The old saying that what doesn’t kill you makes you stronger certainly applies to many of SA’s retailers. Over the past few years, they have been assailed by high interest rates, load-shedding, port congestion, unfair online competition and an economy that’s been going nowhere slowly.
There have been casualties along the way, most notably Edcon a few years back. But most have come through the storm, making plans to deal with the crises that have affected them. And at long last there appears to be a hint of the sunlit uplands ahead, with load-shedding decreasing in intensity and frequency, interest rates looking as if they may start falling later this year and the SA Revenue Service (Sars) starting to apply VAT and import duties on products from online retailers such as Shein and Temu.
TFG seems to be well positioned to capitalise on any meaningful improvement in the economy. For the year to end-March, group revenue rose 8.6% to R56.2bn, while the gross profit margin was static at 47.9%. Online retail turnover rose 22% to R5.6bn, or 9.9% of group revenue, helped by strong growth in retail platform Bash.
Earnings before interest, taxes, depreciation and amortisation (ebitda) rose 10.9% to R11.6bn but headline earnings per share (HEPS) were virtually static at 970.7c. The total dividend was increased by 9.4% to 350c a share. On the balance sheet, net debt fell 31% to R4.9bn.
Segmentally, not only was TFG Africa by far the largest contributor to revenue and profit but it was the best-performing geographic component, contributing 72% of group revenue. TFG London and TFG Australia contributed the rest. The ebitda percentage contributions are 71% from TFG Africa and 29% from the rest.
At an operating profit level, TFG Africa saw a 24.9% increase to R4.2bn. TFG London’s operating profit grew 9.1% to R593m. TFG Australia’s operating profit fell 24.5% to R1.1bn, primarily as a result of an extremely favourable base effect in the previous year due to a post-Covid spending boom in Australia. Australia’s lockdown was more severe and longer lasting than either SA’s or the UK’s.
Within the languishing SA economy, the only real way to outperform is to take market share from competitors. And, according to RLC figures, that’s exactly what TFG Africa did last year in the categories of apparel for men, women, kids and babies.
The outlook for this financial year and beyond remains clouded by uncertainty, but as stated earlier there are reasons to be cautiously optimistic.
Interest rate reductions can reasonably be expected in SA and the UK and perhaps even in Australia before the end of the calendar year. The competition from pure-play online retailers in the Far East such as Shein and Temu should decrease from July, as Sars begins policing its import duty and VAT regimen with respect to these retailers. And at long last, load-shedding appears to be reducing in intensity and frequency on a sustainable basis.
On the sportswear front, TFG Africa recently announced a franchise agreement with JD Sports of the UK, a global sportswear retailer, and expects to have a few stores up and running before the end of 2024. The aim is to open 40 stores over the next few years.
TFG London can reasonably expect an improvement from the UK economy, with inflation back in the target range. TFG Australia expects another tough year, though not as tough as financial 2024.
At a share price of R135.68, TFG is trading on a price-earnings ratio of 13.9 and a dividend yield of 2.6%. It’s had a very strong run in the past few weeks and the market obviously liked the results. It’s still more than 37% below its February 2018 peak of R215.51 but the share isn’t cheap, even though it’s trading at a significantly lower multiple than competitor Mr Price.
• Gilmour is an investment analyst.
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