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Clothing retail sector: a tight fit

Recent trading and results updates from Woolworths, Truworths and The Foschini Group (TFG) point to continued pressure on discretionary spending, with consumers shopping more carefully and seeking value. Sales growth remains subdued, particularly in fashion, while beauty and home are proving more resilient.

Retailers are responding differently. Woolworths increased promotions, clearance activity and price investment, while Truworths prioritised margin despite weaker sales. TFG maintained its gross margin and continued closing underperforming stores, which is supporting like-for-like sales growth but obscuring underlying demand.

Online remains the clearest growth area, led by Bash, although it remains a relatively small part of South African sales. Credit is also constrained, with TFG reporting declining credit sales and Truworths weaker customer purchasing ability and collections. With costs still rising, balancing sales support with margin, inventory and cost discipline remains key.

Food retail: beyond products and prices

The food retail sector remains resilient, but low inflation means growth increasingly depends on winning volumes and market share. Shoprite continues to benefit from its scale, supply-chain efficiency, customer data and Sixty60, while growing alternative revenue provides further margin support and scope to reinvest in price.

Woolworths is placing food at the centre of its strategy, supported by complementary offerings and the relaunched MyDifference rewards programme, with the aim of increasing customer frequency, loyalty and share of wallet. However, weaker volumes in fresh produce and groceries at Woolworths, alongside strong fresh-food growth at Checkers, suggest market share is shifting towards Checkers.

The competition in this sector is therefore moving beyond products and prices. Shoprite currently has the stronger ecosystem, while Woolworths’ challenge is to build a broader offering around its premium food proposition.

Growthpoint: a portfolio under renovation

Growthpoint’s results highlighted an increasingly divided portfolio. Retail, the V&A Waterfront and modern logistics assets continue to benefit from healthy demand, low vacancies and better rental outcomes. In contrast, older office and industrial properties remain under pressure, with lower rentals often being used to support occupancy, preserving income in the near term but delaying rental growth.

A stronger balance sheet provides scope to reinvest in better-quality assets and stronger regions, although the earnings benefits will take time to emerge as legacy properties continue to weigh on performance. The investment case rests on whether growth from retail, modern logistics and the V&A can offset continued weakness in older assets, particularly Gauteng offices, where the recovery remains uneven.

MTN: recovery gaining momentum

MTN delivered a strong first half of 2026, with broad-based revenue growth, margin expansion and improved cash generation. Group service revenue rose 17.5% in constant currency, driven by 29.2% growth in data and continued expansion across fintech, digital services and wholesale. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 24.4%, with the margin rising to 47.6%.

Nigeria and Ghana remain the main growth engines, delivering service revenue growth of 25.7% and 32.3% respectively. South Africa remained the weak point, although early signs suggest management’s prepaid customer reset is gaining traction.

Operating free cash flow increased 27.5%, while return on capital employed reached 31.5%, comfortably above MTN’s cost of capital. The planned R6 billion share buyback provides further support. While a stronger second half is needed to meet full-year expectations and risks remain, the recovery is increasingly supported by improving operating fundamentals.

Bidvest strengthens its balance sheet

Bidvest delivered a strong 2026 financial year result, with broad-based earnings growth, margin expansion and exceptional cash generation. Revenue increased 2.9% to R130.3 billion, while trading profit grew 8.4% to R13.1 billion, with every operating division reporting growth.

Commercial Products led the way, growing trading profit by 27.2% as demand for electrical, plumbing and smart-meter products improved. Freight increased trading profit by 10.3%, supported by higher bulk volumes and stronger terminal utilisation, while Services South Africa continued to outperform the domestic economy.

Cash generation was a standout feature, with operating cash flow up 17% and free cash flow rising 27% to R12.5 billion. Net debt declined by around R4 billion, reducing net debt to earnings before EBITDA to 1.9 times and providing greater capital-allocation flexibility. The results point to renewed commercial momentum, supported by improving organic growth, investment in freight and continued expansion of the international hygiene business.

Bidcorp: a high-quality global compounder

Bidcorp delivered another strong result in the 2026 financial year despite subdued economic growth, low food inflation, labour pressures and rand strength. Revenue increased 5.0% in constant currency, while trading profit rose 8.2% and the trading margin improved from 5.5% to 5.7%.

Europe was the standout region, with trading profit growing 13.6% in constant currency, while the UK delivered 12.2% growth. Australasia remained the main laggard, although recent trading momentum has improved. Emerging markets were mixed, with strong performance in South Africa offset by weakness in Greater China and disruption in the Middle East.

Cash generation remained strong. Operating cash flow increased 17.7% to R18.6 billion, free cash flow reached around R7 billion and net debt to EBITDA declined to only 0.2 times. Bidcorp also increased its dividend by 6.9% and completed a R1.05 billion share buyback. Continued market-share gains, margin opportunities in Europe and the UK, disciplined acquisitions and a strong balance sheet support the outlook for further growth. The share continues to offer attractive upside.

AVI delivers cash, but growth remains elusive

Food and beverage company AVI delivered a resilient 2026 financial year result despite weaker consumer demand and pressure on volumes. Headline earnings per share increased 5.3%, while revenue grew just 1.4% and operating profit rose 4.4%. The operating margin improved to 22.9%, supported by restructuring benefits and cost management.

The composition of growth remains a concern. Pricing and product mix added around R595 million to revenue, while weaker volumes reduced sales by R377 million. Entyce Beverages reported lower revenue and profit, while I&J was the standout performer, with operating profit up 32.1%.

Cash generation remained strong, with cash generated by operations rising 10.6% to R4.4 billion. AVI also increased its ordinary dividend and declared a 300c special dividend. AVI remains a well-managed, highly cash-generative business, but earnings growth continues to rely more on pricing, restructuring and cost control than sustainable volume growth. The share offers some upside, but not enough to compensate investors for the structural challenges facing food producers.

Santam: a resilient interim result

Santam delivered a resilient interim result despite significant catastrophe losses and a more challenging underwriting environment. Headline earnings per share increased 7% to R20.06, supported by disciplined underwriting, strong investment returns and continued growth in Alternative Risk Transfer.

The conventional insurance underwriting margin moderated to 8.1% but remained comfortably within management’s target range, supporting an annualised return on equity of 27%. The interim dividend increased 10% to R6.50 per share, while encouraging early momentum from Syndicate 1918 supports the group’s longer-term international growth and diversification.

Despite elevated catastrophe losses, the result demonstrates Santam’s ability to generate attractive shareholder returns across the cycle.

Discovery: long-term strategy gaining traction

Discovery delivered a strong 2026 financial year result, with normalised operating profit increasing 17% to R17.8 billion, normalised headline earnings rising 21% and return on equity improving to 16.5%. The result reflected robust contributions from both the South African and Vitality businesses, supported by resilient underwriting, strong cash generation and continued growth across core franchises.

Discovery Bank generated an operating profit of R370 million, compared with a loss in the previous year, demonstrating improving scale and economics and providing further evidence that management’s long-term strategy is gaining traction.

FirstRand: core franchises deliver

FirstRand delivered another strong operational performance, with normalised earnings from continuing operations increasing 13% and return on equity improving to 24.9%. While reported earnings were affected by the UK motor finance provision and the decision to exit Aldermore, the core South African and broader African franchises continued to deliver robust growth, supported by balance-sheet expansion, improved margins and disciplined credit management.

The resilience of the underlying business and management’s track record of disciplined capital allocation reinforce our view that FirstRand remains one of South Africa’s highest-quality banking franchises.

OUTsurance: weathering the storms

OUTsurance delivered an excellent set of results, with group earnings increasing 18.5% to R5.6 billion and return on equity reaching 38%. Performance was supported by exceptional underwriting in South Africa, solid premium growth and resilient claims experience, despite catastrophe losses in Australia.

A robust capital position enabled increases in both ordinary and special dividends. The results also demonstrate the benefits of geographic diversification, with the South African franchise more than offsetting weather-related losses in Australia. OUTsurance remains well positioned to deliver attractive shareholder returns through continued earnings growth, capital generation and expansion of its Australian franchise.

Sanlam: looking beyond the headline

Sanlam delivered resilient interim results despite significant weather-related insurance losses. Comparable core earnings increased 1% to R7.4 billion, while new business volumes and net client cash flows grew 22% and 42% respectively.

Excluding catastrophe losses and investment in growth initiatives, comparable earnings would have risen 7%. Headline earnings declined 21%, largely reflecting weaker investment returns and adverse market movements rather than deterioration in the underlying businesses.

Value creation remained robust, with an adjusted return on equity of 18.4% and return on group equity value of 15.5%, comfortably above management’s hurdle rate. Capital remains strong, with full-year guidance and the dividend outlook unchanged. Sanlam’s diversified earnings base, disciplined capital allocation and growing contribution from strategic initiatives continue to support its longer-term prospects.

Old Mutual: a firmer footing

Old Mutual delivered an encouraging operating performance in the first half of 2026, with results from operations increasing 7% to R5.3 billion and 11% on a per-share basis. Annual premium equivalent sales and gross flows both grew 21%, although net client cash flow remained negative. Value of new business rose 32%, supported by higher sales volumes and slightly improved margins.

Adjusted headline earnings declined 30% to R3 billion, largely due to lower shareholder investment returns. The interim dividend increased 8% to R0.40 per share, while a further R1 billion share buyback underscores management’s focus on capital discipline and shareholder returns. The improvement in the underlying business provides a firmer platform for earnings growth as market conditions normalise.

Copart: shifting up a gear

Copart is the global leader in online vehicle auctions, selling more than three million damaged and salvage vehicles annually. Its scale, global buyer network and access to scarce, appropriately zoned land underpin a strong competitive position.

Fourth-quarter sales increased 2.4% year on year, with international growth of 11.7% outpacing the US. US average sale prices rose 4.2%, while margins were slightly weaker as the company invested in long-haul delivery capacity. Vehicle collision claims, a key driver of volumes, are also beginning to normalise after a weak period.

Copart has agreed to acquire ACV, a dealer-to-dealer wholesale used-car marketplace, for around US$1.9 billion. The acquisition expands Copart beyond salvage vehicles and into the broader wholesale market.

Copart remains an exceptionally high-quality business, supported by a strong balance sheet, structural growth drivers and a durable competitive position. We hold the share in the Sanlam Global High Quality Fund and remain confident in the long-term investment case.