TFG, Virgin Active and Shoprite numb…
Shoprite is at the forefront, posting 11.4% growth for Checkers and Checkers Hyper and 12.1% growth for Usave. These formats are at opposite ends of the LSM spectrum, so Shoprite knows how to resonate with high-income and low-income shoppers. The only stain on this interim result is that furniture recorded a 6.5% drop in sales. The group’s overall earnings per share rose 25.5%, although the growth was flattered by a recovery in the liquor trade.
At the other end of the happiness scale, we find Massmart with a drop in sales in 2021 of 1.9%. Adjusting riot-related insurance products would bring that closer to stable revenue performance, but that’s far from acceptable. The game remains the pink elephant in the room, with sales down 8.7%. A drop in sales often means a deterioration in gross margins and this time is no different, with the group’s gross margin down 45 basis points even after adjusting for inventory write-downs during the riots. With an overall loss of over R1.5 billion, the horrors of Massmart never seem to end.
Virgin Active may pump iron, but will it pump money?
Virgin Active has had a tough time during the pandemic. Initially, people were simply not allowed to exercise. When this situation changed, they were only allowed to exercise while wearing masks!
Unsurprisingly, memberships dwindled and the toll looked like it had spent 10 hours in the sauna. The harsh reality of many South Africans losing at least part of their income has not helped.
With significant fixed costs associated with running a chain of gyms, Virgin Active found itself in deep trouble. That’s when being part of a large listed group can mean the difference between life and death.
With Covid firmly relegated to the pre-Ukrainian era, Virgin Active reinvigorated the balance sheet with a R1.8 billion capital raise. It is very encouraging to see the support for the capital raise from Brait, Titan (Christo Wiese), the DK Consortium (the founders of Real Foods Group) and Virgin Group.
Speaking of Real Foods, founder Dean Kowarski will take over as CEO of Virgin Active. He replaces Matthew Bucknall, who has been at the helm for 25 years as CEO and co-founder of Virgin Active. You may not be familiar with the Real Foods brand, but you certainly know Kauai, which is Real Foods’ key asset.
To achieve full alignment with Kowarski, Virgin Active is acquiring the restaurant chains (Kauai and Nu) from Real Foods for £28.6 million.
This will be settled by issuing additional shares of Virgin Active.
This iconic gym and health club business needed a fresh start. This is a resounding show of shareholder support and sends a positive message about its outlook.
The Foschini group focuses on its domestic market
There was a time in the market when local listed companies showed no interest in acquiring South African private companies. Instead, they all fled to places like Australia and the UK and quickly lost a fortune.
This situation has changed. This is good news for private equity funds like Westbrooke Investments and Actis, which can bolster local businesses and sell them to listed companies.
The Foschini Group (TFG) clearly sees the potential of the South African market, confirmed by the acquisition of Tapestry Home Brands from the above-mentioned private equity firms for R2.35 billion, equivalent to an EV/ebitda multiple of 6.51x. This brings Coricraft, Volpes, Dial-a-bed and The Bed Store into the group.
TFG is localizing its supply chain. Tapestry Home Brands has significant local manufacturing facilities and locally produced items account for 47% of sales. Obvious synergies from this deal include Tapestry benefiting from TFG’s established online shopping channels and experience in selling on credit.
Although TFG shareholders are not being asked to approve the deal because it is too small, the same is not true for the Competition Commission. This regulatory hurdle has yet to be cleared.
And finally… should we be worried about labor unrest?
Sibanye is facing a strike at its local gold operations. At this point in the commodity cycle and with inflationary pressures on our workers, you should be watching developments in this space closely. DM168
After years spent in investment banking by The Finance Ghost, his mother’s dire predictions have come true: he has become a ghost.
This story first appeared in our weekly newspaper Daily Maverick 168 which is available for R25 from Pick n Pay, Exclusive Books and airport bookstores. To find your nearest retailer, please click on here.