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South Africa: Spar Stock is Spot On
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Business Day (Johannesburg)
COLUMN
16 May 2008
Posted to the web 16 May 2008
Johannesburg
AGGRESSIVE expansion and remodelling of The Spar Groups' Spar, Build It and Tops stores, increased marketing and good cash generation should ensure the group meets its profit targets this year, in spite of an anticipated downturn in economic activity.
Its headline earnings increased a neat 28,7% to 201,2c per share in the six months to March, and the interim dividend was up 37,9% to 100c per share. Strong growth was forecast for the second half, but not as strong as the first half.
A strength is its large footprint in outlying areas, in lower-income markets typically not severely affected by rising interest rates.
However, these markets are hurt by rising food and transport costs. Spar is trying to hold the prices of staple foods as far as possible, even though it looks like inflation will get worse. It has spent heavily in better distribution.
Spar's stock fell 3c to R57,02 yesterday. Shoprite's price rose 2,57% to R45,50 while Pick n Pay rose 1,93% to R31,20. Considering Spar's reasonably good prospects and its p:e yesterday of 18,3, compared with Shoprite's 17,8 and Pick n Pay's 15,4, it may well be that Spar's stock is fully priced for now.
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The Bottom Line is Edited By Edward West
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