Foschini: Lewis sits pretty

The punt has paid off so far with a return of just under R16m.

Lewis' family was formerly controlling shareholder of the retailer that includes stores such as Foschini, Markham, Donna Claire and Totalsports in its stable.

This is an abrupt turnaround from two years ago, where trusts representing the Lewis family sold nearly 2% of the issued share capital of the business.

Dividend play

Foschini was one of the stocks in the retail sector that was identified recently by Feroz Basa, a fund manager of the Old Mutual Investment Group's (Omigsa) high-yield fund.

Basa pointed out that many of the companies operating in the South African retail sector were offering attractive forward dividend yields of between 7 and 10%.

For this reason, funds upped their exposure to the sector to the tune of nearly 3.8m shares in the second quarter.

It puts the size of Lewis' investment in perspective; 40 of the countries largest unit trusts only invested in 3.8m shares while Lewis has put his own money into 2.7m shares.

Positive return

The investment has paid off for Lewis so far.

If one calculates that he has bought  736 948 shares in Foschini at an average price of R35.64, then at the current price of R41.40, Lewis is up a cool R15.7m.

And to justify the fund manager comments around dividends, these shares alone will generate roughly R7.9m in dividends for Lewis in the next financial year.

Sellers?

Foschini financial director Ronnie Stein told Fin24.com that they company was not aware of any institutional sellers.

He pointed out that the shares were sold on the open market as opposed to an off-market agreement to sell from an institution to an individual shareholder.

Stein pointed out that the Lewis family had been, and would continue to be, a long-term investor in Foschini as it believed South Africa was an attractive investment destination.

But one has to wonder whether Lewis has bigger plans.

The 2.7m shares that he purchased equates to around 1.13% of Foschini's issued share capital. According to the last available shareholder register, this effectively gives the Lewis family a total holding of 7.4% in the business.

Other major shareholders include Foschini Stores (10%), Investec Asset Management (19.3%), Franklin Resources Inc (5.1%), the Public Investment Corporation (5.9%) and Prudential Portfolio Managers who hold 7.9%.

When one looks over the unit trust quarterly reports, there were few big sellers institutional sellers of Foschini in the second quarter of 2008. If anything, the major investors increased their holdings in the company.

Unit trusts typically report their holdings in their portfolios at the end of each quarter and there were no big changes in the holdings to June 2008.

Both Investec- and Prudential-related funds have continued to purchase shares in Foschini in the second quarter which would seem to suggest that it would be unusual for them to then change strategy and

In his December 2007 report to shareholders, Franklin Templeton (who run Franklin Resources) fund manager Mark Mobius said that he believed that Foschini and JD Group were both well positioned for growth over the "longer term".

Investment Solutions, another major shareholder added moderately to its holdings in the second quarter of 2008.

Foschini has recovered quite significantly since hitting a six-month low of R26.89 and is currently trading at around R41.40.

- Fin24.com