Walmart may ditch Massmart - Analyst

Shamil Ismail, an analyst at Primaresearch, said Massmart escaped the cull of Walmart closing stores overseas in January this year. "That to me suggests that Africa, and Massmart specifically, are still part of their long-term plans. Just be aware that Walmart exited other countries after about eight to nine years, and based on that time frame Massmart probably has until 2018 to get their house in order."

In January, Walmart announced it was closing 269 stores, including 115 outside the US (all in Latin America). The decision was based on financial performance as well as "strategic alignment with longterm plans".

Ismail, previously head of research at BNP Paribas Cadiz Securities, said in the report that there was a heightened risk Walmart might consider a similar move in light of the substantial weakening of the rand and the announcement that Barclays plc will sell off its stake in its African business.

Walmart bought its 51% stake in Massmart in October 2011 for R148 a share, when the exchange rate was R6.76/, costing the US group $2.5bn. At the time the report was released, in March, the $917m valuation of Massmart represented a 63% reduction on Walmart's investment.

Massmart's share price hit a low of R83.20 in January, but has rallied since and is trading around R117.

Walmart has quit two countries. It was in South Korea between 1999 and 2006 and Germany between 1998 and 2006, periods of seven or eight years.

Ismail also said another key point in Walmart's announcement in January was that it closed its small-format stores, Walmart Express in the US, and would focus on the larger Super Centres. This could affect the strategy around Massmart's Cambridge stores.

Independent analyst Jean Pierre Verster said Walmart had disinvested from other countries, but he would be "very surprised" if it exited from Massmart.

"It just feels like they haven't given Africa sufficient time. And they only recently completed the integration of Massmart's systems into Walmart's.

"Massmart's performance has probably been lower than Walmart's expectations, but there are good reasons for that - the commodity fall-off, pressure on consumers and weaker African currencies. It feels like it would be the exact wrong time to exit."

Verster said Massmart was a small part of Walmart. "Africa is a very long-term story. Growth prospects for Africa are still in place although they've been deferred."

Alec Abraham, senior equity analyst at Sasfin Wealth, said it was not likely that Walmart would sell Massmart, certainly "not in the near future".

"I think they've invested quite a bit in Massmart to 'Walmartise' it - they've made acquisitions in food retail, bought property for Makro stores, and they've invested in regional distribution centres."

A Massmart spokesman said it did not comment on speculation. Walmart did not respond to requests for comment.

Source: Business Times