Weekly Earnings Outlook

This week investors can watch out for earnings releases from companies such as Pepkor Holdings Ltd, Barloworld and Southern Sun Ltd.

Update 29 May

Navigating Economic Dynamics: SARB’s Inflation Battle and Corporate Success Stories

In an ever-changing economic landscape, the South African Reserve Bank (SARB) has taken decisive steps to address inflationary pressures and stabilize the economy through a series of interest rate hikes. Alongside these developments, notable companies such as Netcare Ltd. and AutoZone have showcased their resilience and triumph in their respective industries.

In a series of moves indicating their commitment to tackling inflationary pressures and stabilizing the economy, the South African Reserve Bank (SARB) recently implemented its 10th consecutive interest rate hike since the beginning of 2022. The central bank aims to curb consumer spending and mitigate inflationary risks by increasing borrowing costs. The repo rate has now been increased by 50 basis points (BPS), bringing it to 8.25%, while the prime lending rate has risen to 11.75%.

In April, headline inflation saw a decline to 6.8% year-on-year, accompanied by a monthly decrease of 0.4%. The increase in core items contributed 0.3 percentage points to the monthly headline inflation, with food and non-alcoholic beverages (NAB) adding 0.1 percentage points. Core inflation remained at 5.3% year-on-year, experiencing a monthly increase of 0.5%. Noteworthy contributors to the monthly inflation rate were medical insurance (-0.2 percentage points), vehicles (-0.1 percentage points), and alcoholic beverages and tobacco (-0.1 percentage points). Furthermore, fuel prices witnessed a 0.7% decline on a month-on-month basis, with prices being 5.0% higher compared to April 2022, down from the previous rate of 8.1%.

The impact of these interest rate increases on the broader economy remains to be seen as the country strives to find the right balance between inflation control and economic growth.

Netcare Ltd. (JSE: NTC)

Despite its’ loadshedding challenges, Netcare, a prominent player in the private healthcare sector, has unveiled its impressive half-year results for the period ending March 31, 2023. The company experienced a substantial surge in net profit, soaring by almost 49% to R666 million. Adjusted headline earnings per share (AHEPS) also saw an impressive increase of 31.5% to 46.3 ZAR cents. Furthermore, the board declared a 50% increase in the interim dividend, set at 30 ZAR cents per share.

Netcare’s stellar financial results can be attributed to several key factors. Notably, improvements in total paid patient days and occupancies have been pivotal in driving revenue growth. These positive trends indicate a steady recovery in private healthcare demand as the operating environment gradually returns to normalcy post-Covid. Netcare’s ability to optimize patient care while effectively managing costs has been instrumental in achieving such robust financial performance.

While the business was making strides towards pre-pandemic levels, Netcare faced an additional hurdle with load shedding. The interruption in power supply has resulted in increased costs for the company. Electricity expenses account for 5% of Netcare’s overhead costs, with the group spending a substantial amount of R67 million on diesel during the year’s first half. This is a significant increase from R9 million spent on diesel during the same period last year. In 2022, Netcare expended R37 million on diesel to ensure uninterrupted hospital power supply.

AutoZone Inc. (NYSE: AZO)

AutoZone, a leading automotive parts and accessories retailer, announced its fiscal third-quarter earnings, surpassing analysts’ expectations. Despite slightly lower-than-anticipated net sales, the company reported earnings of $34.12 per share, exceeding the estimated figure of $31.51. However, net sales for the period stood at approximately $4.09 billion, slightly below the projected figure of $4.12 billion. Despite the dip in sales, AutoZone’s solid earnings results highlight the company’s ability to manage its operations and maximize profitability effectively.

While this growth was lower than the estimated increase of 4.1%, the company remains optimistic about its growth initiatives and the opportunities ahead. During the fiscal third quarter, AutoZone expanded its store network by opening 22 new locations in the United States, six in Mexico, and two in Brazil. As of May 6, 2023, the company operated 6,248 stores in the United States, 713 stores in Mexico, and 83 stores in Brazil, bringing the total store count to 7,044. The expansion efforts reflect AutoZone’s commitment to enhancing its market presence and meeting customers’ needs in various regions. As the automotive industry continues to evolve, AutoZone’s strategic initiatives and strong market position it well for sustained growth in the future.

Sources: South African Reserve Bank (SARB), News24, MarketWatch, Business Insider, iOL

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