Shoprite Holdings Limited: Quick Company Analysis
Channel: GVO22
Date: 2013-08-01

This clip features a quick evaluation of Shoprite Holdings Limited, listed on the JSE in South Africa. 

Summary of observations: 

▪ SHP share price has increased about 370% since 2008, it appears to have reached an 'inflection point' in the technicals.   

▪ DEPS has grown about 16% on average year on year since 2008, this trend appears to be slowing. 

▪ The PE ratio is currently a 26.1x earnings from a high point of 27.5x in 2012. 

▪ This is concerning since the average PE ratio of the JSE is estimated to be about 14. Longs should tread carefully at this point, and be weary of a market PE break down. Also keep a close eye on year on year earnings. 

▪ The three main margins appear to show some improvement.  

▪ The Sales to Total Assets ratio has weakened since 2010. 

▪ The Return on Equity Ratio seems to have weakened significantly from 40.14% in '09 to 23.76% in 2012. 

▪ The Current Ratio shows improvement from 1.1 (2008) to 1.5 (2012), which may likely owe to the increase of SHP's cash position.

▪ The Debt to Equity position has improved from 233% debt to equity (2009) to 141% debt to equity (2012).  
 
 ▪ Acid Test Ratio has strengthened from 0.3 (2011) to 0.8 (2012). (A significant percentage.) 

▪ The Debt to Assets position has improved from 1.5 in 2008 to 1.7 in 2012. 

▪ Inventory to Net Working Capital has improved from very negative positions in 2009, 2010. 

▪ The Cash Position has increased substantially from R1.9 billion to R7.9 billion 

▪ As is the case with many of the JSE listed companies, SHP appears to be bolstering their short-term position, likely because of political and market uncertainty.  

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Correction on the video: 

Companies have to balance the amount of inventories carried. In the case of SHP it would technically be incorrect to claim that the inventory position has improved from negative to positive. The optimal inventory levels differ from industry to industry. Perhaps a better way to express this is to say inventory makes up 1.36 times net working capital (or just working capital). If too much working capital is tied up in inventory it becomes dangerous to the current position. 

Disclaimer: this video is intended to be solely informational and educational, and should NOT be considered as investment advice. Contact a registered financial advisor before making investment decisions.