Our opinion on the current state of SHP

Shoprite (SHP) is the largest grocery retailer and consumer goods company in Africa. Intense price competition has prevented supermarkets from passing on price increases to consumers. The share price was hammered down from a high of R275 in March 2018 to levels around R100 in July 2020 but has since recovered strongly. We expect it to benefit directly from any improvement in the South African economy. Chair, Christo Wiese's major stake in Shoprite has been reduced to just over 10% of the ordinary shares, but he still holds 265m deferred shares which effectively gives him 42% control of the company. The company has exited from Uganda and Madagascar in addition to Nigeria and Kenya which it exited earlier. The company agreed to buy 56 Cambridge and Rhino food stores from Massmart. The South African economy and the African economy are likely to improve once the COVID-19 pandemic becomes history and the recovery in the American and world economies resumes. In time, this must impact on consumer spending and benefit Africa's largest supermarket chain. In a report on the unrest and looting the company said, "Of the 1 189 supermarkets trading under the Shoprite, Usave, Checkers and Checkers Hyper banners, 119 stores (69 Shoprite, 44 Usave and six Checkers, including one Checkers Hyper) have been severely impacted as a result of looting and/or fire damage". In its results for the 52 weeks to 2nd July 2023 the company reported sales up 16,9% and headline earnings per share (HEPS) up 9,6%. The company said, "The Group gained record levels of market share, saved customers over R13.5 billion in Xtra Savings and still managed to increase profits and dividends, despite the prohibitive cost to the business as a result of unprecedented levels of load-shedding". In an operational update for the 3 months to 30th September 2023 the company reported sales up 13,2% and market share up 1,24%. The company said, "...the diesel expense to operate generators across our South African supermarket business during the first quarter amounted to R281 million." We continue to believe that Shoprite is cheap even at current levels. Technically, we drew attention to the fact that the share had broken above its 200-day moving average in the Confidential Report on 2nd September 2020. The share was then trading for 11696c. Since that time, the share has appreciated to 24800c - a gain of 112% in just over 3 years.