SHARE TO WATCH: It's time for Spar to break out of the sideways band
Opinion / 12 November 2018, 2:30pm / Amelia Morgenrood
JOHANNESBURG – It’s been almost four years since Spar reached the current share price of around R180. Ever since it has been trading in a band between R150 and R200. This week Spar will release full-year results.
Bloomberg estimates expect their headline earnings to be slightly lower, revenue to be slightly higher, and a full-year dividend of 718.5 cents, which is 6.5 percent higher than the previous year.
The management of Spar provided investors with some guidance of what they are experiencing at the moment. They expect the trading environment in Southern Africa to remain mostly unchanged in the medium term, considering the low economic growth forecast. Food inflation is expected to stay low and constrained consumer spending continuing.
On the positive side, they feel that the independent retailers are suitably positioned to address these challenges.
The BWG group’s outlook remains positively cautious, despite Brexit uncertainties. Economic growth forecast for Ireland is expected to be 5.7 percent for 2018.
BWG was acquired by Spar in 2014 and is a food retail and wholesale distribution company that owns the Spar brand in Ireland and South West England, with some 700 Spar stores and an estimated 35 percent share of the Irish convenience store market.
Spar feels BWG’s proactive response to market changes will deliver satisfactory results, in line with their expectation. BWG acquired 4 Aces, which will further strengthen the Irish group’s growth objectives.
The Swiss business will focus on driving identified strategic initiatives to improve overall performance. Switzerland is showing improved economic indicators, with economic growth expected to be 2 percent. Although their plans may take time to materialise, early signs point to a positive change in the Spar group.
Sixty-seven percent of revenue is generated in South Africa, 21.5 percent in Ireland and 11.5 percent in Switzerland.
Spar is the registered licensee of the Spar brand in southern Africa. The company is also the registered owner of the Tops and Build It trademarks.
The nature of the relationship between the company and independently owned Spar stores (grocery outlets), Tops stores (liquor outlets), Build it stores (building material outlets) and Pharmacy at Spar stores is one of joint co-operation for the benefit of the members of this association.
Spar operates under “voluntary trading” principles, which means that while they encourage their retailers to take advantage of Spar’s trading power, their retailers can source goods from local traders.
Spar focuses on:
The wholesale distribution and supply of products and services to independently owned Spar, Tops, Build it and Pharmacy at Spar stores from seven regional distribution centres.
Also, the managing of voluntary trading groups.
Spar’s revenue stream is derived from the provision of goods and services to Spar, Tops, Build it and Pharmacy at Spar stores. The financial performance of individual stores does not form part of the company's financial results.
The foundations of Spar’s business have been built on the company's core competencies of managing voluntary trading groups, providing distribution and logistical services, brand management and strong operational management.
Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity or Independent Media. She does not hold Spar shares (yet!).