Research archive for MSM

This morning we received the first sales update of the year from one of our big retailers and in this case our recommended entry into the sector. Massmart have released their sales numbers for the 26 week period ending on 23 December 2012. Even though Christmas day is not included, the Christmas period is certainly reflected in these sales numbers.

Yesterday, just as the market was closing we received a trading update from our favoured retailer Massmart. It is going to get complicated with these guys because they are changing their year end. Here is what the update said. Take a read and we can discuss the implications after.

This morning we got full year results from our core recommended retailer, Massmart. To put things into perspective let's just take a quick look at what the share price has done since the Wal-Mart acquisition which took place in June last year at R148. It has had a bumpy ride, but mostly positive all the way up to R180 at the beginning of this year. Since then it has plateaued somewhat trading around R170, where it is today. Clearly investors are waiting patiently for that big Wal-Mart induced growth spurt that the share price is so highly valued for. Let's see if these numbers can give us some direction.

The Massmart update came out yesterday and the stock was down over 3% because this stock is priced for perfection. Headline earnings per share for the 52 week period ended 24 June 2012 looks to increase by 26.8%-33.8% to between 549c-579c. However there have obviously been a lot of recent activities with this one with the Wal-Mart deal bringing in extra costs. Last year headline earnings per share before transaction costs came in at 641c. This year HEPS before costs looks to come in between 641c and 679c per share so not much growth there.

Massmart released a 52 week sales update yesterday, and I guess Mr. Market was marginally pleased with it. It looked better than I had anticipated, that is an upside surprise! Firstly the 52 week cycle that retailers have do not coincide with normal year ends (for other companies), because a month does not end on a Sunday all the time, the end of a retailers trading week. This particular 52 week sales period is to 24 June 2012. Really Sunday the 1st of July, that is so inconsiderate of you. But in a way this is a good thing, because that means that next year could possibly have a week longer and that is good for sales.

Yesterday I went to Massmart's annual store visit which I must say was very interesting. They took us on four store visits as well as a look at their central distribution centre for Gauteng and the rest of Africa. We started off at the Makro in Woodmead which is their second biggest revenue spinner. The store has revenues of over R1,1bn a year and the second biggest butchery in the country. It's all about size and scale and allows the customer to get almost anything he/she needs or wants within one shop. The liquor store is also massive.

Massmart with a whole lot of announcements this morning, firstly a trading update, this is for 44 weeks to end 29 April, so literally ten days or so ago. Total sales for the group at this stage clocked 51.7 billion Rand (FY 2011 sales were 52.950 billion ZAR and FY 2010 sales were 47.451 billion ZAR), which is an increase of 14.7 percent over a prior period, 44 weeks. Kind of a strange sales update, but I guess the nature of retailers is that the work never really ends, you can pretty much in the urban areas of Gauteng shop at any retailer on any day of the week. Even public holidays. There are very few days of the year where shops are shuttered for business, especially up here in Joburg, I pretty much think that shoppers expect that. And I guess in a way it stimulates our economy, meaning that there are more working hours in which economic activity takes place.

Massmart released their 26 week results to Christmas day 2011 this morning. Sales increased by 15 percent to 31.492 billion ZAR, headline earnings increased by 21.1 percent to 895 million ZAR, with headline EPS at 416 cents per share. Thanks to a weaker currency: "The weaker Rand during the period boosted foreign exchange translation gains and we began incurring costs related to the integration of Massmart into Walmart. Excluding these two items, operating profit would have increased by 4.8% and headline earnings by 8.7%."

Massmart released a trading statement for the six months to end 25 December 2011, with the actual results expected in three weeks time. Basic EPS is expected to increase by 10 to 18 percent (quite a wide range) to around 401.8 to 431.1 ZA cents per share. Half year earnings are expected to have increased by 17 to 25 percent in a range between 864 to 923.1 million ZAR, which compares very favourably to the period to 2010, where the actual earnings were 738.5 million ZAR. Obviously, as they point out, the "reason for the lower growth rates for the per share figures is due to the higher number of issued shares following the implementation of the Walmart transaction in June 2011."

Massmart released a trading update yesterday, it looked pretty good to me. A copy and paste is in order here: "The Group's total sales for the 26 weeks to December 2011 increased to R31.6 billion, representing growth of 15.2% over the prior 26-week period, with year-to-date inflation estimated at 1.1%. Comparable store sales increased by 9.2%." The first half, because it includes the festive season is always going to be a much better half than the second half. The second half of course includes the penny pinchers month, January. Which also happens to be the month that both my youngest daughter and wife share a birthday, on the same day. I have been looking at some of the Massmart discounts, and it definitely seems like the WalMart muscle is going to work out really well for the consumers of the goods. And lower inflation at the same time.

The Makro distribution centre is set for a monster overhaul, space is set to be expanded by 11 thousand square metres at the existing facility to 27 thousand square metres. Camp Nou, the San Siro and Old Trafford are apparently "standard size" football fields around 7140 square metres, so this gives you a little bit of size and scale. So around four football fields, that is going to be the size of the improved facility. The facility is expected to be finished by the middle of next year, check out the Engineering News take -> Investec Property to develop Makro's distribution centre. I suspect that we are really close to online shopping through Makro like perhaps we have not seen before. The Makro website perhaps needs an upgrade of sorts, the prices have been added, but it still lacks something, not too sure what!

Massmart have released the CEO's statement from the AGM. There are some interesting pointers in there, perhaps "stuff" that would surprise you. First and foremost, CEO Grant Pattison points out that "Whilst the South African consumer environment is dominated by headlines of consumers' over-indebtedness, the reality is that household debt as a percentage of disposable income has improved to 2006 levels. At the same time, national inflation has been low for most of the past few years, and the employed have enjoyed above-inflation salary increases, all of these factors resulting in higher levels of disposable income." Surprised? At first I guess you could say that this does go against the grain of what we have been reading, but we all know what local company's have had to shell out in terms of a rising wage bill. So perhaps not so much of a surprise, if you gave it a little more thought.

It is still all over the news and can't be great for our image as a business friendly nation. I'm talking about the ongoing Walmart-Massmart battle taking place against Saccawu, the Cosatu-affiliated union who represent most of Massmarts workers. Remember how the planned merger was heavily opposed by various ministries when it was originally announced? Eventually the Competition Tribunal approved the deal but not without certain conditions. This includes a R100mil supplier development fund and certain labour agreements which includes no retrenchments for 2 years.

Massmart have reported full year numbers for the 52 weeks to end June 26 2011. Yes, we also ask that question, but for retailers, sales are measured in weeks. These results are always going to be skewed by transactional costs associated with the WalMart purchase of a 51 percent stake. So, I will do my best to report the costs and what happened operationally. So, dive in. Sales increased 11.6 percent to 52.9 billion ZAR, operating profits, excluding transactional costs grew 10.3 percent to 2.059 billion ZAR. This translated to headline earnings per share (again before costs) to 616 cents per share, the dividend paid for the second half was 134 cents, 386 cents in total for the full year. They are always more generous in the first half.

Massmart released another trading update, this time not a sales update, but a numbers update. And there is quite a solid impact with "...the costs associated with the Walmart transaction are primarily those disclosed in the Massmart circular to shareholders of 9 December 2010 and the creation of the R100 million Supplier Development Fund." It is going to impact both basic and headline earnings (by more than just a bit) and basic EPS is expected to be between 377 to 422 cents per share, down 25 to 33 percent from the previous period. Without the cost of the WalMart deal, HEPS would have been 5 to 13 percent higher, 595 to 641 cents per share. Somewhere around those levels. Results are expected in exactly one month from today, 25th of August. The stock is up a fraction which tells you that even at face value whilst this might look bad, it was expected.