Johannesburg - The market seems to have taken a renewed interest in South Africa's food and merchandising retailers, as most counters outperformed the JSE All-share index over the past six months.

For instance, food and clothing retailer Woolworths has seen its share price grow 37% from a low of 1 600c in September to its current level of 2 200c, while that of Massmart increased by 24% from 8 400c to R104.00.

The star performer has been beauty and pharmacy group Clicks, which has recently moved to the JSE's food and drugs sector. Its shares have surged 50% from 2 000c/share to 3 000c during the past six months.

The All-share index posted growth of about 10% over the same period.

Analysts interpret the sector's growth as a sign that investors believe consumers are once again willing to open their wallets.

"I think a lot of it has been driven by foreign buyers. The economy is recovering and people are becoming more optimistic," said Diane Laas, an equity analyst at Investec Asset Management.

BoE Private Clients' Shanay Narsi said trading conditions were improving and retailers were more positive about the year ahead. This better news was playing a part in driving share price performance.

According to him, retail investors are banking on valuations that these stocks are poised to yield good earnings over the next two years. "Current valuations are, for the most part, accounting for strong earnings expectations over the next two years," said Narsi.

Questions over Aussie operation

The analysts said the confidence in especially Woolworths is an interpretation that South Africa's higher-income consumers are beginning to reap the benefits of the 500 basis-point cuts in interest rates between December 2008 and August 2009.

Said Laas: "It seems a lot of Woolworths customers [who have been trading down to value retailers] are now coming back. That's probably a result of the interest rate relief, because lower-end customers are still feeling the pain of job losses."

Narsi agreed, adding that Woolies' revamp of its clothing division was another reason.

But not all is rosy. Food giant Pick n Pay's share has been "sluggish".

Narsi said the message communicated to investors is that Pick n Pay was losing market share to Shoprite and Spar.

"Sales growth has not been as strong as [that of] competitors and despite Pick n Pay's attempts to invest profits into lower prices, there is still the perception that it's more expensive when compared with Shoprite," said Narsi.

"Lingering questions over the performance of the Australian subsidiary Franklins is also not doing the company any favours. The board seems to be confused about its future strategy with regard to that business."

- Fin24.com