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Massmart shares climb as profits improve on costs

| Retailer trading results

Walmart’s experience in controlling costs is helping Massmart improve profit even as local shoppers have been hurt by high food inflation. The shares climbed the most in more than two months.

Trading profit rose 12% to R2.6bn in the year through December 25, the Johannesburg-based retailer said in a statement on Thursday. The company, majority-owned by Bentonville, Arkansas-based Walmart, raised the dividend by 16% to R2.99 a share.

“I’m pleased to see the recovery in profit was sustained in the second half and was better than I expected,” said Alec Abraham, a senior equity analyst at Johannesburg-based Sasfin Securities. “Cost control was good and Walmart’s know-how on cost management is no doubt helping.”

Massmart has been able to negotiate lower rentals for some stores, moved staff from receiving goods to the shop floors and cut travel costs, chief executive officer Guy Hayward said by phone.

The shares rose 8.3% to R142.67 of 11:42, the biggest intraday gain since December 8. That brings the increase this year to 13% and gives Massmart a market value of R31bn.

South African shoppers have been hurt by an inflation rate that climbed to a 10-month high of 6.8% in December, led by surging food costs following the worst drought since at least 1904. That’s been compounded by unemployment of 27% and economic growth in 2016 that was the slowest in seven years.

“If the economic environment improves even marginally with lower food inflation, a stronger rand - potentially even lower interest rates towards the end of the year - then consumer wallets will have a bit more money left at end of the month,” Hayward said.

“Generally that money then goes back into discretionary spending like general merchandise and home improvements.”

Massmart plans to open 58 stores in two years to bring its total to 470. Eleven of these will be in African countries beyond South Africa, he said.

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