The Finance Ghost: The lowdown on Mr Price, Takealot, Old Mutual and Lewis

The Finance Ghost: The lowdown on Mr Price, Takealot, Old Mutual and Lewis
(Photo: Gallo Images / Papi Morake)

Mr Price has a red ocean strategy, as there really isn’t much to differentiate its businesses in the market.

A “blue ocean strategy” sees a company differentiating itself to such an extent that there are few competitors. A “red ocean strategy” is the opposite, filled with sharks and blood and … you get the idea.

Mr Price has a red ocean strategy, as there really isn’t much to differentiate its businesses in the market. It has made no secret of its desire to move into new market segments, with recent acquisitions of businesses like Yuppiechef and Studio 88. The risk with M&A is that the executives sometimes lose focus of the core business, allowing competitors to make progress.

There’s not much that the company can do about load shedding, of course. Sales in September were down 6.7% thanks to Eskom and the impact on consumers. Elements that are within Mr Price’s control include the loss of market share in the core Apparel business over the past two quarters and the Homeware segment suffering a drop in comparable store sales of 9.9%. In Homeware, Mr Price acknowledges that competition has heated up.

What was the colour of that ocean again?

Takealot of pain, investors

Aah, Prosus. A place of Chinese profits, global punts on risky tech start-ups and executive remuneration that will make your eyes bleed.

Interest rates have risen sharply and few investors believe that we have seen the last hike. In an environment where money is more expensive, risky start-ups are less valuable. Prosus is full of start-ups, having built the group around taking profits from Tencent in China and pumping them into businesses that are low on capital letters in their names and even lower on profits. With vast losses from continuing operations, Prosus is finally making noise about cutting back on costs.

As for Naspers, the numbers are much the same because of the look-through exposure into the Prosus portfolio. A key difference is Takealot, which is part of the Naspers stable. With a loss of $13-million in the six months to September, Takealot is still being subsidised by its parent company.

This is why it is so hard for Massmart to compete with the likes of Takealot. The situation is about to get even worse when Amazon enters the market.

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Banking on Old Mutual

Before the restructure of the Old Mutual group and the sell-down of the stake in Nedbank, Old Mutual had huge exposure to the South African banking sector through the green bank.

It seems we are now going full circle, with Old Mutual receiving approval from the Prudential Authority to apply for a banking licence.

If the company can get it right, then retail banking deposits are an incredibly cheap source of funding.

Ever noticed how much interest you get paid on your current account balance? Exactly.

Get in there, Lewis

Despite operating in an industry that few would deem attractive, the furniture retail group grew headline earnings by 4.4% and headline earnings per share by 19.2%.

The difference between those two numbers is that one is the group total and the other is on a per-share basis. When there are fewer shares in issue, headline earnings per share is turbocharged. Lewis has used this strategy to great effect in recent years, though even share buybacks cannot entirely mitigate a weakening consumer environment. DM168

After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.


Comments - Please in order to comment.

  • Jane Crankshaw says:

    Thank you for this simple -put briefing.
    In my opinion, Takealot’s troubles ( soon to become Amazons!) is that their consumer reach is just not big enough considering that only about 20% of the population are discernible ratepayers with reachable delivery addresses? It’s a great job creator giving excellent service that is very professional but there are just not enough customers to cover the enormous costs!

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