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Background and overview of The Foshini Group (TFG)
The following is from TFG's website: The Foshini Group has been listed on the JSE Limited since 1941 and is regarded as one of the foremost independent chain store groups in South Africa. We have a successful track record when it comes to delivering acceptable returns to investors and we strive to continue to do so. We aim to achieve this through a strategic focus that will improve customer experience. This is done by constantly developing our merchandise offerings to consistently meet our customers’ needs, and by targeted expansion of our store base.
TFG is one of the foremost independent chain-store groups in South Africa. We have 20 retail brands that trade in clothing, jewellery, accessories, sporting and outdoor apparel and equipment, cellular goods and services and homeware to the broad, primarily middle and upper income groups throughout 2 200+ stores predominantly in Southern Africa. 42,2% of turnover is in the form of cash sales to customers, with the balance being on credit. The majority of merchandise sold in our stores is under our own brand names. In addition to retail turnover, revenue is also generated from interest received, as well as through various customer value added products which are primarily sold through our call centre. Merchandise is sourced both locally and internationally. In addition we have an in-house design and manufacturing facility which co-ordinates production through our own factories as well as through various independent cut, make and trim factories.
TFG's brands include Markham, Totalsports and American Swiss
TFG is one of the foremost independent chain-store groups in South Africa. We have 20 retail brands that trade in clothing, jewellery, accessories, sporting and outdoor apparel and equipment, cellular goods and services and homeware to the broad, primarily middle and upper income groups throughout 2 200+ stores predominantly in Southern Africa. 42,2% of turnover is in the form of cash sales to customers, with the balance being on credit. The majority of merchandise sold in our stores is under our own brand names. In addition to retail turnover, revenue is also generated from interest received, as well as through various customer value added products which are primarily sold through our call centre. Merchandise is sourced both locally and internationally. In addition we have an in-house design and manufacturing facility which co-ordinates production through our own factories as well as through various independent cut, make and trim factories.
TFG's brands include Markham, Totalsports and American Swiss
Scroll over or click on the funnel chart to get more details of TFGs latest financial results
Financial review
TFG achieved a net profit margin of 9.9% which is pretty good going for a mostly clothing retailer. They own extremely strong brands, but the concern with TFG is the fact that a large part of their business is not cash sales but sales on credit. With increasing interest rates the first thing struggling consumers stop paying is their outstanding debt on clothing accounts. They have R2.6billion in outstanding trade and receivables. This amount could balloon soon as interest rate hikes start to bite into consumers disposable income. On the positive side TFG has bought a majority stake in UK fashion retailer Phase Eight. This will give them much needed offshore exposure. Acting as Rand hedge if the exchange rate weakens.
The graphic below shows the contribution of some of TFG's operating divisions
From the pie charts above one can see that TFG's retail trading divisions in South Africa is still the major contributor to both their revenues and their pre-tax profits. But expect Phase Eight to contribute more as the exchange rate weakens. Check exchange rate performance of the Euro and Pound here.
Earnings per share came in at R4.72 a share and cash generated a share came in at R5.95 a share. As mentioned earlier potential buyers should be wary of the credit component in their sales and the possible impact this can have on TFG if clients start default on their outstanding accounts. Another measure to keep an eye on is their inventories. If this starts building up and not moving it will signal that consumers are not buying products as fast as management expected. Currently inventories is sitting at R4.3 billion while a year ago it was at R2.8billion. So it is increasing steadily and will need to be managed closely.
Earnings per share came in at R4.72 a share and cash generated a share came in at R5.95 a share. As mentioned earlier potential buyers should be wary of the credit component in their sales and the possible impact this can have on TFG if clients start default on their outstanding accounts. Another measure to keep an eye on is their inventories. If this starts building up and not moving it will signal that consumers are not buying products as fast as management expected. Currently inventories is sitting at R4.3 billion while a year ago it was at R2.8billion. So it is increasing steadily and will need to be managed closely.
Valuation:
Based on TFG's financial results, the markets they operate in and the economic environment they find themselves in, we value them at between R149.12 and R150.00 a share. We therefore feel that TFG offers good long term value. Not a screaming buy at its current price but should offer patient investors long term value.
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