MR PRICE GROUP LIMITED - 2020 | By Lesego Mthombothi - ThinkMarkets
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MR PRICE GROUP LIMITED 2020 | By Lesego Mthombothi
Mr Price Group Limited (MRP) – The best amongst the rest Stock Information
Valuation Fairly Valued
The South African economy has gone through a turbulent time since the first hard
Share Code MRP.JSE
lockdown was initiated in March 2020 to curb the spread of the COVID-19 Sector General Retailers
coronavirus. Discretionary retail items such as clothing and accessories had a Price R197.34
particularly tough time. But out of the Johanessburg Stock Exchange (JSE) listed 52-week range R114.10 –
apparel and homeware retailers, MRP has illustrated how resilient and defensive its R207.06
operations are. Market Cap 51,058,497,974
Enterprise Value 50,149,945,000
The Group achieved its highest market share gains since January 2017 according to (LTM)
the Retailers Liason Committee data during October and November 2020 and we Shares 257.31 m
expect that this trend has continued well into 2021. Group sales during the third Outstanding
quarter of GroupS 2021 financial year (FY’21) increased by 5.8% year-on-year and by Free Float (%) 63.6%
5.3% year-on-year for the first three weeks of the fourth quarter of FY’21 which falls Return YTD 16.90%
over the January period. Return (1-year) 20.45%
Return (3-year) -12.88%
COVID-19 has fostered a "homebody economy" which has boosted the demand for Return (5-year) 38.37%
casualwear and home improvement goods as more people have spent more time at Beta 1.07
home and have increased their online purchases. MRP has been well-positioned for Financial year-end March
this trend as evident in its better-performing sales and continued investment in these Founded 1885
markets. Headquarters Durban
Company Overview
Mr Price Group Limited is an omnichannel fashion value retailer serving women, men, and children primarily in South Africa and
12 other African countries such as Botswana and Namibia. The Group operates through three segments: Apparel (MRP, MRP
Sport, and Miladys), Home (MRP Home and Sheet Street), and Financial Services (MRP Money) offering clothing, underwear,
footwear, cosmetics, accessories; furniture, and homeware; sporting, outdoor, and fitness products. The Group also provides
financial services such as credit, store cards, cellular products, and value-added services such as airtime, and insurance products.
Its customers are served through an omnichannel retail distribution of 1 386 corporate-owned stores and 8 franchised stores in
13 countries, as well as through online channels (store websites and mobile application sales for delivery or click-and-collect).
One Year MRP Return vs JALSH (18 May 2020 - 19 May 2021) Interesting M&A activity
80.00%
MRP is a high cash flux
70.00%
(H1’21 cash pile of
60.00%
R6.billion) with little to
50.00% no debt, a characteristic
40.00% that has given it a
30.00% competitive advantage
20.00% to easily explore
10.00% lucrative opportunities
0.00%
as they arise. In 2020
09/09/2020
09/23/2020
02/09/2021
02/23/2021
05/18/2020
05/25/2020
06/01/2020
06/08/2020
06/15/2020
06/23/2020
06/30/2020
07/07/2020
07/14/2020
07/21/2020
07/28/2020
08/04/2020
08/12/2020
08/19/2020
08/26/2020
09/02/2020
09/16/2020
10/01/2020
10/08/2020
10/15/2020
10/22/2020
10/29/2020
11/05/2020
11/12/2020
11/19/2020
11/26/2020
12/03/2020
12/10/2020
12/18/2020
12/28/2020
01/05/2021
01/12/2021
01/19/2021
01/26/2021
02/02/2021
02/16/2021
03/02/2021
03/09/2021
03/16/2021
03/24/2021
03/31/2021
04/09/2021
04/16/2021
04/23/2021
05/03/2021
05/10/2021
05/17/2021
-10.00%
and 2021, the Group
implemented its revised
MRP JALSH
strategy to increase
market share locally
through the acquisition of two very different South African businesses (discount clothing retailer Power Fashion and premium
homeware retailer Yuppiechef). We admire the Group's ability to exit underperforming regions early on. The Group exited its
Australian, Polish, and most recently, its Nigerian operations (4 stores closed in H1’21, remaining 1 store to be closed in H2’21),
Power Fashion – (acquisition price approximately 4% of market capitalisation, effective 1 April 2021)
Power Fashion, also headquartered in Durban, is a value retailer with 170 stores nationwide which was founded in the 1950s. It
offers affordable clothing and footwear for women, men and children in the very low-to-mid income groups. Merchandise at
their stores are priced from as low as R5.00 and are located typically in high street and community-centered malls in townships
and small towns. With its rich cash pile, MRP has acquired a business with a strong management team that doesn't require anyimprovements. The Group expects that the addition of Power Fashion will contribute approximately 7% to revenue at double-
digit operating margins albeit lower than those achieved by MRP (5-year average of 17.3%). With MRPs financial backing, Power
Fashion has scope to expand its footprint and challenge Pep's (Pepkor) market share, which is largely unchallenged in this space.
The inclusion of Power Fashion has several benefits including that it provides the Group with a more resilient and defensive
position where consumers are expected to downtrade in a weak economic environment exacerbated by COVID-19 related
economic pressures. The Group expects the acquisition to be immediately earnings accretive.
YuppieChef – (acquisition price approximately 1% of market capitalisation, subject to regulatory approval)
Yuppiechef, a homeware omnichannel retailer which was founded in 2006 has won several awards for its online retailing
expertise, a strength that MRP can benefit from in its quest to increase its online sales. Merchandise at Yuppiechef costs as much
as approximately R95 000 for a coffee machine and as low as approximately R400 for a bath mat. The acquisition gives the
Group exposure to the upper-income segment of the market that is more resilient during economic downtrends. Home
improvement is trending at the moment, people are spending more time at home and we don’t expect that this trend will go
away anytime soon. Yuppiechef now has 7 brick and mortar stores nationwide (70% of sales and generated online) and we
expect footprint will expand with MRPs backing.
Financial Overview
MRP has a strong financial position boasting the highest operating margins and returns on invested capital and returns on equity
amongst its listed apparel and homeware peers. As a predominately South African retailer (only 7.5% of Group sales are
generated outside SA), the Group is primarily exposed to the health of the South African consumer. During the FY'21 period, retail
sales decreased by 14.8% in H1'21, improved to 5.8% growth during Q3'21 and 5.3% growth in the first three weeks of Q4'21. We
expect a continued improvement in sales to end FY’21 as this period was not impacted by severe lockdown restrictions.
The apparel sector in South Africa is highly saturated and highly competitive with the likes of local and international clothing
retailers Woolworths, Foschini brands, H&M, Cotton On and Zara. MRP Apparel has established a strong loyal customer base
through its affordable, quality and on-trend offering, having more exposure to casualwear which is growing as opposed to
declining formal wear (think “homebody economy”). The division has also established a position in additional defensive growth
categories through entering the baby and schoolwear categories (launched in November 2020 and mid-December 2020
respectively). MRP Sport also gives the Group exposure to the global Athelesiure market, which is expected to grow to USD517.5
billion by 2025, representing a CAGR (compound annual growth rate) of 8.1%.
Breakdown of retail sales and operating margins
Retail Sales Contribution (H1'21)
Operating Margins by Segment
30.00%
9% 25.00%
MRP
20.00%
MRP Sport
19%
15.00%
Miladys
10.00%
MRP Home 6% 58%
Sheet Street 7% 5.00%
0.00%
Apparel Homeware Financial Services
H1'21 FY'20
Source: MRP Annual and Interim Financial Results Presentation (FY2020 and H12021)
During Q3’21, the Groups Home segment (retail sales contribution: 23.7%) continued to take market share from its premium
competitors. Sales increased by 10.6% as the "homebody economy" continues to persist as more people spend more time at
home. MRP is well-positioned in this market and with the potential inclusion of Yuppiechef means the Group has well-diversified
its offering can tend to the more resilient upper-income groups as well as those wishing to downtrade into MRP Home and Sheet
Street. Comparing to its peers, TFG’s @home chain constitutes only 5% of group turnover with approximately 85 stores (MRP and
Sheet Street combined have a footprint of 492 stores).MRP Financial Performance vs Listed Peers: MRP has exhibited more stable and
5-Year EBITDA % (LTM)
predictable growth from a profitability
25% and operational perspective when one
considers the financial metrics that are
20% traditionally more important for retailers
such as operating profit margin, sales per
15% square meter and returns on equity.
MRPs operations are also the most
10% straightforward, more than 85% of its
sales are in cash (TRU: 49%, TFG: 68.5%),
5% and its competitors have significant
exposure to London (TRU's Office and TFG
0% London), and Australia (WHL's David
12-27-
01-02-
20152016
01-01-
2017
03-24-
2018
03-30-
2019
03-28-
2020
12-27-
2020
Jones and Country Road Group and TFG
Australia). These operations are
PPH MRP WHL TRU TFG
considered to give them a good rand
hedge advantage under normal
conditions, however, with a structurally
5-Year Return on Equity (LTM) declining department stores market
globally for WHL and severe lockdown
60%
restrictions in the United Kingdom, we
50%
expect continued pressure from some of
40%
these offshore ventures.
30%
20% Outlook
10%
MRP is a fantastic business with growth
0%
12-27-2015
03-26-2016 01-01-2017 03-24-2018 03-30-2019 03-28-2020 12-27-2020 potential. There is approximately R287
-10%
billion of market share in South Africa
-20%
available to MRP through existing
-30% competitors, organic growth, or
PPH MRP WHL TFG TRU acquisitions. MRP like any retailer is
vulnerable to the health of the consumer,
particularly the South African consumer
Gross and EBIT % and Inventory Turnover (TTM) and with an unemployment rate of 32.5%
60% 6x and the possibility of a third wave and
renewed trading restrictions. However, we
50% 5x think MRP is defensively positioned
through new categories and acquisition of
40% 4x
Power Fashion, benefitting from consumer
30% 3x
downtrading.
20% 2x MRP currently trades on a P/E of 21.5x a
slight premium to its peers.
10% 1x
0% 0x
MRP TRU TFG WHL PEP
Gross EBIT Inventory TurnoverMRP Historical Financial Data and Estimates :
Financial Metrics FY’16 FY’17 FY’18 FY‘19 FY’20
Retail sales R19.0bn R18.6bn R19.9bn R20.8bn R21.2bn
Retail sales and other income R19.9bn R19.7bn R21.2bn R22.3bn R22.8bn
(RSOI)
RSOI % Growth - -1% 8% 5% 2%
Gross margin (%) 40.6% 38.8% 43.3% 42.9% 41.2%
Operating margin (%) 18.1% 15.5% 17.6% 17.8% 17.4%
EBITDA margin (%) 20.1% 17.8% 20.3% 20.8% 26.5%
Dividend/share 667 c 667 c 693 c 736 c 311 c
Dividend yield 3.8% 4.2% 2.4% 3.9% 2.6%
Return on Equity (%) 50.3% 37.8% 40.1% 37.5% 30%
Return on Capital Employed (%) 67.6% 49.3% 57% 54.2% 30.8%
Return on Invested Capital 8.4% 8.07% 7.4% 3.3% 5.7%
Price/Earnings (Average) 16.8x 17.5x 25.9x 16.2x 11x
Source: Company Financial Statements
Disclaimer
Whilst all care has been taken in the provision of the information in this document, this information is provided without liability to us, our affiliates, or employees
of ours. The information expressed in this document is done in good faith and is not intended to constitute any form of advice. Some of the information may have
been provided or sourced from third parties and we do not in any way guarantee its accuracy or correctness. At all times we will endeavour to ensure that
information obtained from any third party is accurate and reliable. TF Global Markets (South Africa) Pty Ltd disclaims and assumes no liability for any loss or
damage that may be suffered from using or relying on the information contained herein. Investment in shares may cause exposure to certain risks, including
market risk, and may therefore not be suitable for all clients. Please ensure you fully understand the risks and take care to manage your exposure and seek
independent advice if necessary.
*All graphical data and key metrics are sourced from Koyfin and Infront.You can also read
