Published Date: 2019-07-22 | Source: INCE|Community | Author: Sifiso Skenjana
The SPAR Group is wholesale and retail distributor of food, drink, building and pharmaceutical products founded in 1963, now home to 350 000 employees serving clients through 2138 stores in nine countries including South Africa, Namibia, Botswana, Mozambique, Swaziland, Zambia, Switzerland and Ireland. SPAR Group South Africa is now reported to be the second largest retailer locally measured by turnover.
Business Model: The Group works both as a wholesaler as well as a distributor of some of your favourite consumption goods, and liquor and beverages through SPAR TOPS as well as DIY and building material through the Build It franchise. The group earns the largest proportion of its income through the six distribution centres in the South Africa business as well as one for Build It, serving more than 900 independently owned SPAR stores locally.
Results (Interim ended 31 March 2019): The retail sector tends to be very closely impacted by consumer confidence and GDP growth. The group over the last few years has expanded through investments primarily in Ireland (80% stake in BWG Group) and Switzerland (60% in SPAR Switzerland) and Sri Lanka, where a joint venture with Ceylon Biscuits Limited saw them target 50 new stores by 2023. The interim results saw group turnover growth of 8.6%, with TOPS in South Africa growing turnover by 19%. Group operating profit grew by 5.1%, and gross profit margins at 10.4% over the same period - this despite a very tough economic climate in South Africa, its biggest source of revenue.
Growth Prospects: Prospects for SPAR remain pretty good, particularly when you look at the TOPS division, which continues to perform well and remains resilient despite a challenging operating environment. The growth by acquisition in Europe continues to present opportunities for earnings growth and diversification, as well as the benefit of supplying to their franchises, which creates some earning resilience through the business cycles.
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About The Analyst: The Mid Cap Darlings is brought to you by the Awkward Economist - Sifiso Skenjana. He has a breadth of experience in portfolio management, economic research and investment strategy and management consulting. He is founder and financial economist at AFRA Consultants. He is currently pursuing his PhD.