FILE PHOTO: A consumer shops at a supermarket. File Image: IOL
Domestic personal consumer goods and, in particular, retailers have been on the receiving end of the economy going nowhere over the past five years. 

Consumer sentiment reflected the economic and political uncertainties over the past few years.

As soon as pent-up demand is reflected in a boost in retail sales, adjusted for inflation, the next moment some sort of idiocracy hits the consumer. It is specifically reflected in the profits of consumer-related companies as represented by the FTSE/JSE Africa Personal Goods Index. Growth in retail trade, adjusted for inflation, leads profit growth of the Personal Goods Index by two quarters.

The upbeat consumer confidence following Cyril Ramaphosa’s victory in the ANC at the end of 2017 to lead the ANC had a very positive impact on company earnings growth, but the uncertainties created by Ramaphosa’s land expropriation without compensation announcement, the Eskom disaster and uncertainties leading up to the South African elections dampened consumers’ spirit, and is reflected in earnings surprises on the downside and cuts in forecasts by analysts.

It does seem that the outlook is improving, though. The increasing competition between the banks and the new entrants in the market are likely to see the banks opening their wallets.

Furthermore, the credit rating agencies, or at least Moody’s, are likely to keep on smiling on our “new” government and its promises.

Also, the latest retail sales numbers suggest that consumer confidence is returning as consumers are happy to spend again.

It is, therefore, likely that we have seen the trough in profit growth of consumer-related companies and that the de-rating of some of the companies such as Woolworths and Truworths may soon be over.

Ryk de Klerk is an analyst-at-large. The views expressed here are his own.

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