Spar shares rise most since listing on revenue growth
Hike comes despite retailer’s full-year profit after tax dropping 9.6%
Shares in Spar had their biggest one-day gain since the retailer listed on the JSE in 2004, as the grocer reported healthy revenue growth in its local, Swiss and Irish businesses.
Its share price rose 13.28% on Wednesday to close at R205.21, a level last seen in December 2019.
The share price hike came despite Spar’s full-year profit after tax dropping 9.6%, with headlines earnings per share only up 0.5% a year.
Its new Polish retail business, which was expected to be in the red, lost more than R500m.
Spar reported a 13.5% rise in revenue to R124.3bn in the year to September as it benefited from increased demand for groceries during the coronavirus pandemic, during which people have been eating more at home.
Property developers have reported that consumers have been shopping closer to home in smaller stores and avoiding large malls during the pandemic, which led to local sales growth in SA and at Spar Switzerland.
Spar CFO Mark Godfrey was at pains to point out that the group’s decrease in profit was due to a change in accounting standards and because it had decreased the value of certain assets on its books. It also paid a higher corporate tax rate this year.
Godfrey said the normalised headline earnings per share figure, up 8.6% year on year, is a better reflection of the company’s underlying profitability.
In SA, grocery sales were up 9.2%, outstripping alcohol sales. Spar lost a third of all alcohol trading days for the year, due to lockdown-related liquor sales bans and weekend trade restrictions. Its liquor sales plummeted about 19.7% year on year, in contrast to more than 17% growth in sales in the 2019 financial year.
The group is continuing to grow its business outside SA’s borders. In a results webinar, Spar CEO Graham O’Connor said the group plans to earn half of its income abroad in the long term.
The group earns 63.2% of its revenue locally, 24.1% from Ireland, while 11% of turnover is from Switzerland and 1.7% from Poland.
Spar, which sells to mostly independently owned stores, bought a loss-making franchise-owned supermarket chain in Poland, Piotr i Paweł in 2019. It is converting Piotr i Paweł franchises into Spars and is selling goods to all Polish Spars, which fall under the group.
Spar announced on Wednesday that it reduced its sales expectations for 2021 in Poland “primarily due to the setbacks it had received in its first year there”. It said in a statement the Covid-19 pandemic has delayed progress in the Polish market.
“Given the level of development and reorganisation required in year one of operations, this business has been most vulnerable to the impact of lockdown restrictions.”
The group was very pleased with its growth in Switzerland, where it benefited from closed borders with Germany and France due to lockdowns. This prevented Swiss citizens from shopping in cheaper neighbouring countries.
Spar’s Swiss operations grew turnover 11.6% in Swiss francs.
O’Connor lauded the “exceptional performance” of the Swiss business.
“Even with the reopening of the borders in June, we’ve continued to see volume growth above our expectations,” O’Connor said.
Spar is planning to buy out a 40% minority interest in its Switzerland business in 2021.
The excellent performance in Switzerland and Ireland has slowed in November as European countries are under lockdowns to counter a second wave of Covid-19 infections during the northern hemisphere winter.
The Spar group also gave its first update in three years on its Sri Lanka operation, where it has a partnership with retailer Ceylon Biscuits.
It part-owns Spar six stores, which it says are profitable, and has plans to open five more soon with the aim to grow into a sizeable Spar franchise in a largely informal market of 22-million people.
“We continue to see an exciting opportunity in Sri Lanka,” said O’Connor.
Spar paid a dividend of 865c, up 8.1% from the 2019 dividend.
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