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Mr Price Group (MRP) will be the stock in focus: (Price at time of writing: R170.78 as 8 April 2016)
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Background and overview of Mr Price Group (MRP)
Mr Price group is a retailer active in the fashion and clothing segment of the market. The retail in apparel, homeware and sportswear and is one of the fastest growing retailers in South Africa. Mr Price's cash sales constitute 80.4% of total sales and the group is focused on remaining a cash-driven retailer. This will continue to differentiate the group from its competitors and produce cash flows that will fund our continued growth and enable an attractive dividend cover.
Their brands include:
Mr Price
Mr Price Sports
Mr Price Home
Sheet Street
Milady's
Mr Price has a very strong foothold in the South African retail clothing market, and this offers a strong value investing proposition for us.
Troubles are on the horizon for clothing retailers in South Africa though, as offshore brands such as Cotton On and H&M making massive headways in the South African market. And it seems that these two brands caught South African clothing retailers napping and has carved out a strong segment of the market for themselves.
Below a summary of our last financial review of MRP. We will update their valuation as soon as their new financial results are out.
Their brands include:
Mr Price
Mr Price Sports
Mr Price Home
Sheet Street
Milady's
Mr Price has a very strong foothold in the South African retail clothing market, and this offers a strong value investing proposition for us.
Troubles are on the horizon for clothing retailers in South Africa though, as offshore brands such as Cotton On and H&M making massive headways in the South African market. And it seems that these two brands caught South African clothing retailers napping and has carved out a strong segment of the market for themselves.
Below a summary of our last financial review of MRP. We will update their valuation as soon as their new financial results are out.
Scroll over or click on the funnel chart to get more details of MRP latest financial results
Financial review:
From the funnel chart above its clear that MRP is achieving pretty strong margins, As is shown by the orange (profit before tax) and green (profit after taxes) blocks. Their net profit margin (green block as percentage of blue block) is 11.9%, which is extremely healthy for a retailer in South Africa,
The graphic below shows the contribution of some of MRP's operating divisions to their revenues and profit before taxes.
As can be seen from the pie charts the majority of Mr Price's revenues and profits are earned from their apparel. With their home ware making up about one fifth of profits and a quarter of sales. Earnings per share came in at R4.06 (for the 6 months). Assuming similar profits are made for the next 6 months it will give MRP earnings per share of just over R8 for the year. Putting MRP on a PE ratio of 21.25. This is pretty steep for a mostly clothing retailer. But since the next 6 months covers the December holiday period one can expect a slight increase in the next 6 months profits per share.
Cash generated a share came in at R4.29 a share for the half year. Pretty similar to their earnings per share. On a cautionary note, trade and other receivables outstanding to MRP is just over R2billion. This is up almost R250million from a year ago. So potential buyers needs to take into account that account holders might struggle to pay back outstanding debts to MRP (especially in this economic environment where interest rates are rising and inflation increasing substantially).
Cash generated a share came in at R4.29 a share for the half year. Pretty similar to their earnings per share. On a cautionary note, trade and other receivables outstanding to MRP is just over R2billion. This is up almost R250million from a year ago. So potential buyers needs to take into account that account holders might struggle to pay back outstanding debts to MRP (especially in this economic environment where interest rates are rising and inflation increasing substantially).
Valuation (with updated comments):
Based on MRP's brands, its footprint and its latest set of financial results we value them at between R159.80 and R161. Now investors will know that MRP's share price has been taking a hammering the last month (with it losing 37.5%) of its value in month. While we felt in April 2016 that MRP was overvalued when it was trading at over R170 a share, we do feel that at it's current price the sell off in MRP has been over done, and that investors should hold on to their shares and not sell at the first sign of bad news coming through.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.