Trade Tatler
“Buying the right computer and getting it to work properly is no more complicated than building a nuclear reactor from wristwatch parts in a darkened room using only your teeth.”
Dave Barry



THIS ISSUE:     01 Oct - 06 Oct

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Pick n Pay  When times are hard, friends are few

Pick n Pay announced last week that it expected a 10-25% decline in headline earnings per share, citing tough trading conditions, loads of competition and low inflation as factors in the Group’s disappointing performance this year. Analysts, on the other hand, point to a high cost base, resulting largely from Pick n Pay’s belated foray into centralised distribution, which is where businesses like Shoprite and SPAR achieve significant savings through efficiencies. Pick n Pay’s dominant direct-to-store delivery model, they aver, results in too much unprofitable space, and costly staff inefficiencies. Another concern is the R15 bar in ill-advised debt rung up by cash-strapped franchisees.
Comment: A great brand and the first choice for many South African consumers, but with some major problems that have, at least, been clearly identified.

Business Report 30/09/10

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Clicks  Click, click, ching, ching!

Those clever chaps down at Clicks have had a cracker of the year, with an expected increase of 25-30% in earnings per share for the year to August, driven thence by the defensive strength of its health and beauty lines and its Normandy-style assault on in-store pharmacies. Turnover, you may recall, was up 15.2% to R4.8 jolly old billions for the six months to Feb. While the rollout of in-store pharmacies has been a keen contributor to turnover, and has proceeded more swiftly than expected, you ain’t, apparently, seen nuthin’ yet. Clicks will be opening even more in-store pharmacies and talking the joys of affordable personal care and small white goods to the rural areas in its attempt to grow store numbers 40% in the next few years.
Comment: That Mr Kneale is a right ‘un and no mistake.

Business Report 30/09/10

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Massmart  Overpaid, overstored, over here

More on that Wakro deal: while certain snide analysts have pointed out that the transaction represents a mere 2% of the value of the Walmart business, it is nevertheless the biggest deal The Mighty One has done in an emerging market, and is its biggest single overseas move since it bought Asda, no less, in 1999. It’s also a deal that Walmart sorely needs: the US is both straitened (in terms of consumer liquidity) and saturated (in terms of how many Walmarts there are) right now. Developed economies like Japan and Germany have traditionally been unkind to Walmart, not seeing the point of inexpensive things apparently, so Walmart is focusing its efforts on emerging places like Mexico, and indeed the great country of Africa. It is, of course, no news to readers that the transaction has met some stiff resistance from unionists, who have suggested that it will result in a transfer of cash to foreign investors and little meaningful growth or skills development at home.
Comment: Union resistance or no, hoarier heads than ours have predicted that the deal will stand, as a symbolically important bit of foreign direct investment at a time when the country needs it.

Financial Times 28/09/10

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Clover  Portfolio half full

Clover, which buys 25-30% of SA’s raw milk from recalcitrant dairy farmers, is likely to list on the Johannesburg Securities Exchange (JSE) before the end of 2010. The 102 year old entity – formally a co-operative – became a public company in 2002, with many of the same recalcitrant farmers as shareholders. BEE investment vehicle HCI owned 34% of the business for a time, but was bought out by the other shareholders after the R1billion sale in January this year of Clover’s stake in Danone. The thinking now is that Clover’s exceptional brand presence far outweighs its investment profile, which will have a chance to truly shine on the JSE.
Comment: Creamy and wholesome. We might have a bit of that ourselves.

Business Day 01/10/10

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Nestlé  Where did I put that bone?

The world’s biggest food business is taking a giant step into general wellbeing, announcing last week that it would be pioneering a whole new industry, situated between food and healthcare, of dietary products to combat chronic illnesses such as heart disease, diabetes and Alzheimer’s. While the industry may be new, Nestlé is not going to find an eerily deserted playing field when it gets there: traditional drug businesses have moved increasingly into non-prescription health products as they move away from the expensive and risky development of prescription medications. The new Health Science business will, like the Borg, assimilate Nestlé’s existing Health Nutrition business, which turned over a presumably healthy 1.6billion crisp Swiss francs last year.
Comment: While health claims are a notorious minefield for the marketing boys to navigate, Nestlé maintains, get this, that it is already selling dog food which combats Alzheimer’s in the mature canine.

Financial Times 28/09/10

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Suppliers in general  As a great man once said, “Bring it on!”

Walmart’s possible arrival on these virgin shores is likely to bring greater choice for South African consumers, and better prices on basic goods but could, according to some particularly pin-striped analysts, put the squeeze on bigger suppliers, as Walmart is known for its aggressive sourcing. Specifically mentioned by Gavin Wood, Our Man at Kagiso Asset Management, were AVI and Tiger Brands – which curiously each bring a large stable of uniquely South African brands to the market, and which for this reason might occupy a position of greater strength than suggested. Purveyors of fresh fruit and veg will obviously be OK though. In fact, regular readers of these agreeably crackly pages will recall that Walmart already has a buying office for fresh produce in this country, together with a 40-strong call centre.
Comment: Walmart, like most big retailers, both giveth and taketh away. Our canny suppliers, schooled at the respective knees of Messrs Basson and Badminton, should be OK.

Business Report 05/10/10

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Consumer Credit  Who you gonna call?

The numbers here are, as always, on the impenetrable side. For eg: there is an ongoing recovery in consumer credit, with R67.5billion lent for the second quarter – up 9.75% in the first quarter, and a whacking 33.2% on last year. This is generally considered a Good Thing, pointing to something of a recovery in our consumer-led economy, where over 60% of economic activity takes the form of, well, shopping. However, and it’s a biggie, over 11 million South Africans are now struggling with debt, according to, OK, debt counselling outfit Debtbusters, who have a certain vested interest in the subject.
Comment: Tricky stuff to negotiate, in the light of new thinking that suggests the Great Depression was caused by consumers over-investing and under-spending.

Sapa 04/10/10

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Exchange Rate  Crouching baht, hidden rand

The rand is, as you may have heard, at a two and a half year peak against the US of Dollar, but finds itself in good company – viz, or namely, the Brazilian real (at a ten-month peak and currently the world’s most overvalued currency) and the Thai baht, enjoying a 13-year high like some chaps we once dossed down with in Bangkok. The foreign money which has been buoying our formerly brown currency is attracted hither by our splendidly robust interest rate and our stable economy, with deals like Wakro and Nedbank simply adding to the appeal.
Comment: Pity the poor exporters, rattled by the recent high of R6.96 per, and cowed no doubt by the prospect of R6.80 that some of the younger, flightier analysts are touting about the clubs these days.

Business Day 28/09/10

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Shoprite  Ag pleeez daddy

One lucky youngster presumably did not drive away in his brand new Toyota Hilux 2.7 Double Cab from the Shoprite Checkers Championship Boerewors Crown finals last weekend, on account of being only 13. That’s right mense, this year’s winner was a strip of a boy, Jaco Labuschagne by name, from Boksburg, who ran the gauntlet of 416 judges and 1,100 competitors to take the honours on the beach at Sun City. Mooi gedoen, jong.

Tatler Reporter 04/10/10

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Woolworths  The Fast and the Frigid

Woolworths is boosting the acceleration of their refrigerated trucks with nitrous oxide (NOX), in order to get them to stores quicker, thus ensuring the legendary integrity of the Woolies cold chain. Oh, wait, we got that one almost totally wrong. They’re actually experimenting with ecoFridge nitrogen refrigeration in their trucks, which has no moving parts, allows various temperatures to be maintained in a single truck, and lasts twice as long as mechanical systems. Shoprite, you will recall, undertook a similar experiment last year.

Tatler Reporter 04/10/10

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Metcash  Orange you glad you opened that store?

Metcash has opened its second hybrid store, in the format more politely known as retail cash ‘n carry. The store is situated in Middelburg, and follows a few short months on the heels of a similar venture near a commuter rank in PE. Next stop, Park Station, where The Sunny One will be launching its Intersite JV with the opening of its first concourse store. 30/09/10

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