forecasting error shoprite holdings ltd · sanlam collective investments (rf)(pty) ltd (“sci”)...

Forecasting ErrorShoprite Holdings Ltd

SIM* General Equity

October 2020

*SIM stands for Sanlam Investment Management

Sanlam Collective Investments (RF)(Pty) Ltd (“SCI”) and Satrix is a registered and approved in Collective Investment Schemes in Securities and theretains full legal responsibility for the co-brand portfolios. Collective investment schemes are generally medium- to long-term investments. Pastperformance is not necessarily a guide to future performance, and that the value of investments / units / unit trusts may go down as well as up. A scheduleof fees and charges and maximum commissions is available from the on request. Collective investments are traded at ruling prices and can engage inborrowing and lending. The does not provide any guarantee either with respect to the capital or the return of a portfolio. Performance is based on tocalculations with income reinvestments done on the date. Performance is calculated for the portfolio and the individual investor performance may differ asa result of initial fees, actual investment date, date of reinvestment and dividend withholding tax. The performance of the portfolio depends on theunderlying assets and variable market factors. All the portfolio options presented are approved collective investment schemes in terms of CollectiveInvestment Schemes Control Act, No 45 of 2002 (“CISCA). International investments or investments in foreign securities could be accompanied byadditional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk,settlement risk as well as potential limitations on the availability of market information. The manager has the right to close the portfolio to new investors inorder to it more efficiently in accordance with its mandate. Annualised return is the weighted average compound growth rate over the period measured. Amanager must ensure that performance statistics in an advertisement clearly reflect: (a) whether recurring investment or lump sum investmentperformances are being quoted, (b) whether or not income distributions, prior to deduction of applicable taxes, are included, and (c) that NAV to NAVfigures have been used.

Disclaimer

2

US Technological Adoption Rate

3Source: www.OurWorldInData.org,2020Comin and Hobijn 2004, Technology Adoption by Households in the United States

0

10

20

30

40

50

60

70

80

90

100

1919 1929 1939 1949 1959 1969 1979 1989 1999 2009 2019

Landline

Electric power

Automobile

Refrigerator

Colour TV

Computer

Internet

Cellular phone

Social media usage

Smartphone usage

http://www.ourworldindata.org/

Low reliance on short term financial forecasts

4Source: Sanlam Investments Research, August 2020*Broker consensus includes (in alphabetical order): BofA, CITI, HSBC, Investec, JPM, Macquarie, Morgan Stanley, Rencap, SBG, UBS

50

60

70

80

90

100

110

120

130

140

2016/12/02 2017/12/02 2018/12/02 2019/12/02 2020/12/02 2021/12/02 2022/12/02 2023/12/02 2024/12/02

Iron oreOct-17Jan-18Apr-18Jul-18Oct-18Jan-19Apr-19Jul-19Oct-19Jan-20Apr-20Aug-20

Valuations are sensitive to the discount rates applied

5Source: Sanlam Investments Research, August 2020

0

20

40

60

80

100

120

1% 2% 3% 4% 5% 6% 7% 8% 9%

Perp

etui

ty F

air V

alue

Growth Rate

Perpetuity fair value of cash flows at various discount rates vs growth rates

10% discount rate 12% discount rate14% discount rate 8% discount rate

0

20

40

60

80

100

120

16% 15% 14% 13% 12% 11% 10% 9% 8% 7%Discount Rate

Fair value of cash flows with a 6% terminal growth rate at various discount rates

Africa…will it go full circle again?

6

2000 2011 2013 2016

Optimistic Consensus Forecasts


0

200

400

600

800

1000

1200

1400

1600

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-19

Dec

-20

Dec

-21

Earn

ings

Per

Sha

re (C

ents

)

Consensus Estimates Actual EPS

Why was the market was so optimistic?


4934 Stores

186,0

56,2

46,3

39,7

27,0

25,9

24,3

22,4

16,8

16,4

2,2

2,0

1,9

1,3

0 50 100 150 200

Nigeria

South Africa

Tanzania

Uganda

Ghana

Mozambique

Angola

Madagascar

Malawi

Zambia

Namibia

Botswana

Lesotho

Mauritius

Population (m) 2016

Population: 56.2Stores: 673

However, is that the addressable market?


49%

65%

25%

13%

49%

35%

44%

30%

25%

35%

36%

54%

24%

41%

51%

35%

75%

87%

51%

65%

56%

70%

75%

65%

64%

46%

76%

59%

Nigeria

South Africa

Tanzania

Uganda

Ghana

Mozambique

Angola

Madagascar

Malawi

Zambia

Namibia

Botswana

Lesotho

Mauritius

Population Split Urban % Rural %

Nigeria

South Africa

Tanzania Uganda

Ghana

Mozambique

AngolaMadagascar

Malawi

Zambia

Namibia Botswana

Lesotho

Mauritius

-50

0

50

100

150

200

250

-5 0 5 10 15 20 25 30

Popu

latio

n Si

ze (m

)GDP Per Capita

Bubble size: GINI Index Value

Implied number of stores in Africa


1,917 Stores39% of Original

Estimates

741 Stores15% of Original

Estimates344 Stores

7% of Original Estimates

Lagos + Abuja

After country visitsWhen you overlay spending powerWhen you adjust for the rural and urban split

The tail wagging the dog?


SA EPS: R 7.2 ; (PE: 19 | Price: R 136.73)

Africa EPS: R 1.47 ; (PE: 41.9 | Price:

R 61.8)

Headline EPS (2016)56

3

28 74

-62

5814

134

99

1231

5952

169

152

-265

-2000

-1000

0

1000

2000

3000

4000

5000

6000

SA Supermarkets Other Furniture Africa

Trading profit2003 2016 2019

Africa


0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

2013 2014 2015 2016

Approximate return on assets

South Africa Africa

2,8%

2,6% 2,8% 3,

2% 3,7%

5,4% 5,

7%

6,8%

5,7%

5,1% 5,2%

4,6%

4,4%

5,5%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

8,0%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Trading Profit

Trading Profit

SHP Positioning and Performance


-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

Dec

-14

Feb-

15

Apr-1

5

Jun-

15

Aug-

15

Oct

-15

Dec

-15

Feb-

16

Apr-1

6

Jun-

16

Aug-

16

Oct

-16

Dec

-16

Feb-

17

Apr-1

7

Jun-

17

Aug-

17

Oct

-17

Dec

-17

Feb-

18

Apr-1

8

Jun-

18

Aug-

18

Oct

-18

Dec

-18

Feb-

19

Apr-1

9

Jun-

19

Aug-

19

Oct

-19

Dec

-19

Feb-

20

Apr-2

0

Jun-

20

Aug-

20

Cum

ulat

ive

Activ

e R

etur

n (%

)

Activ

e W

eigh

t (%

)

Active Weight Active Return

Initially you feel the pain

Consistent outperformance


-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

Rol

ling

5 Ye

ar F

und

Perfo

rman

ce (a

nnua

lised

)

Rolling 5 Year Benchmark Performance (annualised)

Benchmark SIM General Equity Sim General Equity outperformed 87% of the time earning an average upside of 1.92% and average downside of – 0.75%.

forecasting error shoprite holdings ltd · sanlam collective investments (rf)(pty) ltd (“sci”)...

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