Taking Stock - Shoprite profit gains as grocery shoppers spend more

In today's taking stock we discuss, Shoprite Holdings said customer numbers dropped but shoppers bought more per visit as Africa’s largest supermarket chain continues to grapple with the coronavirus pandemic.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Johannesburg-listed shares rose marginally yesterday, but local indices lost some ground after the U.S. market opened as Wall Street slipped on worries over the slowing pace of economic recovery. The Johannesburg Stock Exchange's All-share index ended the day up 0.39% at 66,515 points and the Top-40 index ended at 60,341 points, up 0.51%. After a massive fall the previous day, scandal-hit retailer Steinhoff International rose by almost 8% as investors digested news that its $1.7 billion settlement proposal with creditors and claimants had received the desired 75% approval. Shares in the country's largest grocery retailer Shoprite Holdings rose 2.6% after the company recorded a 20% jump in annual earnings.

 

 

EUROPEAN MARKET COMMENTARY

European stocks closed lower on Tuesday as traders took a cautious position ahead of the European Central Bank meeting on Thursday. The pan-European Stoxx 600 provisionally ended the session down by about 0.5%, with chemicals firms falling 1.1% to lead the losses as most sectors and major bourses dipped into negative territory. In terms of individual share price movement, U.K. retailer Marks and Spencer climbed 3.3% toward the top of the Stoxx 600 after UBS upgraded the stock and raised its price target.

 

 

US MARKET COMMENTARY

The Dow Jones Industrial Average fell on Tuesday amid lingering concerns about the delta variant’s impact on the economic reopening. Goldman Sachs downgraded its economic outlook over the weekend, citing the delta variant and fading fiscal stimulus. Goldman now sees 5.7% annual growth in 2021, below the 6.2% consensus. The firm cut its fourth-quarter GDP outlook to 5.5%, down from 6.5%. Boeing shares were lower after the Wall Street Journal reported deliveries for the 787 Dreamliner would likely be further delayed.

 

 

ASIAN MARKET COMMENTARY

Asian shares hovered just off six-week highs this morning, as a more risk-averse mood spread into the market from the United States overnight due to worries about slowing growth that hurt equities while helping the dollar firm. Japan's Nikkei reversed early losses and was last 0.42% higher after revised gross domestic product growth figures beat expectations for the world's third-biggest economy. Most other moves were muted in early trading. Medium-term prospects for the region also continue to weigh on shares in Asia. The MSCI regional benchmark is still well off all-time highs, unlike equity markets in the U.S. and Europe.

 

 

CURRENCY MARKET COMMENTARY

The rand fell on Tuesday, hurt by a strong dollar that was pulled higher by rising U.S. Treasury yields, despite local gross domestic product (GDP) figures coming in better than expected. At the close of the session, the rand was trading around R14.32 versus the dollar, 0.63% softer. In recent weeks the rand has mainly tracked global drivers including shifts in the outlook for the Federal Reserve's monetary policy, shrugging off domestic data releases. Yesterday, the statistics agency said the economy grew 1.2% in the second quarter compared to the previous three months, versus forecasts for 0.7% growth. Central bank data showed net reserves rose to $55.67 billion in August, boosted by an increase in holdings of special drawing rights.

 

 

COMMODITIES MARKET COMMENTARY

Gold prices steadied this morning, after slipping 1.6% in the previous session when it breached the key psychological level of $1,800, as gains in the dollar and a rise in U.S. Treasury yields hurt bullion's appeal. Oil prices rose earlier today, paring overnight losses, with producers in the U.S. Gulf of Mexico struggling to restart operations nine days after Hurricane Ida swept through. About 79% of U.S. Gulf production remained offline on Tuesday, with 79 production platforms still unoccupied more than a week after Hurricane Ida made landfall. About 17.5 million barrels of oil has been lost to the market so far.

LOCAL COMPANIES

Shoprite (SHP) +2.6%

Shoprite Holdings said customer numbers dropped but shoppers bought more per visit as Africa’s largest supermarket chain continues to grapple with the coronavirus pandemic. Operating profit rose 19% to R9.7 billion in the year through July 4, the Cape Town-based company said in a statement on Tuesday. Visits declined 3.8%, while the average basket spend climbed 13.6%. Shoprite, which has put its main focus on the South African market while scaling back elsewhere on the continent, posted strong second-half sales growth as it opens more stores. The group exited Nigeria, Kenya, Uganda and Madagascar in recent months, either selling or discontinuing operations in those countries. The retailer is adding to its floor space through the purchase of the food units of Walmart’s South African retailer Massmart Holdings. The grocer opened 87 local supermarkets in the year and plans to add a further 131 outlets in 2022.

 

Growthpoint (GRT) -1.3%

South Africa’s largest JSE-listed property counter Growthpoint is forging ahead with its foray into the burgeoning student accommodation property market, having made its first acquisitions. It plans to launch a new specialist student accommodation fund with an initial asset base of around R2 billion. Growthpoint has just received Competition Commission approval to acquire its first three assets in the student accommodation sub-sector of the property market from Pretoria-based private developer Feenstra Group, for an undisclosed amount. The deal is comparatively small considering Growthpoint has a market cap of R50 billion, a South African portfolio worth around R80 billion, and a total international investment portfolio in SA, Europe and Australia totalling some R150 billion. It also did not have to make a Sens announcement on the JSE about the deal.

INTERNATIONAL COMPANIES

AMC Entertainment (AMC) +8.7%

Disney’s “Shang-Chi and the Legend of the Ten Rings” topped $90 million in sales at the domestic box office over the four-day Labor Day weekend, helping AMC Entertainment smash its admissions record for the holiday. More than 2 million people watched movies at AMC’s U.S.-based cinemas between Sept. 2 and Sept. 5, marking the highest number of admissions for Labor Day weekend in the company’s history. This holiday weekend also marked the first time since the beginning of the Covid-19 pandemic that attendance during a weekend in 2021 outpaced attendance from the same weekend in 2019. “This encouraging surge in attendance at AMC signals that as Hollywood releases movies, Americans eagerly want to return to movie theatres again,” said CEO Adam Aron in a statement Tuesday.

 

Apple (AAPL) +1.6%

Apple sent out invitations to the media Tuesday announcing Sept. 14 as the date for its annual launch event, where the company is expected to introduce new iPhones. The company may also announce new Apple Watch and AirPods models. Apple releases Apple Watches on an annual basis, and AirPods are due for a revision, since the last update was released in 2019. The launch will be streamed on Apple’s website. Apple has held virtual launch events since the start of the pandemic in 2020.

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Research Team
Media, Sasfin Wealth