Historically, the U.S. goes into recession every five years on average. Its last recession began in 2008 which means it is due for a recession cycle in 2013 or 2014. Therefore, I decided to look at domestic companies in a country which would be unaffected by a recession in the U.S. and with good GDP growth. That is how I found the South African food retailer Shoprite Holdings Ltd. (SRHGY).
Shoprite Holdings Ltd. is the largest African continent food retailer with over 1,600 stores in 17 countries in Africa. The stores provide all communities in Africa with food and household items in a first-world shopping environment for all levels of income. The company has a market capitalization of $11.5 billion U.S. dollars with revenue of $82,731 billion rand last year (about $9.4 billion U.S. dollars).
In the spring of 2012, the company raised $1 billion U.S. dollars via issuance of stock and convertible debt with Goldman Sachs Group, Morgan Stanley and FirstRand, a unit Rand Merchant Bank, acting as joint book runners. The funds would be used for expansion.
Recently, the company announced it will spend $205 million in Nigeria. Shoprite said it plans to open 9 new stores in Nigeria by the middle of next year, bringing its total to 13, and 21 new stores in Angola.
Real estate is where you could find value in the company. The company leases and owns retail shopping centers, stand-alone supermarkets, distribution centers and offices in nine countries on the African continent. One example is a 66,000-meter squared distribution center in Kwa Zulu-Natal, a province of South Africa.
With a weak global growth outlook for 2013, it is hard to find a company operating in countries with high GDP growth. Shoprite operates in three of the top ten GDP growth rates: Mozambique, Rwanda and Ghana. Each of those countries' GDP growth is expected to be over 7% in 2013. Additionally, UN-Habitat expects Lagos, Nigeria, to be the largest city in Africa by 2023. It currently has a population of 11.7 million with the UN projection to be 16 million by 2023. The company just entered the Republic of Congo, whose largest city Kinshasa has a population of 9.9 million, and that is expected to grow to 15 million by 2023.
According to the McKinsey Global Institute, the number of African households with annual discretionary income of US$5,000 or more is projected to rise from 85 million at present to over 128 million by 2020. Total consumer spending in Africa is projected by McKinsey to reach $1.4 trillion in 2020, $540 billion more than in 2010, with food and beverage accounting for $175 billion of the increase.
Below is a list of stores categorized as follows:
Corporate stores: 1334 (86% in South Africa and 4% in Namibia)
Store names: Shoprite, Checkers, Checkers Hyper, USave, OK Furniture, OK Express, House and Home and Hungry Lion
Franchise stores: 398 (90% in South Africa and 9% in Namibia).
Store names: OK Foods, OK Grocer, OK Mini Mark, MegaSave, Sentra, Enjoy, Friendly Store and Friendly Liquor
Ancillary stores: 301 (98% in South Africa and 1% in Namibia)
Store names: Shoprite Liqours, Checkers Liquors and Medi Rite
The various store names listed above cater to all income groups. Checkers, Checkers Hyper and House & Home stores focus on the higher income groups while Shoprite (its Core Brand) and OK Furniture focus on the broad middle to lower market. The latest format introduced by the Group, Shoprite Usave, focuses on the lower end of the market.
Billionaire CH Wiese, the 71-year-old chairman, is the largest shareholder with 16.76% of the company. He has been chairman since his clothing company Pep Stores bought Shoprite in 1979. In a 2011 Interview by South Africa’s Moneywed, he stated that he would be able to run the company for another five to seven years, That 75-to-80 age is about the time most people tend to sell a company to other parties.
About the author:
• Realized average annualized returns on self managed IRA account of 14% from January 2004 to December 2012 (total return 150+).
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