Retailers' share prices rise

In the period from October to this month the JSE all share index rose 14.3%, while most retailers' share prices have risen between 25% and 50%.

“Investors are buying in anticipation of the improvement in the consumer economy,” Absa analyst Chris Gilmour says.

He says investors are taking the view that consumer confidence will translate into retail sales growth.

Retail sales fell 1.7% in January, better than the 2.5% drop that was predicted by the market. The January decline was still better than the 6.5% fall in November, and the 3.7% dip in sales in December.

Independent stockbroker Ron Klipin says recent retail sales data show people are digging deeper into their pockets.

Klipin says consumer confidence indicators appear to suggest consumers are cautiously buying durable and semidurable goods.

However, he remains cautious, saying this upswing could be offset by the increase in the electricity tariff Eskom is allowed to charge.

The electricity tariff increase will be effective from 1 April 2010.

It will be implemented in the following manner: 24.8% for the 2010-11 financial year, 25.8% for 2011-12 and 25.9% for 2012-13.

Gilmour also has his reservations as the consumer confidence upswing may not be as sustainable as investors think.

“If that doesn't materialise then they are investing maybe too early,” he says.

Analysts have also attributed some of this upswing in retail stocks to an increase in foreign investors buying retail shares.

“There are a lot of foreign investors who are investing in our shares because we have higher GDP (gross domestic product) growth prospects relative to those of developing economies,” says Klipin.

“This is where it will result in better return prospects in developing economies such as SA.

“We are emerging from a recession off a low base, which should result in an upswing in the economy by year-end,” Klipin says. SA officially came out of the recession in the fourth quarter of last year.

Gilmour says the current trend in the retail industry is upwards, but this would have to be sustainable and retail sales would have to improve.

“It (consumer confidence) will probably be sustainable but right now we (still) have to see the evidence,” says Gilmour.

There is still uncertainty on the employment front — 870000 jobs were shed last year — and another interest rate cut is not a certainty.

Analysts suggested in the past few months that consumers have begun benefiting from the five percentage point reduction in interest rates between December 2008 and August last year.

Giant wholesaler Massmart is rated among the top performing retail stocks. Massmart's share price has increased 27.5% over the past six months. It closed yesterday at R106.61.

Another top performer, beauty and drug group Clicks, saw its share price over the past six months increase 51.2%; it closed at R31.55 yesterday.

Shares in food and clothing retailer Woolworths increased 40.9% over the six months to March and at the close of business yesterday its share price stood at R23.90.

Africa's leading food retailer, Shoprite, saw its share increase 30.8% in the six months and closed at R79.75 yesterday.

Gilmour says although October, November and December were not strong months for retailers, both the general retail index and the food and drug index bottomed out in January and have been outperforming the JSE all share index in the past few months and weeks.

“It is quite a brilliant performance,” he says.

Source: Business Day