Shoprite earnings shoot up

Adele Shevel

Adele Shevel

Shoprite, the largest retailer in Africa, released a trading update yesterday indicating substantially higher interim earnings growth.

Shoprite said earnings a share and headline earnings a share for the six months ended December last year were expected to be between 35 percent to 45 percent higher than those of the previous comparative period.

This was in line with expectations, with a fund manager saying this was "an excellent update".

Shoprite targets the lower to lower-middle income groups while the Checkers brand aims at the middle to middle-upper income market. Its African operations have also performed exceptionally well.

It is expected to have over R4billion in cash by the end of June, and is likely to be among the biggest beneficiaries from any increase in social grants to be announced in today's Budget.

Syd Vianello, an analyst at Nedcor Securities, said he would not change his full-year forecast of a 33 percent increase "because there's always a possibility the second half may be slightly less robust".

"This doesn't detract from the fact that Shoprite got it right," says Vianello.

The group has benefited from rampant food inflation and from a weaker rand-dollar exchange rate on its African operations.

Two risk factors could affect Shoprite's robust earnings growth: if food inflation was to decline rapidly and if volumes were static.

The second relates to its penetration in Africa: if countries in which Shoprite operates are not fuelled by a massive increase in commodity prices, growth would stall. Zambia is dependent on copper, Angola and Nigeria on oil.

If the exchange rate of these countries deteriorates because of falling commodity prices, the economic environment will be affected.

"If commodity prices don't recover, the earnings growth that Shoprite generates from Africa will definitely slow," said a fund manager.

He added that Shoprite is a robust business and there's no reason to expect earnings growth to slow dramatically.