forecasting error shoprite holdings ltd · sanlam collective investments (rf)(pty) ltd (“sci”)...
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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
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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
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
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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
7Source: Sanlam Investments Research, August 2020
0
200
400
600
800
1000
1200
1400
1600
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
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Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
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-14
Dec
-15
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-17
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-18
Dec
-19
Dec
-20
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-21
Earn
ings
Per
Sha
re (C
ents
)
Consensus Estimates Actual EPS
Why was the market was so optimistic?
8Source: Sanlam Investments Research, August 2020
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?
9Source: Sanlam Investments Research, August 2020
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
10Source: Sanlam Investments Research, August 2020
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?
11Source: Sanlam Investments Research, August 2020
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
12Source: Sanlam Investments Research, August 2020
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
13Source: Sanlam Investments Research, August 2020
-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
14Source: Sanlam Investments Research, August 2020
-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%.
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