Massmart half year results

Massmart released their six monthly results, or to be more precise, they released their 26 week results to end 26 December. A sales increase of 13.3 percent to a whopping 27.3 billion ZAR for the half year was recorded. I remember when the group did just a little more than that for the full year, not so long ago. In living memory in this industry, it depends how old you are I guess. Some are old enough to remember 1987, and 1998 as dates that defined them, others 2001 and 2002 and more recently the period of great pity.
Like a friend in the industry said to me, it is important for youngsters to come through, they are not skewed by any event anywhere or anytime and are "fresh". Agreed on that score.


But back to those results of Massmart. Headline EPS of 366 was an average 5 percent increase on the comparative period, the dividend was unchanged at 252 cents per share. So I guess that is good news. Another sign that we are still in the woods with the bears: "Whilst the Massmart Group's sales growth for most of the six months to December 2010 was strong, the softer sales growth over Christmas, and in the eight weeks since then, suggest that the South African economy may not yet be in a sustainable recovery." Feeling a little narfy after that?

Food deflation was a problem, trading conditions were "tough". For the group, not necessarily the consumer. Most of the sales growth came through Massbuild, the Builders brand. Builders Warehouse is a cool spot, I must be honest, I actually enjoy going there. Masscash is the biggest sales grouping inside of Massmart, but the second least profitable. The most profitable segment for the overall group is the Massdiscounters, the Game and Dion Wired brands, nearly 100 stores in total across the continent. That has been the brand chosen across the continent, Game. But there is something new, potentially very good for food inflation, a new brand called Game Foodco alongside the brand bought in KZN called Cambridge.

Check it out: "We expect Walmart, subject to approval by the Competition Tribunal, to greatly reduce the risk inherent in our entry into Food retail, whilst assisting us with the implementation of all other aspects of Vision 2013." And what is not underscored enough in this transaction is how much cheaper goods are going to be helpful to society. I have often fallen back to the theory that Charlie Munger (Buffett's oldest friend and right hand man) who said that Costco had done more for society than any philanthropic cause. Agreed, lower prices helps everybody, but more so the poor. So unions, start thinking about poor people. Because methinks there has been a subtle yet easily identifiable shift in COSATU bargaining and earnings power.

But that aside, lets wrap up a look at the Massmart results. Costs are the key feature now. It seems many South African companies are struggling with costs. And therefore less likely to hire, at the moment. I guess also the pending labour legislation could impact the whole hiring question. I would like to see where Massmart trades post the deal before suggesting that twenty times earnings is way too much at current levels. I have said this before, it is time that we started looking at our retailers at a global level. And compared the likes of Massmart to WalMart Mexico. Which trade on multiples comfortably above that of Massmart now.