There are plenty of things to be negative on in South Africa, but there a couple arguments for a quietly positive consumer story building that may carry for several years.
Not just are interest rates coming down (however frustratingly slowly) but the inflation target being lowered adds fuel to long-term rates coming down even further (reflected by the recent flattening of our long-bond yields). The Rand is strong, the oil price is low, China redirecting surplus exports to markets other than the USA should further aid downward inflationary pressure, and slowly (frustratingly so!) the public sector does seem to be turning itself around and, perhaps, starting to deliver on improving infrastructure (which manifests in a consumer’s pockets as a lower costs).
Yet, following the prior year post-GNU ramp up in local stocks, basically all our local discretionary retailers’ share prices are down year-to-date:
Figure 1: Relative Performance of Local Discretionary Retail Stocks
Source: Google Finance (26/09/2025)
If we ignore the credit retailers (Truworths, Foschini and Lewis), and those aggressively growing their credit exposure (Pepkor), Mr Price stands out as a predominantly cash-based, value retailer.
Not just has Mr Price resisted making large offshore acquisitions, but it has doubled down on related “white space” in its local retail offering. Retail business models do not export well but they do work well with increased density across their existing supply chains (SA retailers suck at going offshore – here’s why).
These local acquisitions are starting to work—especially Power Fashion—and, despite writing large cheques and the risks that come with acquisitions, Mr Price’s balance sheet remains net cash, its like-for-like sales grew in the last period (link) and its operations are generating large amounts of free cash flow.
In fact, if we cast our eye through time and consider comparing Mr Price’s “Free Cash Flow-to-Enterprise Value Yield” (literally free cash flow divided by the combined market cap and net debt of a company to show what cash “yield” operations generate from its funding sources) and we compare this to the South African 10-year bond, it may surprise you that you can invest in Mr Price right now at a higher FCF Yield than the yield that the local sovereign bond pays:
- FCF Yield of Mr Price: 13%
- Yield of 10-year South African Bond: 9.2%
Figure 2 & 3: Mr Price FCF Yield (blue) versus South African 10-year Bond Yield (purple)
Source: Koyfin (26/09/2025)
In fact, if we look at the above and track it against Mr Price’s share price, the share price performs well from these points of relatively low valuation (i.e. you would have done well if you had invested in all the points where Mr Price’s FCF Yield is greater than the local 10-year bond yield):
Figure 4: Mr Price FCF Yield (blue), Mr Price share price (orange), & South African 10-year Bond Yield (purple)
Sources: Koyfin (26/09/2025), analyst own additions
If we add to the above observations the fact that South Africa’s import duties on Shein and Temu most benefit Mr Price’s positioning in the local market, a clear investment case starts to form for a patient local (and somewhat contrarian) investor.
We will see and the future is always uncertain but Mr Price’s price (or, to be accurate, its valuation) is certainly tilted in an investor’s favour right now and one may do worse than nibbling on it at these levels.
INITIALLY PUBLISHED ON MONEYWEB.