Cape Town - Overberg Asset Management analyst Kirk Swart looks at recent noteworthy movements in resources and retail stocks in this week's five shares to watch.
On Thursday Sasol's share price fell by more than 3% after the company announced that it expects its interim headline earnings per share (EPS) to be between 34% – 44% lower as compared to the same period last year.
Despite the drop in headline EPS, basic EPS will rise by between 12% - 22%. Sasol's share price has had a nice rally of late following the rise in the price of oil. Last year oil reached a low of around $30 a barrel. Today it is trading at $56 a barrel.
Sasol has sighted once-off issues such as labour disruptions at its mining operations and distortions from prior years’ financial comparisons as reasons for the drop in headline earnings. The stronger rand has also hurt Sasol. The recent rand strength has resulted in Sasol reducing assets on its balance sheet by R1.3bn. In the same period last year, the weakening currency led to a gain of R2.6bn.
Thursday Lonmin shares were down 20%. The selloff was prompted after they warned the market of losses at its operations for the first quarter of the financial year. Capital expenditure will be reviewed after mentioning that costs rose 12% in an environment where the platinum prices have stayed stagnant.
Lonmin's biggest shaft, the K3, was under severe pressure due to labour issues causing production to be 14% lower.
Anglo American [JSE:AGL]
Anglo American is notoriously known to buy assets at the top of the cycle and sell assets at the bottom of the cycle. For 2016, Anglo reported declines in output for the commodities they do not want to sell.
Those commodity products are refined platinum, diamonds and copper. The company sights various reasons for it such as bad weather, labour unrest and market related issues. Two of the commodity assets that Anglo wants to sell, nickel and the iron Ooe mine in Brazil, did exceptionally well.
The recent positive movements in commodity prices will surely stop Anglo from selling assets in a rush.
Spur recently released a trading update for the six months ending December 2016. The update shows that total group sales increased by 10.4% with existing restaurant sales increasing by only 4.1%. Two of the Spur Group's top performers were The Hussar Grill and RocoMamas. The Hussar Grill produced growth in total sales of 58% of which 19.7% was attributable to new store sales.
RocoMamas saw total sales increase by 113.3%. RocoMamas are allowing customers to design their own burgers rather than ordering from a set menu.
The traditional Spur Steak Ranches could only manage to grow sales by 4%.
Clicks has released a trading update for the 20 weeks ending on January 15. The results were impressive if compared with results released recently by other South African retailers. The group said that turnover grew by 8.6% with retail sales growing 12.2%.
Clicks who also owns brands such as Musica and The Body Shop grew sales by 8.5% in comparable stores. This was more than the selling price inflation of 5.3%.
Clicks opened 15 new pharmacies in the 20 weeks. This time last year Clicks was trading at around R80 per share. Currently it is trading at around R120 per share.
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*Kirk Swart is an analyst at Overberg Asset Management,
an Authorised Financial Services Provider (No 783) which specialises in
the private management of local and global discretionary portfolios as
well as pension products.
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