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Monday, March 20, 2023

News24.com | Foschini owner TFG’s shares fall sharply after it reports R1bn load shedding hit

  • TFG said load shedding reduced its turnover by R1 billion in the 11 months to end-February 2023.
  • The company estimates the true hit from load shedding at more than 600 000 trading hours being lost.
  • The Foschini owner has spent millions of rand on ensuring that a large portion of operations has back-up power.
  • For more financial news, go to the News24 Business front page.

Foschini owner TFG has estimated load shedding cost its local business R1 billion in lost sales for the 11 months to end-February, sparking a share sell-off analysts say may stem in part from foreigners becoming more wary about SA-focused stocks.

In an update on Monday, TFG said load shedding reduced the turnover for TFG Africa, which houses its South African business, and it had to fork out R250m in a two-month period alone.

“The resultant higher levels of inventory have also necessitated increased levels of stock provisioning, which will contribute to the deterioration of gross margin in TFG Africa compared to the previous financial year.”

It said that additional unbudgeted direct costs of about R65 million had also been incurred in respect of diesel, security and maintenance. Capital expenditure of about R220 million had also been spent to date on back-up power solutions and an additional R30 million would be spent in financial year 2023 to ensure that about 80% of TFG Africa’s stores had back-up power over the next few months.

“Backup power solutions are most effective only up to and including Stage 4 load shedding but are less effective at Stages 5 and 6. Other consequences have included disruptions to operations. At this stage there has only been a minimal impact on TFG’s supply chain.”

TFG said it had lost about 345 000 trading hours to load shedding in the 11 months ended 28 February, adding that the true impact was “close to double this figure” at about 685 000, given that “customer demand is dampened by the associated disruption and inconvenience with reduced footfall observed before, during and immediately after load shedding periods”.

In late afternoon trade, the share of the JSE-listed retailer had fallen 4.88% to R89.38, having fallen by more than a quarter over the past one year.

Click here for details about TFG’s share price and other info

Tough market

Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said there was a definite possibility the drop could be driven by foreign investors taking a more cautious view on SA.

He said the direct and indirect costs of load shedding kept adding up for companies like TFG, showing that it was “getting considerably more expensive going forward to do business in SA”.

“Unfortunately, it is going to show in company bottom lines and at the end of the day, the consumer will end up paying. And you can see it in the share prices that keep getting hit, even after a recent sell-off, as investors factor this into valuations.”

Treurnicht said that in addition to load shedding, it was also important to bear in mind the “financial pressure” the consumer has been facing over the past year, saying this may also be contributing to the pressure on turnovers.

“Inflation picked up aggressively (globally and locally), too much too soon, and we’ve long maintained the effect it would have on the consumer wallet; and then you have load shedding hitting at the same time. It is difficult to point out exactly how much can be attributed to what, but it is all adding up. SA also got downgraded for all of these reasons.”

Sasfin Wealth senior equity analyst Alec Abraham said the sell-off in shares in TFG could be influenced by foreigners taking a more jaundiced view of SA Inc.’s prospects following recent international and domestic announcements, but that it was “incredibly difficult to pinpoint” the exact causes.

He said the JSE in general was down about 2%, adding that “across the board” the market had seen some big drops on the day and not just among retailers.

“The only sector that seems to be fairly unscathed is the resources sector, so I don’t know if this particular rout (in TFG and retailers’ share prices) is because of the update, granted though that they have taken a little more of the brunt.”

READ | Foschini-owner TFG says Stage 6 load shedding cost it R400m in lost sales

Abraham said most of the JSE’s retailers were down 2.5 to 3% so they seem to be “more or less in line” with the industrial index, which dropped about 2%.

“It is difficult to say whether the retailers have come under pressure now because of the Foschini update or whether there is something else at work.”

Abraham said it could be that foreigners were “taking a more cautious view” but that this “seems to me to be a very late reaction”, adding that there was a lot of other bad news that would have sparked an exit of foreign investors in recent weeks including the downgrades to SA’s GDP and the country’s grey listing two weeks ago.

He said the failure of Silicon Valley Bank in global markets also had possible ramifications on share sell-offs in general, adding it was difficult to know if it was an SA-specific issue.

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