Rater "buy"

Shoprite, Pick n Pay rated ‘buy’

RETAILER NEWS

Business Day - Jul 15th 2010, 00:00

Shoprite Holdings , SA ’s biggest retailer by market value, and Pick n Pay Stores were rated “buy” in new coverage at Avior Research on the outlook for margin growth and inflation. 

"Strong margin expansion from diversification into high- margin operating segments and an acceleration of food inflation” would support earnings, analysts including Johannesburg-based Simone Kruger and Naeem Tilly said yesterday.

“Historically, food retailers outperform discretionary retailers in periods of rising inflation.”

Avior expects food inflation to boost retail turnover growth excluding inflation from the middle of next year as power and labour costs rise.

South African fruit and vegetable prices may jump because of “severe” frost during the past three weeks in the country’s Limpopo and Mpumalanga provinces, agricultural trade association Agri SA said yesterday .

Bananas, avocados and tomatoes in particular may become more expensive, Agri SA president Johannes Moller said.

Wheat and wheat product prices may start to increase towards the end of the year as SA boosts imports, Mr Moller said. Red meat prices would also rise , in line with normal trends ahead of the Christmas holiday, he said.

Shoprite presents the “best value” while Pick n Pay will increase margins more quickly than its competitors as it regains market share by expanding its Boxer outlets and adding stores at BP stations. Shoprite’s share price estimate was set at R92,40 and Pick n Pay’s at R48. Spar Group was rated “hold” with a price estimate of R85,20.