Table of Contents
Executive summary..................................................................4
Sector view ..................................................................................................................4
Relative sector ratings..................................................................................................8
Company valuation and recommendations ................................................................10
Top picks in the sector ...............................................................................................11
Top puts in the sector.................................................................................................13
Economic outlook: not out of the woods yet .......................14
Earnings cycle: Who stands to gain most from a recovery?
.................................................................................................17
Looking at the relative margin position: SA retailers and banks ...............................17
Relative P/E rating through earnings cycle................................................................19
Comparing capital returns and Price-to-Net Asset Value ratings ..............................20
How much upside is there to the retailers’ rating? .............23
Clothing retailers are pricing in too much for this stage of the cycle.........................23
Retailers could run out of steam if the earnings delivery is slow...............................25
Diminishing valuation gap to global peers increases risk of de-rating ......................26
Valuation, recommendation and target prices.....................32
Target prices ..............................................................................................................32
Fair value ...................................................................................................................34
Current implied rating within hybrid retailers......................37
Risks to target prices and recommendations......................39
Clicks Group ...........................................................................41
Earnings estimate changes .........................................................................................41
Target price and rating ...............................................................................................41
Reasons to buy ...........................................................................................................41
Reasons not to buy.....................................................................................................41
Foschini...................................................................................43
Earnings estimate changes .........................................................................................43
Target price and rating ...............................................................................................43
Reasons to buy ...........................................................................................................43
Reasons not to buy.....................................................................................................43
JD Group.................................................................................47
Earnings estimate changes .........................................................................................47
Target price and rating ...............................................................................................47
Reasons to buy ...........................................................................................................47
Reasons not to buy.....................................................................................................47
Lewis Group............................................................................52
Earnings estimate changes .........................................................................................52
Target price and rating ...............................................................................................52
Reasons to buy ...........................................................................................................52
Reasons not to buy.....................................................................................................52
Massmart.................................................................................54
Earnings estimate changes .........................................................................................54
Target price and rating ...............................................................................................54
Reasons to buy ...........................................................................................................54
Reasons not to buy.....................................................................................................54
Mr Price Group Limited..........................................................58
Earnings estimate changes .........................................................................................58
Target price and rating ...............................................................................................58
Reasons to buy ...........................................................................................................58
Reasons not to buy.....................................................................................................58
Pick n Pay ...............................................................................60
Earnings estimate changes .........................................................................................60
Target price and rating ...............................................................................................60
Reasons to buy ...........................................................................................................60
Reasons not to buy.....................................................................................................60
Shoprite...................................................................................64
Earnings estimate changes .........................................................................................64
Target price and rating ...............................................................................................64
Reasons to buy ...........................................................................................................64
Reasons not to buy.....................................................................................................64
Spar .........................................................................................68
Earnings estimate changes .........................................................................................68
Target price and rating ...............................................................................................68
Reasons to buy ...........................................................................................................68
Reasons not to buy.....................................................................................................68
Truworths................................................................................70
Earnings estimate changes .........................................................................................70
Target price and rating ...............................................................................................70
Reasons to buy ...........................................................................................................70
Reasons not to buy.....................................................................................................70
Woolworths Holdings.............................................................72
Earnings estimate changes .........................................................................................72
Target price and rating ...............................................................................................72
Reasons to buy ...........................................................................................................72
Reasons not to buy.....................................................................................................72