This morning we received the following trading update from high flyer Mr Price.
"Basic earnings per share ("EPS") and headline earnings per share ("HEPS") of Mr Price for the 26 weeks ended 29 September 2012 are likely to be higher than the previous corresponding period by more than 20%. A range cannot be accurately estimated at this stage and shareholders are advised that a further trading statement will be issued in due course to provide earnings forecast ranges for EPS and HEPS as required by the JSE Listings Requirements."
With Mr Price we have to ask the same question that we asked about Famous Brands. We know it's a good business, they have successfully brought value for money clothing made in low cost Asian countries into South Africa for over a decade. But are they a good investment based on what you pay for them? The share price has been a great performer. In fact I just asked the boys in the office who they thought outperformed between Mr Price and Famous Brands? The answer, Mr Price who have grown 392% over the last 5 years compared to Famous Brands who have grown 301%. Neither of them slouches. (I'll say! – Sasha)
Let's look at the multiples. Last year for the first 6 months the company made 187.3c which had grown 22% from the year before. Add 20% to that (the update suggests that the number will be more than 20% so this is conservative) and we should expect nothing less than 224c. Remember that the second half includes the festive season and is usually better than the first. In fact last year the second half was 69% better than the first.
On that note I'd expect at least a 20% increase on last year's full year earnings of 503c. Let's call it 603c. Trading at R133 this stock is not cheap at 22 times forward earnings. The stock now has a market cap of R30bn which is 5 times as big as Famous Brands, the law of numbers will make it harder and harder to maintain this growth.
But people have been calling this stock expensive for years now and with the South African consumer still looking strong I would back them to maintain this growth in the years to come. They are also rolling out this very successful brand further North which should prove just as successful, I mean who doesn't like cheap, nice clothes. I wouldn't be flying into the stock but I would call it a solid hold, buying into any weakness.