Mr Price (MRP ZA)

by | Sep 1, 2021

SUMMARY

Position:                                                  LONG Upside target:                                    R264.00 Recommended stop-loss:                R206.00  

RECOMMENDATION: BUY

  Analysts: Peet Serfontein, Tlamelo Ntabeni The Mr Price Group and its subsidiaries operate over a thousand stores across Southern Africa. The group consists of eight retail brands, focusing on clothing, footwear, accessories, and homeware.  These chains are divided into two operational divisions namely, apparel (Mr Price, Mr Price Sport, Miladys, and Power Fashion) and home (Mr Price Home, Sheet Street, and Yuppiechef). The company recently acquired local value-focused fashion retailer Power Fashion, and up-market online homeware retailer Yuppiechef.  Both acquisitions are expected to be immediately earnings accretive. In addition, the group launched three new categories in Mr Price Apparel in 2H21, namely, mrpBaby, mrpSchoolgear (uniforms), and mrp&co (novelty and gifting).  These new high-growth categories should provide additional market share growth. The price remains just above its 200-day simple moving average, which classifies the long-term trend as bullish. RSI forward calculations suggest the share will be overbought at R265, which classifies our target price of R264 as realistic.  

Technical analysis

Similar price patterns (see the black and amber lines on the main chart with the notation ‘A’ and ‘B’) make the share attractive as an investing option. The expectation is that a similar price action might unfold to complete the sequence (pattern B might repeat pat-tern A). The recent sideways trajectory of the on-balance volume (OBV) indicates that money remains in the stock. According to the Coppock curve, downside momentum is forming a trough, indicating that internal strength is developing. Our entry range is R206 to R223 or as close to the current reference price of R222.83 as possible. A fall below the suggested entry range suggests that a structural change in the trend has occurred and provides reason to negate the trade idea. Our upside target is set at R264, or about 18.5% above current levels.  Harvest profits close to these levels. Time to exit is beginning of November 2021. A price below R206 (7.6% below current levels) is a major concern for downside potential and is recommended as a stop-loss.

Long-term fundamental view

Mr Price appears to be on track in terms of execution and innovation after experiencing some specific fashion hiccups a few years ago.  We believe the company’s value, high-fashion retail formula works through all the economic cycles. The company has launched an extensive new product line, providing entry into cosmetics, baby clothing, and school wear.  This, together with the recently acquired Power Fashion and Yuppiechef, should result in further market share gains. We are not convinced that Mr Price has a true competitor in South Africa—especially in fast fashion.  While inter-national entrants did have an initial impact, price points are no longer comparable. The group boasts a strong balance sheet, which should continue to support its appetite for growth. In a recent trading update for the 18 weeks ended 7 August 2021 (18W22), the group noted growth in retail sales and other income (RSOI) of 48.8% y/y.  The result was supported by the inclu-sion of Power Fashion and Yuppiechef. Even compared to the pre-COVID (2019) base, top-line growth was upbeat with continued strong cash sales and a recovery in credit sales growth also lending support. Rising pressure on margins, along with low SA consumer confidence remain key risks to growth, with discretionary expenditure likely to come under pressure while economic strain intensifies.