Africa’s largest supermarket retailer, Shoprite Holdings Limited (JSE: SHP), reported impressive interim sales growth for the half-year that ended 1 January 2023. However, South Africa’s ongoing energy crisis depressed the retailer’s bottom line and cut into shareholder dividends.
Despite the group realising double-digit sales growth, reporting a 16.8% year-over-year increase in the sale of merchandise for the half-year period, CEO Pieter Engelbrecht raised concerns over the country’s deepening power crisis. On Tuesday, 7 March, Pieter Engelbrecht stated, “we are not reporting the level of profit and dividend growth that would normally be associated with this level of sales growth.” Further, he emphasised that “due to the considerable spend on diesel to operate generators,” the retailer’s bottom line was depressed.
Constant power outages resulted in a “total spend of R560 million on diesel” for the six-month period that ended 1 January 2023. This excessive spending on diesel resulted in “trading profit only increasing by 8.6%, leaving the group’s trading margin at 5.7%, down from 6.1% reported last period.” If South Africa’s power crisis worsens, Shoprite could be staring down an R1 billion annual diesel bill come the end of the next half-year period.
Technicals
The price action on Africa’s largest supermarket retailer has been consolidating sideways for the last seven months. The primary resistance and support levels are firmly at R255.00 (red line) and R211.00 (green line).
For the bull case, a short-term trading opportunity could exist if the price action pushes above R240.00 (horizontal black dotted line), which could be the first resistance point in the price for the bulls. If the price breaches the resistance, the price could reach R247.00 (horizontal black dotted line), a share level towards the primary resistance of R255.00 (red line).
The bears could see the price action continue its downtrend toward the significant support level at R211.00 (green line), which could be the first support level for the bears. Suppose the downtrend persists and the primary support level at R211.00 is tested. In that case, the possibility exists for either a retracement or, if the support does not hold, the price action can decline to lower support levels.
Summary
Depending on how Shoprite mitigates the devastating effects of South Africa’s ongoing power crisis, the possibility could exist for a long above R240.00 to the next significant resistance at R247.00. If the recent downtrend continues, the primary support level at R211.00 could be watched closely as a potential entry point for the bulls. Still, the potential exists for the primary support level not to hold.
Sources: Moneyweb, Shoprite Holding Limited, Trading View
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