South African retail sales rose more than expected in September, accelerating to an annual 6.1% from 4.6% in August, as a series of interest rate cuts supported a rebound in consumer spending, while a rally in the Rand has cut import costs. The consumer is in reasonable shape with salaries rising faster than the inflation rate, while debt servicing costs are low. The Rand has rallied 33% against the Dollar since the beginning of last year and this has pushed the inflation rate to the lowest level in more than five years, opening the door to further interest rate cuts.

The clothing retailer, Foschini said that sales increased by 12% in the six months through September, as it opened 42 new stores. The Foschini Group consists of 14 trading brands, dealing in lifestyle products that range from fashion, jewelery, accessories, cosmetics, sporting and outdoor apparel and equipment to homewares, as well as financial services. Foschini consistently achieves a very high ROE and healthy operating margins. The group has an attractive and diverse portfolio of retail brands, all of which appear well positioned for further growth over the longer term. Cost management will remain imperative in the short term as volumes should remain under pressure in line with consumer spending. We feel the share is fairly valued trading on a historic PE ratio of 15.9 times and a price/NAV ratio of 3.7 times and recommend investors to hold their shares.

Mr Price Group posted an admirable set of interim results to September 2010 with total revenue growing by 11%, primarily driven by an 11% increase in retail sales for the six months period. The group and its subsidiaries operate over 750 stores across Southern Africa, consisting of four retail chains that are focused on clothing, footwear, accessories and homewares. These chains are divided into two operational divisions namely; the apparel and home divisions. Brand names include Milady’s, Mr Price, Mr Price Home, Mr Price Sport and Sheet Street. Mr Price remains an excellent company with an impressive track record. The group boasts a high ROE, decent operating margins and strong cash generation, and is in a position where it is not likely to be affected to the same degree as the credit retailers in the face of depressed trading conditions. We believe Mr Price will continue to perform well over the medium to longer term through its well-executed value strategy to sell fashionable products at everyday low prices. Trading on a historic PE ratio of 18.6 times we feel the share is fairly valued and recommend longer term investors to hold their shares.

The furniture and electrical goods retailer, JD Group, recorded a sound set of results for the year ended August 2010 with total revenue improving marginally by 2% despite a 6% decrease in financial services revenue, as consumer spending rebounded following South Africa’s first recession in 17-years. JD Group, a mass consumer financier, is South Africa’s leading differentiated furniture, appliances, electronic goods, home entertainment and office automation retailer, operating in southern Africa through four business divisions and 10 brands and internationally through one business division and brand in Poland. JD Group predominantly trades across the mass middle market through 1 025 stores in southern Africa and 69 stores in Poland. JD Group has a diverse product offering that spans both credit and cash retailing which, which coupled with a more prudent and efficient financial services division, should benefit the group going forward. In the short to medium term, the group is likely to produce above average growth coming from the previous low base. However, debt management remains crucial in the period ahead. Trading on a P/NAV ratio of 1.8 times, we feel the share is fairly valued, especially compared to its listed peers, and would recommend investors to hold their shares at this stage.

Lewis is a leading retailer in Southern Africa selling furniture, household and electronic goods mainly on credit, together with associated financial products. The group reported a decent set of results for the six months ended 30 September 2010, as its strategy of sourcing exclusive merchandise benefited the group. Revenue was 10% higher with all divisions reporting positive growth. Lewis is a decent company, with a good track record and currently trades on a historical PE ratio of 10.5 times and at 2 times its NAV. The group has attractive operating margins and a solid ROE and is underpinned by an attractive dividend yield of 4.7%. The group's lower LSM focus has aided its performance in recent times. However, future performances will be driven by the level job losses in the South African economy. Due to the fragile economic recovery we would only recommend that longer term investors buy the share.