Mr. Price results sparkle. But is the stock cheap?

Mr. Price results released for 53 weeks to end 2 April 2011. 53 weeks? Well, they are a retailer, so everything is measured in weeks. How did you do this week, last week, and so on.... But they do also give a 52 week performance too, for the benefit of those anxious types. 180 million units sold, that is an increase of 9.9 percent (we are NOT going to be anxious and stick to 53 weeks reported OK?) on the prior period. That translated to a revenue increase of 13 percent to 10.973 billion ZAR, earnings of over one billion ZAR for the first time to 412 cents per share. Which is an increase of 51 percent on last year!! With a fairly generous dividend cover of 1.6 times the dividend increased to 252 cents per share.

So, simple fundamentals, the share price at 6326 suddenly looks more reasonable. 15.3 times historical earnings is what you will pay currently, and for that you will get a historic annual yield of 3.98 percent (nearly 4 percent). Nothing wrong with that I guess? For a company that managed to rock earnings by as much as 51 percent. But that is the past, who cares about that? The analyst community as far as I can see have missed badly, the company has trumped their expectations. And the same community are suggesting that the company can grown earnings by around 20 percent for the next two years. And the dividend by the same amount.

So if that is the case (and the analyst community got it wrong there last year) Mr Price could make 5 ZAR this current financial year and nearly 6 ZAR a share for the financial year to end March 2013. This stock then trades forward 2013 on 10.7 times earnings and a 5.7 percent dividend yield. Almost anything can happen in 24 months though. And it is not like they look any more expensive relative to their peer group. The only retailers that look MUCH cheaper than the rest of the grouping are the furniture guys, JD Group and Lewis Group.

Happy 25 years to the group in the current format. 338 Mr. Price stores. 36 Mr. Price sport stores. 214 Miladys stores, I don't really like those. 136 Mr. Price Home stores and 238 Sheet Street stores make up the entire portfolio. Cash sales are an astonishing 83.8 percent of overall sales, which is very different from the aforementioned furniture retailers. The company is in a strong cash position, around 1.4 billion ZAR, notwithstanding that *nice* dividend policy.


The prospects column is quietly optimistic. First part cautious: "Potential inflationary increases, particularly in food and fuel prices, will concern both consumers and retailers." Yip, they most certainly will. And then that point we made the other day about wage increases being good for some parts of the economy: "However, recently reported statistics highlight the trend of increasing real disposable incomes of households and the migration of consumers from lower to higher living standard measures (LSM's). These studies suggest that in recent times, this has been driven by rising real incomes rather than debt."

The group does not expect earnings to increase by the same amount as last year. Yeah, this is true. But expectations are ONLY for a 20 percent increase. So, it could be more. By all accounts the commentary is always pretty upbeat. The group has a strong history of proving the critics wrong and getting the mix right. I wouldn't be surprised in the coming days to see more upgrades on the stock.