this upturn. In contrast, its stock
turnover has slowed marginally
during the same period, which has
coincided with the encroachment
by international competitors on the
local market and is also testament
to a tougher trading environment.
revised to tighten credit-granting
criteria and the credit insurance
business model itself is in the
spotlight. However, this may have
negligible impact as insurance
revenue accounts for less than 2%
of group revenue.
•
Given economic stagnancy in
SA, management’s drive in FY16
to open more than 250 stores
under Foschini and Phase Eight
brands as well as growing its infant
e-commerce business can be
effective in growing sales. Further,
this will be augmented by its drive
to optimise the supply chain.
Having reduced its exposure to
the local unsecured credit market
and expanded cash sales and its
international reach, Foschini is set
for better times ahead particularly
given the rand’s recent devaluation.
Indeed, the group disappointed
the market in its FY15 results which
were characterised by negative
non-continuing elements. This
saw its share price coming down
after rising to record highs during
the year and we believe it is an
opportunity to gain exposure to
this counter.
•
To some extent, TFG’s comfortable
operating leverage mitigates its
worrisome high financial leverage.
At a macro level things are not
looking up. Interest rates are set to
continue on an upward trend while
power outages and poor economic
growth are other negative factors
for retailers. Furthermore, the
regulatory framework has been
24
ISSUE 6 – SEPTEMBER 2015
Bull factors
•
Robust credit management and
focus on increasing cash sales
will reduce business risk
•
Entry into Europe and Asia will
diversify earnings as well as
leverage Foschini’s efforts to
introduce its brands in these
regions.
Rollout of new stores and
focus on improving efficiencies
should support earnings growth
Disposal of RCS has reduced
exposure to the unsecured
credit market
Bear factors
•
•
Recovery of consumer
spending remains constrained
by high unemployment, high
indebtedness and threat of
higher administered costs
Sustained rand weakness likely
to undermine margins
Disclosures: The analyst is Phibion
Makuwerere. He has no financial
exposure to the instrument
discussed. The opinion represents
his true view. ■