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Massmart surges over 20%, but has the market overreacted?

Some analysts think so, considering the Game and Makro owner’s wider FY losses, debt burden and lack of dividend.
Game, Massmart's biggest division in terms of number of stores, continues to make a loss. Image: Suren Naidoo, Moneyweb

JSE-listed retail and wholesale group Massmart’s share price soared 20.76% on Monday, closing at R54.10 a share – the highest level in more than a year.

The surge came following the release of the group’s full-year results to December 27, 2020, which show that sales declined 7.7% to R86.5 billion, contributing to a wider net loss of R1.75 billion (2019: R1.29 billion).

Despite the wider loss, which was largely due to the impact of Covid-19 lockdowns and trade restrictions, the stock surged on news of Massmart’s decision to put its Cambridge Food, Rhino Cash & Carry and Massfresh/Fruitspot businesses up for sale.

Read: Massmart to sell Cambridge Food, Rhino and Massfresh

Massmart’s reported 5.5% increase in trading profit (to R1.17 billion) before interest and tax, together with an almost 150-basis point increase in margins for its 2020 financial year, will have also lifted the share price.

The better operational performance, bolstered by significant growth in its Builders Warehouse chain and a comparatively good performance of Makro, saw the group reduce its 2020 headline loss to just over R924 million, from R1.15 billion in 2019.

This was despite the impact of Covid-19 lockdowns and trade restrictions, which saw Massmart lose some R6.1 billion in sales, over half of which was due to liquor-related bans.

While analysts welcomed the improved operational performance and progress on Massmart’s turnaround plans, some believe Monday’s almost 21% surge in the group’s share price is an “overreaction by the market”.

Veteran retail analyst Syd Vianello tells Moneyweb: “It is clearly an overreaction…. Massmart still has a long way to go to turnaround the business. It is likely to be a while before the group pays out a dividend, considering its loss-making position and huge debt burden.”

Besides the announcement of the planned sale of Cambridge Food, Rhino and Massfresh, he believes that the market “got overly excited” about the increase in margins, especially with the Game chain of stores.

“There were improvements, but Game is still the group’s biggest loss-making business [R532.5 million loss, compared with R391 million in 2019]. There is still a lot of work to do,” notes Vianello.

“The losses within the up-for-sale businesses reveal the mess there, especially at Cambridge Food.… I don’t think Massmart ever made a real profit with Cambridge. They never really knew what they were getting into, trying to take on the likes of Shoprite and Pick n Pay with their plan to grow Cambridge Food and the failed expansion in fresh food within Game stores,” he says.

“The burning question is what Massmart will get for Cambridge Food, Rhino and Massfresh…. I believe Rhino is more ‘[sellable]’ than Cambridge. If they don’t find a buyer, it might be cheaper to just close the [Cambridge] business,” he adds.

“It’s better for Massmart to get rid of it [Cambridge] and eliminate the losses…. I agree with Mitch Slape [Massmart’s CEO] that the group should rather focus on its profitable and growth businesses…. Despite Game’s losses, it is a big brand and may still have a place in SA retail. Game seems to have become more competitive again,” he says.


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Massmart acquired the profitable six-store Cambridge Food chain in 2008, during the Grant Pattison and Mark Lamberti era, from Durban retail entrepreneur Brett Latimer.

Massmart has pumped huge resources into growing the business to over 55 stores countrywide – a move originally aimed at growing its presence in the highly competitive fresh food retail game, dominated by retail giants Shoprite, Pick n Pay and Spar.

However, the venture has failed to become a profit-maker for Massmart, which has historically not reported specifically on how much it has invested in growing Cambridge, nor on its profitability.

For its latest financial results, Massmart included the Cambridge chain together with its Rhino Cash & Carry stores. Together these two chains reported a wider 2020 total loss of R363.5 million, compared with a loss of just over R310 million in 2019.

Wayne McCurrie, portfolio manager at FNB Wealth and Investment, says Massmart’s loss for 2020 was expected, especially after the group put out a trading statement just over a week ago.

Read: Massmart plans further store closures as it flags FY loss

“The market knew about the loss, so the big news around the disposal of Cambridge Food and the other units is what was the catalyst for the more than 20% surge in Massmart’s share price,” he adds.

“Sure, it is a bit of an overreaction by the market and we may see the stock losing some of its value…. A lot will depend on how long it takes to sell Cambridge and the other businesses, but this is nevertheless a welcome move,” McCurrie says.

“There will be questions on how much Cambridge is actually worth, especially because it is a loss-maker. I believe they will sell it. There is always a buyer. No matter what Massmart sells it for, the fact that it is exiting this business is a positive.”

Listen: Moneyweb editor Ryk van Niekerk speaks to Massmart CEO Mitch Slape on the group’s 2020 results



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Don’t let that figure flatter you..Their turnover could be three times the reported result

Game is probably the worst place to shop..Try buying a TV, Fridge or any high ticket commodity..Don’t expect anyone to fall over their feet to assist you, and when they do, they have absolutely no product knowledge

Coupled to that, their shelves are often empty..I support Independents, not Makro or Game

Try Cresta or Bellair for sufficiently well stocked shelves

Massmart has a market cap of under R13bn. Builders alone made more than R1bn profit. Makro and Jumbo divisions also combined profit of R1bn plus. When all the loss making stuff is sold, and Makro doesn’t need to contend with liquor sales bans – this thing will be on a PE of 3…

Prediction Engine : the Americans will buy out minorities. There is literally no point to keep up a local listing at all. Very happy with my entry point 🙂

End of comments.





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