BROKERS’ NOTES: Buy Spar, sell Mr Price

Zwelakhe Mnguni, portfolio manager at Benguela Global Fund Managers: 

Buy: Spar

While South Africa’s unstable and unreliable electricity supply will affect all sectors of the economy, leading to further degradation of economic growth, the retail and mining sectors will be especially hard hit this year. Having said that, my buy is Spar. It has suffered severely from its misguided offshore expansion programme, especially in Poland and Switzerland, and there has been a lot of bad publicity about the business, but it really centred on two directors: Graham O’Connor and Brett Botten. Both of these directors are out, so the business is in reset mode under the leadership of executive chair Mike Bosman. 

Sell: Mr Price

The retail sector requires continuous electricity supply for brisk trading, and with low electricity supply we are likely to see a continuation of crimped trading hours. Many retailers are using generators to extend trading hours, especially food retailers. However, clothing and furniture retailers are likely to lag behind, especially those operating within large malls. Mr Price is heavily dependent on the local market and due to challenging organic growth, it has resorted to making acquisitions at full prices — witness Yuppiechef and Studio 88. We believe the business is rather vulnerable.