ARTICLES

Mr Price

Mr Price is a well-known and focused retailer of clothing in South Africa. It is a quintessentially South African company, and its performance is a direct reflection of the state of the economy and the level of consumer spending. It is an extremely well-managed company in a very tough and competitive market. Clothing is sold by many dedicated outlets in South Africa and almost every supermarket also sells clothes. Mr Price has shown itself more than capable of operating profitably in this cut-throat industry, even in these times of low consumer spending and high interest rates.

The main problems of the retail clothing sector are:

1. Price competition – because so many outlets in every shopping mall sell clothes, price is big factor for most consumers and they can shop around. In this regard, Mr Price has a hard-earned reputation of offering quality clothes at a competitive price.
2. Changing fashions – Clothing fashions change all the time and what sells well this year may not sell well next year. The company needs to stay abreast of international fashion trends.
3. Stock control and management – Generally clothing retailers import large quantities, especially from China which they mark up and sell locally. This means that they always have a substantial amount of capital tied up in stock.
4. Debtors book – Most retail clothing outlets offer their hard-pressed customers a trade account which enables them to buy clothes over 6 months, often interest free. Their sales on credit represent a large portion of their total sales and their debtors book ties up a big chunk of working capital.

In its recently reported year-end results for the 52 weeks to the 30^th of March 2024 the company had turnover up 15,5% and headline earnings per share (HEPS) up 6,7%. Given that interest rates are at very high levels, this is an excellent achievement and indicates how well managed the company is.

Over the year, the company grew both organically and by acquisition. Mr Price acquired the Studio 88 Group, effective from 4^th October 2022, which increased its turnover significantly. Without that acquisition turnover would only have risen by 5,8% - which is still a very good number when compared to other clothing retailers. The ability of the company to make effective “bolt-on” acquisitions, like Studio 88 enables it to expand its store base rapidly and increase market share.

One of Mr Price’s features is that almost 90% of its sales are made in cash and about 10% on credit. This means that the company has a minimal debtors book and an excellent 87% cash conversion of its sales. That, in turn, leads to a strong balance sheet with available cash of R2,8bn. It has spent R1,1bn on new store development and back-up power solutions.

The company’s results can be seen at: https://senspdf.jse.co.za/documents/2024/JSE/ISSE/MRPE/13062024.pdf

Consider the chart:

Here you can see that Mr. Price shares have been in a steady upward trend since October last year. We added the share to the Winning Shares List (WSL) on 3^rd May 2024. Following the publication of its financials on 13^th June 2024, the share has jumped to 19433c.

In our view this company will continue to perform well as the economy recovers – especially after the recent election results and the new Government of National Unity (GNU) which has been agreed to.

We are expecting the economy to strengthen substantially now and Mr Price shares should benefit directly.   

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

V-Bottom is likely

The 10% collapse of Wall Street, which is a direct result of Trump’s random policy of on-again, off-again tariffs, is very similar to what happened to Wall Street in February/March 2020 when investors tried desperately to accurately discount the impact of the COVID-19 pandemic.

Normally, corrections in the market

The Trump Correction

It is relatively unusual for the activities of American presidents or what they say to have an impact on the New York Stock Exchange, especially during their first 100 days in office. Trump, however, is the exception. His confused, on-again, off-again rulings on tariffs have rattled the market. Markets hate uncertainty and even Trump himself doesn’t appear to know exactly

Dividends

Investors know that the return on a share is made up of a capital gain plus the dividend. Private investors are mostly attracted to the prospect of making a capital gain on the shares which they buy and do not often consider the dividends. What they perhaps do not realise is that a capital gain is actually just the dividend in a different form.

Quarterlies

One of the major differences between the US equity markets and the JSE is that listed companies in America are required to report every 3 months, not every 6 months as they are on the JSE. The quarterly reports of the S&P500 companies are closely followed by investment analysts and predictions are made for their profits.

Gold's Record Run

On Friday last week, gold reached a new all-time record high of $2871.42 per ounce. Its gain in rands has been even more impressive rising from less than R1000 per ounce in August 1992 to last Friday’s close of R52864.85.

In our Confidential Report of March

Growth by Acquisition

Hudaco (HDC) is a master of growing by acquiring smaller businesses in similar fields of activity or businesses, which then complement its existing suite of businesses. It has been making these bolt-on acquisitions for many years and has developed great expertise at selecting and evaluating appropriate targets.

These bolt-on acquisitions are mostly small

The Impact of News

Old Wall Street wisdom says the following concerning news which comes out about individual listed companies:

1. Good news which is expected - causes the share price to drop.
2. Good news which is unexpected - causes the share price to rise.
3. Bad news which is expected - causes the share price to rise.
4. Bad

Karoo

In April 2018 – nearly seven years ago – we wrote an article about Cartrack. At the time we suggested that it was the ideal investment for private investors because it was a service company with debit order income and almost no working capital that was growing rapidly both locally and internationally.

Tweets

Over the Festive Season, we have been communicating with you via our tweets on “X”. The chart below shows the timing of our individual tweets and what subsequently happened to the S&P500 index.
 

Winners in 2024

2024 was always going to be a very good year for the share market. The year began with the S&P500 at 4742.83 (2/1/24) and it reached an all-time record high of 6090.27 (6/12/24) – a gain of 28,4% excluding dividends.

On the 25^th of January 2024 we made the following prediction on Twitter (X):