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Opportunity through uncertainty


Retail Sector

“When days are dark, friends are few” Or in this case, "Investors" might be few-and-far-between in light of the current looting and unrest taking place in various regions of South Africa. 

The question is, could this be an opportunity in disguise for INVSTRs?

Over the past few days, our country has been hit by political protests and criminal acts including theft, destruction and vandalism of property. These acts have harmed industries such as retail, agriculture, banking, logistics (transportation and warehousing) across Kwa-Zulu Natal & Gauteng.

During an ENCA interview, an official from the Durban business chamber added that damage, by estimation is ranging between the hundreds of millions, if not billions of Rands. These numbers could increase due to supply chain disruptions in the coming months.

According to the South African Special Risks Insurance Association (SASRIA), an estimated R2 billion in insurance claims could result from companies affected by the unrest.

What does this mean for an investor in the stock market?

While the stock market may be sensitive to supply chain disruptions and unrest in a specific country, this doesn't necessarily mean that all listed companies are at risk in this case. Retail companies like Pick n Pay and Shoprite are amongst the companies most affected by the unrest in the country.

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Let's look closer into the operations of these two retail giants:

Pick n Pay Limited (JSE: PIK)

The company owns and franchises stores in 8 countries across Southern Africa totaling, more than 2000 stores as per the integrated 2021 annual report. The retailer showed a turnover of R93.1 Billion which, represented a 4.3% growth for FY21 and Pick n Pay also opened its first store in Nigeria.

Shoprite Holdings (JSE: SHP)

The company has operations under various brands in 14 countries across Africa and had 2 892 outlets at the beginning of FY21. Brands of Shoprite Holdings include Checkers and OK Furniture, to mention a few. The company had a turnover of R83.4 Billion, representing 4.7% growth by December 2020. Shoprite also exited the Kenya & Nigeria market during the FY21.


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Informed decision

While the unrest may not have had a significant immediate impact on the companies mentioned as a whole, disruptions could filter through in the coming months. Negative market sentiment and Rand (ZAR) weakness do play a role across retail, and financial sectors, which INVSTRs should take note of. As an investor in the companies or sectors mentioned, you should stay up to date with the current affairs of your company’s operations. If looking for protection, Rand Hedged stocks or Exchange Traded Products (ETP) could be an alternative to a weakening Rand (ZAR).

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Sources – EasyResearch, Pick n Pay Limited, Shoprite Holdings, South African Special Risks Insurance Association (SASRIA), ENCA. 

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