SIMON BROWN: I’m chatting now with Carmen Mpelwane, portfolio manager at Absa Asset Management. Carmen, I appreciate the early morning. Let’s touch off on that inflation data yesterday – unchanged at 5%. Not a terrible number. Food a bit tough; electricity and petrol the big ones there. Is 5% enough to see the [Reserve Bank’s] MPC stay its hand later today [on the interest rate decision], or are we likely to see an increase in our local prime rate?
CARMEN MPELWANE: Morning Simon. Spot on there. I think one of the key things that is confusing analysts out there is which way we are going to go today. The inflation number, as you mentioned, flat at 5%. So it remains within the target band of 3% to 6%.
Looking at the economy itself, we’re seeing it still remains very fragile. So – does the Sarb go out and give an indication that ‘look, we are going to go up 25 bps (basis points) today, but in a very measured [way] and at a slow pace to indicate the beginning of the increase’ – or do we sit out until early next year? At the moment consensus looks to be 50:50. But, as you’ve mentioned, it’s the fuel price that’s been one of the tailwinds in terms of what’s happening with inflation at the moment.
SIMON BROWN: And certainly Brent [Crude oil price] is coming to the party. It’s lower, but of course the rand is not. A Woolies update yesterday. Frankly, a bit of a horror update. Tough Spar full-year results. If we then throw Shoprite into the picture – they had an update earlier in the week – it really looks like Shoprite is eating everybody else’s lunch.
CARMEN MPELWANE: Completely. In Shoprite’s update they would definitely mention that there is market-share gain, number one. But even if you just look at the supermarket’s SA Shoprite division or segment, that was up over 9%; if you compare that to Woolworths’ food, that was up only 3.2%. So that gives you an indication of how big the disparity is between the two. If we add in Spar, which came out yesterday as well, [it also had] weaker numbers – their top line only touches at 3% as well. So Shoprite definitely seems to have the winning formula at the moment.
SIMON BROWN: And for Woolies it’s tough, because for a long time food has been their sort of golden standard. Clothing has been struggling. Australia’s a bit of a disaster; with respect to them, they’ve also had some very hard lockdowns in Sydney, making things harder. But even food was under pressure and clothing kind of picked up. But if Woolies starts to lose that golden food [attribute], then things get really tough.
CARMEN MPELWANE: We’ve got to remember that they’ve got someone new in charge of their fashion, beauty and home. Let’s allow him the opportunity to show what he’s able to do. We saw that fashion and beauty was up 7.4%, and they are focusing on space reduction. So I think at this point for them it’s not necessarily top line, and we are seeing that in terms of promotional activity on the food side as well. They’re more focused on cash generation, number one, so containing costs across the division. As you’ve mentioned, they’ve certainly struggled in Australia, but they have managed to pull together and re-strategise in Australia. The lockdown has negated all of that. And then we’ve also seen in Australia no government support, no rental relief in this period. So all of these things have come together, unfortunately, in this one period and seem to have caught them at the worst [time].
SIMON BROWN: Yeah. I take that – a litany of excuses but, with respect to Woolies, their excuses are valid. [Chuckling] It has been a very, very tough period and the focus on cash – I’m never going to argue with that.
That’s Carmen Mpelwane, portfolio manager at Absa Asset Management, I appreciate your time.