Retailers’ share prices rise

CAPE TOWN – The share prices of credit retailers have recovered to or above levels last seen early last year on prospects of interest rates being slashed, despite job losses and prospects for a weaker global economy that will hurt South Africa too.

Foschini, Truworths, Woolworths, JD Group and Lewis are all trading in line with or above what they traded this time a year ago, a period when the prospects for the real economy were rosier.
But at that time interest rates were still rising, sending the share prices down for the first-half of last year. All are now sharply up from June or July, when the prospect of falling inflation caused investors to factor in steep interest rate cuts for this year.
Included in the receding inflation has been a petrol price that has halved in six months, putting more cash into consumers’ pockets.
Foschini reached a 52-week high of N$51 on January 7, off a low of N$27,15 on July 8. Lewis follows an almost identical pattern. Foschini closed at N$45,15 on Thursday, retaining most of its 12-month gains to January 7.
Jeanine van Zyl, a retail analyst at Old Mutual Investment Group South Africa, said that while it was hard to be positive about the economy, ‘the numbers show that even with quite a lot of retrenchments, consumers will, in total, have extra spending money this year’.
But it would be a one-year stimulus spike, Van Zyl warned. The level of cuts in the interest rate and fuel price would not be repeated in 2010.
The share prices of credit retailers were now fully priced, meaning there was not much upside left, she said.
Van Zyl said the interest rate-sensitive credit retail sector needed to be viewed relative to the prospects of other sectors. The cyclical credit retail sector was now seen as defensive, given concerns over mining, construction and manufacturing, she said.
Abri du Plessis, the chief investment officer at Gryphon Asset Management, said that prices of shares recovered before earnings. While the stock market, as a rule of thumb, priced in earnings prospects over the following 18 months, Du Plessis believed global uncertainty had reduced this to ‘nine to 12 months’.
Certainty that the economy had entered a cycle of easing interest rates had triggered a recovery in credit retailer share prices, but real earnings would not recover this year, he said. Furniture retail profits were likely to be flat as they had already taken the pain, while clothing would probably be negative, Du Plessis added.
– Business Report