Our opinion on the current state of SHP

Shoprite Holdings Limited, as Africa's preeminent grocery retailer and consumer goods company, has exhibited remarkable resilience and strategic acumen in navigating the complex landscape of the African retail sector. Despite the challenges posed by intense price competition, which has restricted the ability of supermarkets to pass on price increases to consumers, Shoprite's share price has shown a robust recovery from its low in July 2020, around R100, climbing from its March 2018 high of R275. This rebound is a testament to the company's operational strength and its potential to capitalize on improvements within the South African and broader African economy.

The strategic decisions by Christo Wiese, Shoprite's Chair, to reduce his direct stake to just over 10% of the ordinary shares while retaining 265 million deferred shares, granting him 42% control, reflect significant shifts in the company's ownership structure. Furthermore, Shoprite's strategic exits from Uganda, Madagascar, Nigeria, and Kenya, alongside the acquisition of 56 Cambridge and Rhino food stores from Massmart, indicate a focused approach to refining its operational footprint and enhancing its market position.

The COVID-19 pandemic's long-term impact on the global and African economies underscores a potential uplift in consumer spending, which Shoprite is well-positioned to benefit from as the continent's largest supermarket chain. The company's resilient performance amid challenges such as looting, fire damage to 119 of its stores, and the unprecedented costs incurred from load-shedding — including significant diesel expenses to maintain operations — highlights its operational efficiency and commitment to customer savings and service excellence.

For the 52-week period ending on 2nd July 2023, Shoprite's reported 16.9% increase in sales and 9.6% rise in HEPS further emphasize its strong market position and ability to grow profits and dividends despite adverse conditions. The operational update for the three months ending 30th September 2023, showcasing a sales increase of 13.2% and a market share gain, illustrates ongoing positive momentum.

Recent reports, including the merchandise sales growth and the expansion through the integration of Massmart's Rhino and Cambridge Foods businesses, reflect strategic moves to solidify Shoprite's dominance in the retail market. The share price's substantial appreciation since breaking above its 200-day moving average in September 2020 reinforces the view that Shoprite remains undervalued, offering a compelling investment opportunity.

In conclusion, Shoprite's strategic management, adaptability to challenging market conditions, and strong growth prospects amidst the evolving economic landscape position it as an attractive investment. The company's capacity to increase market share, turnover, and earnings amidst operational challenges highlights its potential for continued success in the African retail sector.