Buy Shoprite, A Defensive Retail Play
Wednesday's retail sales figure by Statistics SA painted a picture of the local consumer being not out of the woods just yet.
South Africa's retail sales rose by 1.8 percent year-on-year in July 2017, following an upwardly revised 3.2 percent gain in the previous month and missing market expectations of 2.8 percent.
Sales rose at a softer pace at food, beverages and tobacco in specialised stores (7.1 percent from 7.3 percent) and textiles,clothing,footwear and leather goods (1.2 percent from 4.5 percent); and fell at general dealers (-3.2 percent from 1.6 percent). On a monthly basis, retail trade shrank 0.6 percent.
South Africa also faces the threat of a credit downgrade as ratings agency monitor the country's economic developments as well the impact of political maneuvering among the country's ruling party.
The impact of sudden weakness in the local unit would throw further interest rate cuts out of the window limiting the benefit to consumers.
As the country faces potential upheaval and uncertainty the better bet would be for traders to pick up a not only a defensive share but also one which is the market leader and run by one of the best retail management teams in the world.
In the company's recent results presentation, the company highlighted 6 drivers of future growth, highlighting it's long term strategy and vision.
From a technical perspective, the recent price action has seen the share break to the upside of the trading range in place since May of this year. Over the last two weeks we have seen the share retrace to test the breakout level at approximately R210 to R212.
As the share show signs of reversal, this sets up a short term opportunity to play the upside as a continuation of the medium to long term breakout.
Here's what traders could look to do:
Buy SHP R210.50/212
Take Profit: R223
Risk to Reward is 1:1.8
Article by Lester Davids
Trading Desk Analyst