag.
But what we're seeing when we take a step back is that it's starting to impact the
numbers positively across the board.
And I'll give you a few examples.
I mean, ShopRite, the best food retailer in the country, their latest numbers for
Q1 were up 11.4% top line.
If you look at Mr.
Price, October and November, so seven weeks of trade, they were up top.
0.4%.
And then if you look at TFG, similar period as Mr.
Price, they were up 8.3% from a top line perspective in South Africa.
So I think it's a bit of the two part, a bit of the rate cuts starting to have a
mild impact, but more importantly,
sentiment is getting much better.
So the consumers are spending and I think it's across the board for now.
It's very interesting, actually, when you talk about the rate cuts, and we won't
dwell on that now.
But I noticed that PPI this week came out at minus 0.7%, whether that filters
through to CPI.
consumer price inflation, I don't know.
But certainly, I don't think we'll be getting any rate rises in 2025.
The base effect may mean that inflation starts to tick up.
But anyway, as I said, let's not dwell on that.
There are sectors within sectors, the retail sector is important on the JSC
securities exchange.
But you can't just sort of do a shotgun approach and just buy anything because
interest rates are falling.
There are, as I said, sectors within sectors, whether it be apparel or
groceries or furniture.
What do you like at the moment?
Yeah, I mean, so at the moment we're liking apparel because we think our view
is that the consumer has been under strain for so long.
I mean, we know what's happening in South Africa from a job growth perspective.
So we think that rates coming down, I mean, we can debate how much, I mean, this
rate cutting cycle will be.
Two-part coming through lower inflation, lower petrol costs.
And, I mean, we know South Africans tend to spend any disposable income.
So we think that'll support.
support the apparel retailers and less so the food retailers.
So how we're thinking about
SA Retail at the moment is we pro the apparel retailers and we negative the
food retailers.
Not that we think that, I mean, those companies won't grow.
I mean, ShopRite will grow.
It's a phenomenal company.
But we think that for bang for buck, the apparel retailers will work out our
portfolios.
Well, I hope you're right.
And talking about the grocers, the food retailers.
I mean, look at Boxer and Pick and Pay.
That came out this week.
I mean, the offering came out and it was oversubscribed.
And it means that Boxer, from a market capitalization point of view, is actually
bigger than the parent Pick and Pay.
It's a fascinating story.
And it's a sign of the times, I think.
Yes, I think it's also a sign of the times, the fact that Pick and Pay as a
group, excluding Boxa,
hasn't been run well.
The corporate business within Pick and Pay has been struggling and they owned, I
think they bought Boxa in early,
I think 2001 or 2002.
And it's a gem of a business.
I mean, top line growth is in the teens, I think 13, 14 percent, no debt, cash
generative.
So they had this gem within the Pick and Pay group and the market is very positive
on this company.
So hence why the big valuation relative to pick and pay, because the market is still
saying that the core pick and pay business will
continue to struggle, and it will take a number of years for us to start seeing
that business moving into profitability.
So hence why you're seeing this discrepancy from a market cap perspective.
It's quite interesting, and I think it opens up interesting trading
opportunities, if you are looking at that space.
Yeah, trading opportunities is one thing, but long-term investing is another.
Are you at 91% interested in Boxer?
Yeah, so we are interested in Boxer.
We like the story.
We do own a bit post the IPO.
And we think, I mean, if you look at this valuation, I mean, it did shoot up
yesterday when on its listing, I think 17%.
So the valuation is around, my numbers are around 20 times forward.
It's not expensive.
The growth is there.
The cash generation is there.
And we like that story.
Okay.
Do you like the story of...
Black Friday diluting the year-end spending spree, which we've been so used
to before Black Friday, do people say, okay,
I've got a 25% discount opportunity at my favourite shop,
and I was going to buy at the end of the spending season or before Christmas for
presents, whatever it is,
but now I'm going to do it on Black Friday.
Is it just reassigning spending to another day?
Yeah, that's a great point, Lindsay.
And if you speak to all these retailers, they all tell you, I mean,
And they didn't like Black Friday when it used to be a big event, big promotions,
50%, 60% off on average.
So what these retailers have been doing, especially on the apparel side over the
past two to three years,
is that they've reduced the number of products they're discounting, and they've
also reduced the depth of the discounts.
So now on average, you'll see 20% off,
and that allows them to have more full-price sales, but also to not
concentrate the spend.
over the weekend on Friday for this year.
So what the retailers are doing is that they're reducing their discounts and they
use it as an opportunity to clear excess
stock or obsolete inventory and then make sure that you're still getting full price
sales.
So Black Friday is not as big as it was three, four years ago.
And these retailers actually saw that actually now you're front-loading your
sales into November instead of December and
you're selling the product at big discounts, which doesn't help the price.
profitability for the retailers.
So it's good that actually now the retailers are saying, okay, we're not
going to have deep discounts.
And rather, let's spread our sales across November and into December.
Yeah, it'd be fascinating to see the trading updates that come out in the first
part of the new year 2025, January in particular,
to see how various retailers have done.
Maybe it's all to do with advertising.
Maybe it's to do with genuine discounts.
I don't know.
But we will find out.
Right.
Final question.
You've hinted at it already.
during our chat.
How are you positioned?
Just summarise if you would.
Yes, so from a retail perspective, Lindsay, we like in the apparel retailers,
generally like the likes of Mr.
Price, TFG, Truerts.
So those are the ones that we most bullish on for a number of reasons.
And we're not big in food retail.
I mean, I told you about Boxer, we like the story there.
But I mean, we're not.
bullish on food retailers declining food inflation um we that's not where we think
you'll make a lot of money going into
2025.
Atwimile Mashalaba is an assistant PM at 91 in Cape Town.
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