Wednesday , June 26 2019
Home / africa / Shoprite's IT system is struggling to contribute to the largest decline in stock prices since 1999

Shoprite's IT system is struggling to contribute to the largest decline in stock prices since 1999

Share Shoprite Holdings Ltd. dropped the most since 1999, after Africa's largest food store reported that first-half earnings fell by as much as 26 percent, with South African food deflation and IT problems diminishing weakness on the rest of the continent.

Total earnings per share dropped between 16 percent and 26 percent to only 3.89 dollars, the operator said in a statement after the market closed on Tuesday.

Key findings

Shoprite has more than 2500 stores across Africa, but the vast majority are in South Africa. This exposes the company to a depressing consumer environment in the continent's most industrialized economy, which particularly affects its low-income key customers.

Along with deflation of food prices and rising costs in principle, such as electricity and security, Shoprite fought with the introduction of a new information system and several industrial actions. There is little sign of any economic improvement, although the company insists that it can rely on customer support for its brands.

In Africa, Shoprite's problems are not new. The huge devaluation in the Angolan currency (and to a lesser extent in Zambia and Nigeria) has hurt turnaround and caused import costs. Meanwhile, rents in many African countries are linked to the US dollar.

Market reaction

Shares fell by as much as 17 percent, most since July 1999 and traded 12 percent lower to 157.37 rand from 9:12 in Johannesburg. This has prolonged the January decline to 17 percent and stocks over the past 12 months have fallen by 34 percent, compared to a 10-percent decline in the FTSE / JSE Africa Food and Drug Retailers.

Get more

"Shoprite's high South African margin has been driven by low price patterns in ever-improving deals," said Charles Allen, an analyst at Bloomberg Intelligence. Still, "accessibility problems caused by IT upgrades and strikes have damaged revenue" and "competition has improved, which means that the company will have to make more efforts to restore dynamics."

"Profitability has been affected by deflation of South Africa and consumers under extreme pressure as well as inflexible costs, many of which are set in dollars in other African countries," said Alec Abraham, analyst at Sasfin Securities in Johannesburg.

Now read: South African Business Fibers Research – Win great prizes

Source link