Pepkor Holdings Limited (JSE: PPH) has encountered challenges in the early weeks of 2024, witnessing a nearly 8% decline in its share price since the beginning of the year. The company’s financial performance took a turn last year, reporting a pretax loss of R108M for the year ending September 30, 2023— a notable shift from the R8.32Bn profit in the preceding year, primarily attributed to a R6.83Bn impairment charge on its accounts.
Compounding its difficulties, disruptions at South African ports have stranded approximately R700M worth of stock at sea, placing strain on its normal operational capabilities. Despite these setbacks, there are positive indicators. The company’s top line showed robust growth, advancing 7.7% to R87.41Bn. Additionally, Pepkor foresees relief from product inflation in the upcoming year, potentially enhancing customer affordability and contributing to sales growth.
In an intriguing development, Pepkor, South Africa’s largest clothing retailer, is contemplating a potential R2.4Bn takeover of Edgars. This strategic move could furnish the company with 131 additional stores, focusing on women’s clothing and cosmetics—areas ripe for Pepkor’s expansion efforts. As the company navigates these challenges and explores growth opportunities, the question arises: can Pepkor reverse its recent fortunes and set the stage for a strong start to the year?
Technical
On the daily chart, consolidation occurred between R18.21 and R19.75 before a recent breakdown sent the price looking for support at R17.54, the Fibonacci midpoint, which converged with the 100-SMA (orange line). However, a retracement has been initiated, and the price has cleared the R18.21 level to fall back into the prior range.
The bullish momentum now faces a hurdle at the 50-SMA (blue line) and 25-SMA (green line) near R18.84. Failure to clear these levels could signal that the bulls lack the traction to enforce meaningful upside. However, if the price breaks through, the resistance at R19.75 could come under pressure, with a potential leg up toward R20.02 and R20.49 becoming possible.
If the 50-SMA resistance triggers a pullback, another breakdown at R18.21 is possible, which could force the price to retest support at R17.54. An additional breakdown here could confirm a bearish run, bringing the demand zone at R16.95 into focus, which is also the 61.8% Fibonacci golden ratio.
Summary
While Pepkor had a challenging start to the new year, its price looks to bounce back from a recent breakdown of the consolidation range. The 50-SMA near R18.84 could be worth looking out for, as a breakout could signal that the bulls are regaining the upper hand.
Sources: News24, Koyfin, Tradingview, Reuters, Pepkor Holdings Limited, Moneyweb
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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