The Spar Group (JSE: SPP) faces an upcoming earnings release on Thursday, November 30, 2023, amid crucial operational decisions and changes. The company has recently announced its intention to divest its struggling Spar Poland business, signalling a strategic shift in its market presence. This move comes after a period of challenges, including issues related to a failed SAP system launch and the adverse impact of a pandemic-induced economic landscape. The decision to exit the Polish market, influenced by the poorly timed acquisition and prevailing economic circumstances, has prompted positive market sentiment, leading to an 11% surge in share price.
In the face of these changes, The Spar Group reported a 10.6% rise in turnover for the first 47 weeks of the financial year, indicating a resilient performance in its core markets, including Southern Africa. However, the company expects lower earnings, with diluted Heps forecasted to drop significantly, reflecting the challenges faced during the period, including increased input costs and operational issues.
Technical Analysis
The daily chart shows that Spar Group’s current price, at R113.32, is consolidating around the 50-SMA (blue line) within an ascending channel. Trading above the upward-sloping 100-SMA (orange line) but below the downward-sloping 200-SMA (red line), the stock’s technical outlook suggests a cautious stance. The recent break above the 50-SMA is noteworthy, but the RSI trending downward at 46.24 raises concerns.
Short-term trading opportunities towards the R120.06 price level may materialize if the bulls sustain a push above the 200-SMA. A break above the initial resistance could confirm the bullish momentum, likely bringing the R127.61 resistance level within the bulls’ reach in the short term.
Conversely, a break below the 50-SMA would leave a potential for a short-term pullback towards the R108.14. A break below the initial support could trigger a run lower and likely bring the R102.29 and R96.78 support levels into play.
Summary
The Spar Group (JSE: SPP) faces a challenging earnings forecast, predominantly due to operational setbacks and the SAP IT system failure. The decision to divest its Polish business is a strategic move to offset losses incurred in a difficult market.
From a technical perspective, a bullish scenario might unfold if the stock breaches the 200-SMA, targeting R120.06 and potentially R127.61. However, caution is advised, as failure to sustain bullish momentum might trigger a decline towards R108.14, followed by R102.29 and R96.78.
Sources: TradingView, MoneyWeb, The SPAR Group, PR Newswire, MoneyWeb, IOL, Seeking Alpha, BusinessLive.
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