Retail stocks are once again making their presence felt on the JSE, having gained substantially on the momentum created by Cyril Ramaphosa’s ascent to the presidency.
Truworths International, TFG and Spar will, along with Imperial, be included in the JSE’s top 40 index later in March, replacing Steinhoff International, Intu, Resilient and Fortress.
The three retailers will join Woolworths, Mr Price and Shoprite in the coveted index, which is closely tracked by institutional investors and other market watchers.
Retailers have been some of the biggest gainers since November, when the market began to price in the expected positive political changes.
The upshot of these shares’ higher prices is that as the local economy improves, so too will their earnings.
TFG’s share price has jumped 60% on the JSE since November, Truworths 36% and Spar 32%.
Prior to the improvement in sentiment, local retailers in general had a rough time stretching back several years, as weak economic growth shrunk consumers’ disposable income.
As the operating environment toughened, some players expanded their businesses offshore in an attempt to diversify their revenue streams.
Woolworths is one notable example, through its acquisition of Australian retailer David Jones, though the deal later proved to be costlier than was initially envisaged.
Gryphon Asset Management portfolio manager Casparus Treurnicht said consumer disposable income would improve in line with economic prospects in SA.
The Treasury expects the economy to grow by 1.4% in 2018 and to gradually improve in the period thereafter.
The optimism is based on improved business and consumer confidence translating into fixed investment and job creation, leading to higher consumer spending.
With the inflation profile looking relatively benign, the Reserve Bank could resume its interest rate cutting cycle as early as March, with a decision on rates tentatively expected on March 28.
Steinhoff is now a shadow of its former self, worth just R18.5bn, from R409.6bn just three year ago, when its share price peaked at R95.04. Its yet-to-be resolved accounting scandal has brought Steinhoff — once regarded as one of SA’s success stories — to its knees, leaving investors reeling.
The Robert Group head of investments Devin Shutte said that "due to the wide-ranging uncertainty, the share price remains at suppressed levels, with no value being ascribed to their European assets".
PwC has been appointed to investigate what went wrong. Once completed, PwC’s investigation will help investors determine the true value of the troubled company, which could eliminate the volatility in its share price.
Last week, Steinhoff’s acting chairwoman, Heather Sonn, admitted that working capital for some of its businesses outside SA had dried up since December, prompting it to sell down its shares in PSG Group as part of its stop-gap measures.
Property owner Resilient has encountered its own misfortunes, which have seen its share price implode in recent weeks. The losses have prompted the group to initiate an independent review of its cross-holding structure, which has been a key source of worry for some analysts for quite a while now.
This ownership structure includes shares in Fortress, Nepi Rockcastle and Greenbay.
Resilient’s share price peaked in December when it traded at R151.16, valuing the company at R64.2bn, before the subsequent crash brought it down to about R25bn.
The sell-off also had a deleterious effect on Greenbay, Fortress and Nepi Rockcastle.