Shoprite Holdings Limited - Credit Suisse

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CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

Client-Driven Solutions, Insights, and Access

02 December 2013

EEMEA/South Africa

Equity Research

Food Retail (Food Retailing (Europe))

Shoprite Holdings Limited (SHPJ.J) INITIATION

Twinned catalyst required

■ We initiate coverage of Shoprite with a Neutral rating and a target price

of R185. We are positive on the stock on a long-term view, but believe

investors would require more concrete plans for the R7.7bn of capital raised

in FY 2012, before re-rating Shoprite.

■ Lower growth and returns already priced in. Our analysis suggests that

the current share price implies both lower returns and growth than what the

company has delivered in the past. Deploying excess cash into value-

accretive investments would provide upside potential to both metrics and

also the share price.

■ Broadly stable underlying returns. Contrary to what appears to be the

consensus perception, we do not believe that the underlying business has

suffered a meaningful deterioration in returns on capital. We believe that this

perception has raised concerns over the likely returns on new investments.

■ Valuation: At 20.6x our CY 2014 headline EPS estimate, Shoprite is not

expensive relative to our earnings growth forecast of 16.5% p.a. in 2014-

2017. It is also trading broadly in line with the EMEA and Latin American

retail sector average of 19.6x, based on our own and IBES consensus

estimates. We believe the group's superior track record warrants a superior

rating – something we would expect once investors can gain some

reassurance about the timing and quantum of its incremental investment

programme and its impact on future growth.

Share price performance

122

172

Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13

Price Price relative

The price relative chart measures performance against the ALL

SHARE which closed at 45058.22 on 28/11/13

On 28/11/13 the spot exchange rate was R13.82/Eu 1. -

Eu .73/US$1

Performance Over 1M 3M 12M Absolute (%) -3.9 9.7 -6.5 Relative (%) -2.6 3.0 -25.4

Financial and valuation metrics

Year 06/13A 06/14E 06/15E 06/16E Revenue (R m) 92,747.3 103,305.6 116,240.5 131,035.8 EBITDA (R m) 6,745.14 7,889.73 9,320.25 11,006.19 Adjusted Net Income (R m) 3,610.4 4,154.4 4,846.2 5,667.0 CS adj. EPS (R) 6.74 7.73 9.01 10.54 Prev. EPS (R) — — — — ROIC (%) 28.28 27.77 28.83 30.57 P/E (adj., x) 26.22 22.89 19.62 16.78 P/E rel. (%) 161.8 146.8 142.8 135.5 EV/EBITDA 14.7 12.5 10.5 8.8

Dividend (06/14E, R) 3.88 IC (06/14E, R m) 15,202.07 Dividend yield (%) 2.2 EV/IC 6.5 Net debt (06/14E, R m) -2,257.2 Current WACC 10.9 Net debt/equity (06/14E, %) -12.9 Free float (%) 90.0 BV/share (06/14E, R) 32.5 Number of shares (m) 570.58

Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating NEUTRAL* Price (28 Nov 13, R) 176.81 Target price (R) 185.00¹ Market cap. (R m) 100,884.15 Enterprise value (R m) 98,627.0

*Stock ratings are relative to the relevant country benchmark.

¹Target price is for 12 months.

Research Analysts

Pieter Vorster

27 11 012 80 64

[email protected]

Mukhtar Mustapha

27 11 012 8065

[email protected]

02 December 2013

Shoprite Holdings Limited (SHPJ.J) 2

Shoprite Holdings Limited SHPJ.J Price (28 Nov 13): R176.81, Rating: NEUTRAL*, Target Price: R185.00

Income statement (R m) 06/13A 06/14E 06/15E 06/16E

Revenue (R m) 92,747 103,306 116,240 131,036 EBITDA 6,745 7,890 9,320 11,006 Depr. & amort. (1,351) (1,860) (2,325) (2,883) EBIT (R) 5,394 6,030 6,995 8,123 Net interest exp. (170) (95) (72) (28) Associates — — — — Other adj, — — — — PBT (R) 5,224 5,935 6,923 8,096 Income taxes (1,579) (1,780) (2,077) (2,429) Profit after tax 3,646 4,154 4,846 5,667 Minorities (18) (20) (24) (28) Preferred dividends — — — — Associates & other (18) 20 24 28 Net profit (R) 3,610 4,154 4,846 5,667 Other NPAT adjustments (18) (20) (24) (28) Reported net income 3,593 4,134 4,823 5,639

Cash flow (R) 06/13A 06/14E 06/15E 06/16E

EBIT 5,394 6,030 6,995 8,123 Net interest — — — — Cash taxes paid (1,594) (1,780) (2,077) (2,429) Change in working capital (2,428) (116) (143) (163) Other cash & non-cash items 1,511 1,860 2,325 2,883 Cash flow from operations 2,883 5,993 7,101 8,414 CAPEX (3,312) (3,730) (3,965) (4,338) Free cash flow to the firm (429) 2,263 3,136 4,076 Acquisitions — — — — Divestments 356 — — — Other investment/(outflows) (83) — — — Cash flow from investments (3,039) (3,730) (3,965) (4,338) Net share issue/(repurchase) 0 — — — Dividends paid (1,707) (1,890) (2,210) (2,856) Issuance (retirement) of debt 27 — — — Other (159) (95) (72) (28) Cash flow from financing activities

(1,838) (1,986) (2,282) (2,883) Effect of exchange rates 93 — — — Changes in Net Cash/Debt (1,901) 277 854 1,193 . Net debt at start (3,881) (1,980) (2,257) (3,111) Change in net debt 1,901 (277) (854) (1,193) Net debt at end (1,980) (2,257) (3,111) (4,304)

Balance sheet (R m) 06/13A 06/14E 06/15E 06/16E

Assets Cash and cash equivalents 6,139 6,408 7,262 8,455 Accounts receivable 3,428 3,818 4,296 4,843 Inventory 10,317 11,492 12,931 14,577 Other current assets 274 217 217 217 Total current assets 20,158 21,935 24,706 28,092 Total fixed assets 11,714 13,584 15,224 16,679 Intangible assets and goodwill 1,039 1,039 1,039 1,039 Investment securities — — — — Other assets 578 578 578 578 Total assets 33,489 37,137 41,548 46,389 Liabilities Accounts payable 12,723 14,172 15,946 17,976 Short-term debt 335 335 335 335 Other short term liabilities 327 327 327 327 Total current liabilities 13,385 14,833 16,607 18,637 Long-term debt 3,823 3,816 3,816 3,816 Other liabilities 1,029 1,029 1,029 1,029 Total liabilities 18,237 19,678 21,452 23,482 Shareholders' equity 15,184 17,371 19,983 22,767 Minority interest 68 88 112 140 Total equity & liabilities 33,489 37,137 41,548 46,389 Net debt (R m) (1,980) (2,257) (3,111) (4,304)

Per share data 06/13A 06/14E 06/15E 06/16E

No. of shares (wtd avg) 535 535 535 535 CS adj. EPS (R) 6.74 7.73 9.01 10.54 Prev. EPS (R) — — — — Dividend (R) 3.38 3.88 4.52 5.29 Div yield 1.91 2.20 2.56 2.99 Dividend payout ratio 50.11 50.26 50.16 50.16 Free cash flow per share (R)

(0.80) 4.23 5.86 7.62

Key ratios and valuation

06/13A 06/14E 06/15E 06/16E

Growth(%) Sales 12.1 11.4 12.5 12.7 EBIT 15.6 11.8 16.0 16.1 Net profit 18.7 15.1 16.7 16.9 EPS 11.1 14.5 16.7 16.9 Margins (%)

EBITDA margin 7.3 7.6 8.0 8.4 EBIT margin 5.8 5.8 6.0 6.2 Pretax margin 5.6 5.7 6.0 6.2 Net margin 3.9 4.0 4.2 4.3 Valuation metrics (x) EV/sales 1.1 1.0 0.8 0.7 EV/EBITDA 14.7 12.5 10.5 8.8 EV/EBIT 18.3 16.4 14.0 11.9 P/E 26.2 22.9 19.6 16.8 P/B 6.2 5.4 4.7 4.2 Asset turnover 2.8 2.8 2.8 2.8 ROE analysis (%) ROE stated-return on equity

25.7 25.4 25.8 26.4 ROIC 28.3 27.8 28.8 30.6 Interest burden 0.97 0.98 0.99 1.00 Tax rate 30.4 30.0 30.0 30.0 Financial leverage 0.27 0.24 0.21 0.18 Credit ratios (%) Net debt/equity (13.0) (12.9) (15.5) (18.8) Net debt/EBITDA (0.29) (0.29) (0.33) (0.39) Interest coverage ratio 31.7 63.3 96.8 293.4

Source: Company data, Thomson Reuters, Credit Suisse estimates.

122

172

Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13

Price Price relative

The price relative chart measures performance against the ALL SHARE which

closed at 45058.22 on 28/11/13

On 28/11/13 the spot exchange rate was R13.82/Eu 1. - Eu .73/US$1

02 December 2013


Key charts Figure 1: Shoprite has substantially outperformed PnP Figure 2: CFROI® has declined…

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Nov-98 Nov-00 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12

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SHOPRITE PICK N PAY STORES

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21.2

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CFROI CFROI with 2007 cash and working capital ratios

Source: Thomson Reuters Source: Company data, Credit Suisse HOLT®

Figure 3: ...but lower returns largely due to capital raising Figure 4: Revenue growth – RSA supermarkets

-8.0

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Adjusted NWC % of sales

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2005 2006 2007 2008 2009 2010 2011 2012 2013

% c

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RSA supermarkets Average

Source: Company data, Credit Suisse HOLT Source: Company data

Figure 5: Revenue growth – non-RSA supermarkets Figure 6: Medium-term revenue growth potential

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Furniture Other

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Source: Company data Source: Company data, Credit Suisse estimates

02 December 2013


Investment summary We initiate coverage of Shoprite with a Neutral rating and a R185 target price based on a

DCF valuation. Our FY 2014 HEPS estimate is R7.73 (+15% y/y), in line with consensus,

and reflects the current weaker consumer environment in South Africa. In FY 2015 and

FY 2016, we expect growth to accelerate again driven by better results from South Africa

and we forecast EPS of R9.01 (+16.6%) and R10.55 (+17%) respectively. These

estimates are marginally ahead of consensus.

We are long-term bulls of the stock and believe that revenue growth rates can recover to

the historical average of 15% per annum over the next 10 years, even if its South African

revenue growth slows to 10% per annum over the period (from a 15% average since

2005), provided that other African revenues continue to grow at 25% per annum.

Figure 7: Medium-term revenue growth potential

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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

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RSA Non-RSA Furniture Other Revenue growth (RHS)

Source: Company data, Credit Suisse estimates

Although we are optimistic about the prospects for consumer demand in Africa, growth

prospects for modern retailers are being restrained by a lack of investment in

infrastructure. The slow development of investment opportunities is also reflected in

Shoprite's slow deployment of the capital it raised to fund growth in FY 2012. Although we

do not see much potential downside risk in the stock at the moment, we believe the market

would need to see this capital being deployed in value-accretive investment opportunities,

which would by implication also address current growth concerns.

After substantially outperforming its peer group over the past 10 years, Shoprite has

underperformed both its peer group and the market over the last 12 months, declining 5%,

compared with a 20% increase in Pick 'n Pay, 6% at Woolworths and 5% from Spar. Over

a 10-year period, Shoprite's share price has compounded at 35% per annum, compared

with Pick 'n Pay's at 13% and Woolworths' at 27%.

Initiating with a Neutral

rating

Long-term bulls of Shoprite

More clarity required on

uses of capital

Shoprite has

underperformed over the

past year

02 December 2013


Figure 8: Shoprite share price vs. Pick 'n Pay

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0


Source: Thomson Reuters

The relatively poor performance over the past year has resulted in a valuation that we

believe now not only discounts lower growth than the company has achieved historically,

but is also not a meaningfully value-accretive deployment of the nearly R8bn in capital it

raised in FY 2012.

Using Credit Suisse HOLT®, we show that the current valuation implies a scenario

between annual revenue growth of 12.75% per annum at current low levels of CFROI and

10.5% per annum at CFROI levels in line with 2010. This compares with average revenue

growth over the past 10 years of 15% and consensus growth of 13% pa over the next

three years.

Figure 9: Implied growth at 2013 CFROI Figure 10: Implied growth at 2010 CFROI

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%

CFROI Sales growth

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2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

% c

hang

e

%

CFROI Sales growth

Source: Credit Suisse HOLT Source: Credit Suisse HOLT

Other than the impact on CFROI of the FY 2012 capital raising, we do not believe that the

underlying returns on capital in the business have changed meaningfully over the past five

years. In our view, the perceived reduction in returns can largely be explained by the

interplay between cash and creditors in a retailer, with potentially large movements from

one balance sheet date to the next, depending on whether creditors were paid before or

after this date. By including cash in the working capital calculation, the underlying working

capital position and also underlying returns on capital remained much more stable than

what we believe market perceptions are.

Valuation now discounts

lower growth and returns

Underlying returns have

been more stable than they

appear

02 December 2013


Figure 11: Cash and net working capital ratios Figure 12: Lease-adjusted ROCE at stable working capital

ratios

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Cash % of sales Net working capital % of sales

Adjusted NWC % of sales

26.2

28.1

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23.122.4

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29.228.7

26.626.0

24.7

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2008 2009 2010 2011 2012 2013

%

Lease adjusted ROCE

Lease adjusted ROCE with 2007 working capital ratios

Source: Credit Suisse HOLT Source: Company data, Credit Suisse research

Based on our estimates, Shoprite is trading on a CY 2014E P/E multiple of 20.6x, which

does not seem unreasonable given our estimate of compound EPS growth over the

following three years of 16.5%. This P/E is also broadly in line with the EMEA and Latin

America retail average 2014 P/E of 19.6x. Relative to its own history, its forward P/E is at

the high end of its long-term historical range and at a 20% premium to its 5yr average 12m

forward P/E of 17.1x.

Figure 13: Shoprite 12m forward P/E

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Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

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P 1

2m f

orw

ard

P/E

(X

)

Source: RAVE, I/B/E/S

Owing to the stable cash flow growth of the retail industry, we believe it is appropriate to

value it using the discounted cash flow (DCF) methodology. We forecast explicit cash

flows for five years, after which the growth and free cash flow return on invested capital

faded to a final-year growth rate and WACC respectively over the competitive advantage

period. We calculate the competitive advantage period (CAP) by solving for the current

share price in our DCF model, the margins and revenue growth as implied by the current

share price in HOLT. Our DCF fair value is adjusted by the WACC to determine our 12-

month target price of R185.

02 December 2013


Risks

Investment risks include:

■ More effective competition from Pick 'n Pay under new management

■ Slower-than-anticipated rollout of African growth strategy

■ Lower returns on new investments

■ Continued weakness in South African consumer spending

■ Management succession

02 December 2013


Which way now? After a strong multi-year run, the Shoprite share price has paused for breath over the past

year, declining 5% compared with a 20% rise in Pick 'n Pay, 5% for Spar and 6% for

Woolworths. However, this follows a period of substantial outperformance, with Shoprite

gaining 35% per annum over the past 10 years, compared with 13% for Pick 'n Pay, 27%

for Woolworths and 22% for Spar, since it listed in October 2004.

Figure 14: Shoprite vs. peers Figure 15: Shoprite vs. Pick 'n Pay

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PICK N PAY STORES SHOPRITE

WOOLWORTHS HDG. SPAR GROUP

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Source: Thomson Reuters Source: Thomson Reuters

Figure 16: Share price performance, % CAGR % Shoprite Pick 'n Pay Woolworths Spar

15yr 21.1 15.0 24.0 -

10yr 35.4 12.6 26.6 -

Spar listing Oct 2004 34.5 8.8 24.8 22.2

5yr 29.5 8.9 44.9 19.7

3yr 21.0 1.2 41.4 8.8

2yr 15.7 8.7 37.4 11.4

1yr (5.4) 19.9 6.3 5.3

Source: Thomson Reuters, Credit Suisse research

Shoprite's long-term outperformance against Pick 'n Pay has been remarkable and is a

function of its own financial performance and market share gains, as well as Pick 'n Pay

failing to execute on its new centralised business model.

In our view, the recent underperformance of Shoprite relative to its peers is partly a

reflection of investor concerns over the sustainability of its growth, but we believe mostly

due to concerns over what appears to be declining returns on capital. Furthermore,

whereas Shoprite has had the benefit of a struggling Pick 'n Pay donating market share

over the last five years, the next five years may well see a stabilisation of Pick 'n Pay's

position, in the process becoming a more effective competitor.

For Shoprite to resume its upward share price trajectory, we believe investors would need

to feel reassured that the deterioration in returns on capital seen over the past two years

will be reversed and Shoprite will be able to continue to deliver above-average growth

rates. Before we look at these two issues, we first need to assess what growth and returns

are implied by the current share price. We have looked at this from a revenue growth

perspective – ie, what revenue growth is required if there is no change in asset turns or

margins (flat CFROI), or what is the implied revenue growth if we assume that asset turns

improve to the five-year median.

02 December 2013


We use Credit Suisse HOLT as the basis for our analysis of returns and what is implied by

the current market value of Shoprite with respect to future returns and growth rates. HOLT

normally assumes a five-year forecast period before fading returns to the cost of capital.

However, for companies that show consistent cash returns on investment (CFROI) above

8% with low volatility, the period before fade is applied is extended to 10 years (extended

Competitive Advantage Period or eCAP) resulting in higher valuations. Consumer staples

companies, particularly branded consumer goods companies, make up the majority of

stocks that qualify for this. In HOLT, Shoprite was valued using eCAP from 2006 to 2012,

but it lost this status in 2013 owing to a reduction in CFROI in recent years. For the

purposes of this analysis, we continue to use 10 years as a forecast period on the basis

that if the decline in returns were indeed temporary (as we believe they are), eCAP would

once again apply.

Figure 17: HOLT implied revenue growth

CLARITY IS CONFIDENCEHOLT

11

SHOPRITE HOLDINGS LIMITED (SHP)

Current price - implied growth at unchanged CFROI

Sales, Margins & TurnsFood Retail Price: 177.49 (Nov 27, 2013)

Market Cap: 94.983 ZAR Warranted Price: 173.84 ZAR (-2%)

Source: Credit Suisse HOLT

Figure 17 shows that based on the HOLT valuation model, the shares are not pricing in

any improvement in CFROI, provided that revenues grow at 12.75% per annum for the

next 10 years, which does not seem to be overly demanding relative to the group's history.

Consensus estimates are for revenue growth of more than 13% per annum over the next

three years.

However, if it were able to improve asset turns back to the five-year median of 2.5x,

compared with 2x in FY 2013, but margins remain flat, the CFROI would improve to

17.7%, which is in line with FY 2010 levels. At this level of CFROI, the revenue growth rate

implied by the current share price falls to 10.5%, which we believe is undemanding relative

to both history and current consensus estimates.

02 December 2013


Figure 18: HOLT implied growth with improved CFROI


11


Current price - implied growth at 5yr median asset


Market Cap: 94.983 ZAR Warranted Price: 173.58 ZAR (-2%)


If Shoprite can achieve both, i.e. improve CFROI back to 2010 levels and grow revenue at

12.75% p.a. for the next 10 years, then the HOLT-warranted price increases to R207,

which is 18% above current levels.

02 December 2013


Declining returns? Over the past five years Shoprite has grown its asset base significantly, adding 19% p.a.

in nominal terms and 13% in real terms, with real growth over the past two years at 27%

and 11%, respectively. Revenue growth has failed to track this growth and asset turns

have declined from a high of 3.06x in FY 2009 to 2.03x in FY 2013. Substantial EBITDA

margin growth from 6.2% in 2009 to 7.1% in 2013 was insufficient to offset the weaker

asset turns and the group's CFROI has declined from 21.2% in 2009 to 13.0% in 2013.

Following the high asset growth in 2012 and 2013, the 5yr incremental CFROI (CFROI on

assets added over the past five years) has declined to only 11.4%.

Figure 19: Shoprite CFROI, real asset growth and incremental 5yr CFROI

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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CFROI Incremental 5yr CFROI Real asset growth

Source: Credit Suisse HOLT, Credit Suisse research

From a Credit Suisse HOLT perspective, the large increase in CFROI in 2009 was mostly

a result of the absence of real asset growth owing to the financial crisis and was at a level

we would regard as abnormal given the long-term picture. We believe the declines in 2012

and 2013 were largely a result of the FY 2012 R3.4bn equity and R4.3bn convertible bond

issues and the HOLT practice of including cash in the asset base.

When viewed in isolation there appears to have been a significant deterioration in the

group's working capital metrics. From 2007, net working capital to sales worsened from a

negative 5.6% to +1% in 2013. This would have resulted in an incremental R6.1bn in

working capital, compared to what it would have been had the ratio remained constant.

However, until the 2012 capital raising, there appears to have been an offsetting reduction

in cash holdings, which we believe is a result of a shortening in creditor days from 47 days

in 2007 to 32 days in 2013, i.e. the cash is being used to pay creditors, although this may

well be a function of balance sheet cut-off dates not coinciding with the payment cycle.

02 December 2013


Figure 20: Shoprite net working capital and cash % of sales

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Cash % of sales Net working capital % of sales Adjusted NWC % of sales


If we normalise the net working capital and cash position of Shoprite back to 2007 levels

and re-run the CFROI and incremental CFROI calculations, the group's return picture

looks a lot more stable.

Figure 21: Shoprite CFROI excluding cash and working

capital changes

Figure 22: Incremental CFROI excluding cash and

working capital changes

15.7

21.2

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15.7

13.9 13.0

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16.3

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CFROI CFROI with 2007 cash and working capital ratios

22.5

34.7

22.2

17.7

13.7 11.4

25.4

35.0

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19.6 20.0

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2008 2009 2010 2011 2012 2013

Incremental 5yr CFROI

Cash & working capital adjusted incremental 5yrCFROI

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

Looking at more traditional return metrics, Shoprite's lease-adjusted ROCE has declined

from 28.1% in 2009, to 20.8% in 2013.

02 December 2013


Figure 23: Shoprite lease-adjusted return on average capital employed

26.2

28.1

26.3

23.122.4

20.8

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29

2008 2009 2010 2011 2012 2013

%

Lease adjusted ROCE

Source: Company data, Credit Suisse research

In our view, these worsening returns reflect the deterioration in working capital metrics

discussed above, but since cash is typically excluded from traditional ROCE calculations,

the capital employed component does not benefit from the reduced operating cash

requirement that should accompany the lower creditor days. If we assume unchanged

working capital metrics as we did in the CFROI calculations above, the ROCE decline is

much more modest.

Figure 24: Shoprite lease-adjusted ROCE with 2007 working capital ratios

26.2

28.1

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23.122.4

20.8

26.4

29.228.7

26.626.0

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2008 2009 2010 2011 2012 2013

%

Lease adjusted ROCE Lease adjusted ROCE with 2007 working capital ratios

Source: Company data, Credit Suisse research

On balance, we do not believe that underlying returns on capital have deteriorated

meaningfully in recent years. We are, however, slightly perplexed as to why the company

felt the need to raise nearly R8bn of capital in FY 2012, most of which remains on the

balance sheet as cash. We believe that for the stock to re-rate from current levels, it would

require a value-accretive deployment of this cash. This is likely to be a function of growth

opportunities outside South Africa, which would in itself be a catalyst for a re-rating.

02 December 2013


Lower growth ahead? We believe a combination of weak consumer spending in South Africa, Shoprite's already

high market share, a potentially more effective competitor in Pick 'n Pay and a still

relatively small proportion of sales from the rest of Africa are contributing to investor

concerns over the growth prospects of the group.

Although these may be valid concerns, our analysis in the previous section shows that the

market is already pricing in lower revenue growth than the 2005-2013 average of 15% per

annum. Depending on the future level of CFROI, we believe Shoprite's current valuation

implies future growth of between 10.5% and 12.75%, with 10.5% implying a return to

FY2010 CFROI levels and 12.75% no recovery in CFROI, which we view as unlikely.

Shoprite has substantially outperformed the South African food retail sector, growing its

market share from 27.9% in the second half of CY 2007 to 35.4% in FY 2013, according to

Nielsen data quoted in company results presentations. Since FY 2005, its annual revenue

growth in South African supermarkets has averaged near 15%, although growth has been

lower over the past three years.

In the rest of Africa, the group has experienced strong revenue growth of 24.5% per

annum in constant currencies in 2005-2013, with revenue from this source accounting for

13% of FY 2013 group revenue.

Furniture, which contributed 4% to group revenue in FY 2013, recorded average revenue

growth of 8.5% over the same period.

Figure 25: Shoprite revenue growth – RSA supermarkets Figure 26: Shoprite revenue growth – non-RSA

supermarkets

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013

% c

hang

e

RSA supermarkets Average

-5

0

5

10

15

20

25

30

35

40

45

2005 2006 2007 2008 2009 2010 2011 2012 2013

% c

hang

e

Non-RSA supermarkets In constant currencies

Constant currency average

Source: Company data Source: Company data

2013 has been a tough year for the South African consumer, with lower real wage growth,

fuel and electricity inflation, lower credit availability and lower growth in social grants,

placing pressure on consumer expenditure. For Shoprite, this translated in FY 2013 into

revenue growth of 9.8% in its South African supermarket business, compared with 12.9%

in FY 2012, but ahead of industry growth of 7.3%. In its Q1 trading statement, the

company reported a further slowdown in growth to 8.3% for Jul-Sep 2013. At its recent

analyst meeting held on 18 November 2013, management commented that although

October was a good month (we believe better than Q1), it remained cautious over the

upcoming Christmas trading season.

While we do not anticipate a meaningful recovery in consumer spending anytime soon, we

also do not believe that the current discrepancy between food retail sales growth and

apparel retail sales growth rates is sustainable.

02 December 2013


Figure 27: South Africa nominal retail sales – y/y change in 3-month average

0%

5%

10%

15%

20%

25%

Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13

% c

hang

e

Food, Beverage & Tobacco Textiles, Clothing, Footwear & Leather Goods

Source: Stats SA, Thomson Reuters

Although revenue growth from South African supermarkets is likely to be lower, we believe it would still be able to deliver 10% per annum over the medium term, which is only marginally ahead of nominal GDP growth. Combined with 25% per annum revenue growth in the rest of Africa, 6% from Furniture and 10% from "other", this would reduce near-term revenue growth to around 12% per annum, which is slightly below consensus expectations of 13% p.a. over the next two financial years. However, as the contribution from the rest of Africa grows, group revenue growth can accelerate back to near 15% over a 10-year period. At these growth rates, non-RSA revenues will grow from 13% of group revenue in FY 2013 to a substantial 35% by FY 2023. Furthermore, as the African operations scale up, we believe its operating margins should at least match those achieved in South Africa, resulting in even better operating profit growth. In Figure 28 and Figure 29 we show how the revenue and profit make-up and growth might develop over the next 10 years based on these assumptions.

Figure 28: Medium-term group revenue potential Figure 29: Medium-term group operating profit potential

9

10

11

12

13

14

15

0

50

100

150

200

250

300

350

400

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

2013

=10

0

RSA Non-RSA

Furniture Other

Revenue growth (RHS)

9

10

11

12

13

14

15

16

17

0

50

100

150

200

250

300

350

400

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

2013

=10

0

RSA Non-RSA

Furniture Other

Operating profit growth (RHS)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

We do not believe that the market is currently pricing in this potential for accelerating growth due to the rising contribution from sales outside of South Africa. If we assume the growth and margin variables above, the Credit Suisse HOLT-derived fair value of the stock increases to R207, 17% above the current share price. We show the resultant CFROI, growth and margin profile in Figure 30.

02 December 2013


Figure 30: HOLT valuation with accelerating growth


11


Accelerating growth


Market Cap: 94.983 ZAR Warranted Price: 207.15 ZAR (+17%)


The question is whether it is realistic to assume 25% revenue growth for the non-RSA

supermarket operations over the next 10 years, as one could argue that the high growth

rates in recent years are a reflection of the relatively low starting base.

We would argue the opposite and say that African growth in recent years has been held

back by a lack of suitable infrastructure and availability of retail sites rather than a lack of

consumer demand, and that growth should accelerate as infrastructure develops, although

the timing of this is uncertain. We recognise that this is may be a long process, but the

potential upside is considerable.

Of Shoprite's current 954 supermarkets (excluding furniture, liquor, MediRite and Hungry

Lion), 153 are located outside South Africa across 16 countries, with 92 of those Shoprite

stores, 56 Usave and 5 Checkers. It has the largest number of stores in Namibia (41),

followed by Zambia (20) and Angola (17). Its stated current focus area for growth and

investment is the west coast of Africa, Angola and Nigeria in particular. It currently only

has seven stores in Nigeria, but the CEO, Mr Whitey Basson, has been quoted in the

press (Business Day, 21 August 2013) saying that he believes Shoprite could have 600-

800 stores in Nigeria over time. This compares with its current South African supermarket

base of 801 and should probably be viewed as a very long-term ambition rather than an

imminent target. In the near term, the group said that it plans to increase the number of

stores in Nigeria by 44 over the next three to four years and in Angola by 21 over the

same period.

Although we view the 600-800 stores as an ambitious number, the market opportunity in

Nigeria is substantial. Euromonitor estimates the total Nigerian grocery market in 2013 at

NGN3,867bn, which equates to US$24.4bn at current exchange rates, or R249bn, with

02 December 2013


annual growth in 2007-2012 estimated at 10% in local currency. To put this into context,

we estimate the size of the South African grocery market at around R200-220bn in 2013.

Shoprite's total revenue from non-RSA supermarkets amounted to R11.7bn in FY 2013,

with relatively little of this from Nigeria.

Figure 31: Nigeria grocery retail sales

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

NG

N b

illio

n

Value % change

Source: Euromonitor

Euromonitor further estimates that informal (and largely untaxed) retailing accounts for 85-

90% of this total and that the total number of grocery retailers in Nigeria amounts to nearly

300,000. Within the formal segment, modern retail formats are estimated to account for

less than 1%% of total retail sales. The opportunity for Shoprite and other international

retailers lies in the formalisation of the sector and growth, of which there are a number of

drivers:

■ Government support – the government of Nigeria is generally supportive of the formal

retail industry, not only because of the lost tax revenue from the informal sector, but

also because it views investment in and development of the retail industry as an

important future driver of economic growth.

■ A large and growing young population that is urbanising at a fast rate. More than 50%

of the population was under 40 years old in 2012.

■ Rising disposable income – Euromonitor forecasts that the number of households with

disposable income between US$5,000 and US$15,000 will be more than 7m by 2020,

with real growth in total consumer expenditure close to 50% in 2012-2020.

■ Changing shopping habits – access to the internet and social media is changing

consumer behaviour in favour of modern retailing formats.

However, there are also significant growth deterrents, the most significant of which is the

availability of retail sites. Furthermore, lack of infrastructure at the ports is limiting growth,

with cargo sent from Cape Town taking nearly 120 days to get to stores in Nigeria. On top

of this, there are multiple layers of taxation and electricity shortages, which add to the cost

of doing business in the country and corruption remains a problem.

In order to help accelerate its own growth in Nigeria, Shoprite is following a similar strategy

to what it did in Angola by becoming an investor in development and has earmarked

$200m to build shopping malls and its own stand-alone stores. Over time, we would

expect the group to exit these investments through sale and leaseback agreements.

02 December 2013


Valuation Owing to the stable cash flow growth of the retail industry, we believe it is appropriate to

value it using the discounted cash flow (DCF) methodology. We forecast explicit cash

flows for five years, after which the growth and free cash flow return on invested capital

faded to a final-year growth rate and WACC respectively over the competitive advantage

period. We calculate the CAP by solving for the current share price in our DCF model, the

margins and revenue growth as implied by the current share price in HOLT. Our DCF fair

value is adjusted by the WACC to determine our 12-month target price of R185.

Figure 32: Shoprite DCF valuation Risk Free Rate 7.8%

Equity Risk Premium 5.5%

Debt Spread 2.0%

Tax rate 28%

Beta 0.8

Final year growth rate 8%

CAP 18.00

Target Debt & Equivalents/ Total Capital 20%

Target WACC 10.95% 0.00%

Present value of FCF's 87 452

Less: Net debt (1 980)

Less: Minorities 211

Add: Associates 130

Equity value 89 351

Per share 167

12m forward 185

Upside 5%

Year 2013 2014E 2015E 2016E 2017E 2018E Intermediate 2031E Terminal value

Sales 92 747 103 306 116 240 131 036 147 912 167 317 583 166 583 166

Sales growth (%) 11.4 12.5 12.7 12.9 13.1 10.1 7.9

Operating profit 5 359 6 030 6 995 8 123 9 353 10 805

Depreciation 1 351 1 860 2 325 2 883 3 550 4 016

Amortisation 0 0 0 0 0 0

EBITDA 6 710 7 890 9 320 11 006 12 903 14 820

Working capital change (1 893) (116) (143) (163) (186) (214)

Operating cash flow 4 817 7 773 9 178 10 843 12 717 14 607

Tax (1 501) (1 688) (1 959) (2 275) (2 619) (3 025)

Capex (3 312) (3 730) (3 965) (4 338) (4 453) (5 037)

Net acquisitions (83) 0 0 0 0 0

Other cash flows 173 0 0 0 0 0

FCF 95 2 355 3 254 4 230 5 645 6 544 93 243 9 851

PV of FCF 2 188 2 726 3 193 3 841 4 013 57 180 1 565 14 310

Cumulative DCF 2 188 4 914 8 107 11 948 15 961 73 141 73 141 87 452

Equity value 4 087 6 813 10 007 13 847 17 860 75 041 75 041 89 351

Per share (R) 7.6 12.7 18.7 25.9 33.4 140.2 140.2 167.0 Source: Company data, Credit Suisse estimates

02 December 2013


Credit Suisse HOLT® valuation

Figure 33: Shoprite HOLT valuation using Credit Suisse-linked estimates

Current Price: ZAR 177.49 Warranted Price: ZAR 193.60 Valuation date: 29-Nov-13

Sales Growth (parallel % point change to forecasts) Jun-12A Jun-13A Jun-14E Jun-15E Jun-16E

-2.0% -1.0% 0.0% 1.0% 2.0% Sales Growth, % 14.4 12.1 11.4 12.5 12.7

EBITDA Mgn, % 6.7 7.1 7.6 8.0 8.4

Asset Turns, x 2.15 2.03 1.98 1.95 1.93

CFROI®, % 13.9 13.0 12.2 12.7 13.1

Disc Rate, % 5.1 4.9 4.9 4.9 4.9

Asset Grth, % 26.7 11.5 7.0 7.3 8.5

Value/Cost, x 4.5 3.4 3.1 2.7 2.4

Economic PE, x 32.6 26.2 25.4 21.6 18.6

Leverage, % 12.1 13.3 14.1 15.1 16.3

More than

10%

downside

Within 10%More than

10% upside

Source: Credit Suisse HOLT®. CFROI, HOLT, and ValueSearch are trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries.

* Operating margin (yellow) is EBITDA (grey) plus rental expense and R&D expense

2.0% 25% 41% 59% 80%

1.0% 4% 18% 34% 52%

-16% -3% 12%

103%

9% 25% 43%

73%

HO

LT

-

C

red

it S

uis

se

An

aly

st

Sc

en

ari

o D

ata


EB

ITD

A M

arg

in (p

ara

lle

l %

po

int

ch

an

ge

to

fo

rec

as

ts)

-2.0% -57% -49% -40%

0.0% -17% -5%

-29% -17%

-1.0% -37% -27%

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Sales Growth (in %)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Operating Margin and EBITDA (in %) - see note*

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Asset Turns (x)

0.00

5.00

10.00

15.00

20.00

25.00

2004200620082010201220142016201820202022

Historical CFROI

Historical

TransactionCFROI

Forecast CFROI

Forecast

TransactionCFROI

Discount Rate

CFROI & Discount Rate (in %)

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2004200620082010201220142016201820202022

Historical Asset

Growth Rate

Historical Growth

Incl Intang

Forecast Growth

Forecast Growth

Incl Intang

Normalised

Growth Rate

Asset Growth (in %)

Source: Company data, Credit Suisse HOLT

02 December 2013


Financials Figure 34: Shoprite divisional outlook Year to Jun R'm 2012 2013 2014E 2015E 2016E 2017E 2018E

Revenue 82 731 92 747 103 306 116 240 131 036 147 912 167 317

RSA supermarkets 64 584 70 926 76 699 84 601 93 202 102 610 113 003

Non-RSA supermarkets 9 174 11 729 15 456 19 279 24 178 30 212 37 608

Furniture 3 400 3 562 3 771 3 947 4 064 4 155 4 241

Other 5 572 6 531 7 380 8 413 9 591 10 934 12 465

Operating profit 4 665 5 394 6 030 6 995 8 123 9 353 10 805

RSA 3 887 4 503 4 867 5 495 6 240 7 024 7 904

Non-RSA 466 613 801 1 059 1 389 1 780 2 292

Furniture 175 131 104 118 122 125 127

Other 136 148 258 323 373 424 482

Operating margin (%) 5.64 5.82 5.84 6.02 6.20 6.32 6.46

RSA 6.02 6.35 6.35 6.50 6.70 6.85 6.99

Non-RSA 5.08 5.22 5.18 5.49 5.74 5.89 6.09

Furniture 5.16 3.67 2.77 3.00 3.00 3.00 3.00

Other 2.44 2.26 3.49 3.84 3.89 3.88 3.87

Revenue growth (%) 14.4 12.1 11.4 12.5 12.7 12.9 13.1

RSA supermarkets 12.9 9.8 8.1 10.3 10.2 10.1 10.1

Non-RSA supermarkets 25.4 27.9 31.8 24.7 25.4 25.0 24.5

Furniture 11.1 4.7 5.9 4.7 3.0 2.2 2.1

Other 18.4 17.2 13.0 14.0 14.0 14.0 14.0

Operating profit growth (%) 17.0 15.6 11.8 16.0 16.1 15.1 15.5

RSA 17.7 15.8 8.1 12.9 13.6 12.6 12.5

Non-RSA 12.2 31.4 30.7 32.2 31.1 28.2 28.7

Furniture 33.5 -25.6 -20.1 13.4 3.0 2.2 2.1

Other -1.0 8.4 74.8 25.1 15.5 13.7 13.7

Source: Company data, Credit Suisse estimates

02 December 2013


Figure 35: Shoprite income statement

Year to Jun R'm FY2012 FY2013 2014E 2015E 2016E 2017E 2018E

Revenue 82 731 92 747 103 306 116 240 131 036 147 912 167 317

% change yoy 14.4% 12.1% 11.4% 12.5% 12.7% 12.9% 13.1%

Cost of Sales (65 753) (73 316) (81 373) (91 085) (102 029) (114 634) (129 482)

% change yoy 14.1% 11.5% 11.0% 11.9% 12.0% 12.4% 13.0%

Gross Profit 16 978 19 431 21 933 25 155 29 007 33 277 37 835

% change yoy 15.7% 14.4% 12.9% 14.7% 15.3% 14.7% 13.7%

SGA expenses (11 223) (12 686) (14 043) (15 719) (17 608) (19 783) (22 345)

Other operating income (see breakdown below) 2 325 2 608 3 038 3 479 3 921 4 425 5 005

Operating leases (1 940) (2 234) (2 489) (2 800) (3 157) (3 563) (4 031)

Employee benefits (6 530) (7 195) (8 074) (9 091) (10 177) (11 335) (12 570)

Other operating expenses (5 077) (5 865) (6 519) (7 306) (8 195) (9 310) (10 750)

Net expenses (COS+SGA) incl D&A (12 313) (14 037) (15 902) (18 160) (20 884) (23 925) (27 030)

EBITDA - reported 5 755 6 745 7 890 9 436 11 399 13 494 15 490

% change yoy 17.0% 17.2% 17.0% 19.6% 20.8% 18.4% 14.8%

EBITDA - normalised 5 653 6 710 7 890 9 436 11 399 13 494 15 490

% change yoy 16.8% 18.7% 17.6% 19.6% 20.8% 18.4% 14.8%

Depreciation & amortisation (1 090) (1 351) (1 860) (2 441) (3 276) (4 142) (4 685)

Trading profit - reported 4 665 5 394 6 030 6 995 8 123 9 353 10 805

Impairments & other charges (94) (31) 0 0 0 0 0

Exchange rate gains / (losses) (8) (4) 0 0 0 0 0

Profit on disposal of property 0 0 0 0 0 0 0

Operating profit (EBIT) - reported 4 563 5 359 6 030 6 995 8 123 9 353 10 805

% change yoy 16.8% 17.4% 12.5% 16.0% 16.1% 15.1% 15.5%

Operating profit (EBIT) - normalized 4 665 5 394 6 030 6 995 8 123 9 353 10 805

% change yoy 15.6% 11.8% 16.0% 16.1% 15.1% 15.5%

Share of profit from associates 0 5 0 0 0 0 0

Finance income 142 259 237 262 317 404 538

Financing costs (224) (429) (332) (332) (332) (332) (332)

Net financing costs (81) (170) (95) (70) (15) 72 206

Net profit before tax (PBT) 4 481.7 5 193.9 5 934.9 6 925.6 8 108.4 9 424.8 11 010.4

% change yoy 15.6% 15.9% 14.3% 16.7% 17.1% 16.2% 16.8%

Taxation (1 439) (1 579) (1 780) (2 078) (2 433) (2 827) (3 303)

Taxation as a % of PBT 32.1% 30.4% 30.0% 30.0% 30.0% 30.0% 30.0%

Profit for the year (continuing ops) 3 042.8 3 615.3 4 154.4 4 847.9 5 675.9 6 597.4 7 707.3

% change yoy 20.3% 18.8% 14.9% 16.7% 17.1% 16.2% 16.8%

Profit / (loss) for the year (discontinued ops) 0 0 0 0 0 0 0

Profit for the year 3 042.8 3 615.3 4 154.4 4 847.9 5 675.9 6 597.4 7 707.3

% change yoy 20.3% 18.8% 14.9% 16.7% 17.1% 16.2% 16.8%

Margins (%)

Cost of sales margin 79.5% 79.0% 78.8% 78.4% 77.9% 77.5% 77.4%

Gross profit margin 20.5% 21.0% 21.2% 21.6% 22.1% 22.5% 22.6%

SGA margin 14.9% 15.1% 15.4% 15.6% 15.9% 16.2% 16.2%

EBITDA margin - reported (normalised) 7.0% 7.3% 7.6% 8.1% 8.7% 9.1% 9.3%

Trading profit margin 5.6% 5.8% 5.8% 6.0% 6.2% 6.3% 6.5%

Operating profit margin 5.5% 5.8% 5.8% 6.0% 6.2% 6.3% 6.5%

Net profit before tax 5.4% 5.6% 5.7% 6.0% 6.2% 6.4% 6.6%

Net profit margin 3.7% 3.9% 4.0% 4.2% 4.3% 4.5% 4.6% Source: Company data, Credit Suisse estimates

02 December 2013


Figure 36: Shoprite balance sheet Year to Jun R'm FY2012 FY2013 2014E 2015E 2016E 2017E 2018E

Assets

Non-current assets

PPE 9 669 11 714 13 584 15 108 16 170 16 481 16 834

Goodwill & Intangible assets 894 1 039 1 039 1 039 1 039 1 039 1 039

Operating lease asset 11 12 12 12 12 12 12

Investments in assoc.s, subsidiaries and jvs 104 130 130 130 130 130 130

Other non-current financial receivables 4 10 10 10 10 10 10

Deferred tax assets 414 425 425 425 425 425 425

Total non-current assets 11 095 13 331 15 202 16 725 17 787 18 099 18 451

Current assets

Inventories 8 680 10 317 11 492 12 931 14 577 16 454 18 613

Debtors and other receivables 2 702 3 428 3 818 4 296 4 843 5 467 6 184

Loans and receivables 16 19 19 19 19 19 19

Current tax assets 81 175 175 175 175 175 175

Other current assets 0 24 24 24 24 24 24

Cash and equivalents 7 939 6 139 6 408 7 380 8 973 12 013 15 600

Total current assets 19 419 20 101 21 935 24 824 28 609 34 150 40 614

Total assets 30 906 33 489 37 137 41 549 46 397 52 249 59 065

Assets held for sale 392 57

Total shareholders' equity 12 808 15 252 17 459 20 097 22 915 26 453 30 606

Share capital and premium 4 319 4 319 4 319 4 319 4 319 4 319 4 319

Treasury shares (320) (320) (320) (320) (320) (320) (320)

Other reserves 543 1 080 1 080 1 080 1 080 1 080 1 080

Retained income 8 203 10 104 12 291 14 905 17 695 21 201 25 317

Ordinary shareholders' equity 12 745 15 184 17 371 19 985 22 775 26 281 30 397

Minority interest 63 68 88 112 140 172 209

Liabilities

Current liabilities

Creditors and other payables 12 712 12 723 14 172 15 946 17 976 20 291 22 953

Interest bearing short term debt + bank overdrafts 52 335 335 335 335 335 335

Provisions 139 134 134 134 134 134 134

Shareholders' loans and shareholders for pref share dividends 5 6 6 6 6 6 6

Current tax liabilities 151 187 187 187 187 187 187

Total current liabilities 13 058 13 385 14 833 16 607 18 637 20 952 23 614

Non-current liabilities

Preference shares - liability component 0 0 0 0 0 0 0

Interest bearing long term debt 4 007 3 823 3 816 3 816 3 816 3 816 3 816

Provisions 339 254 254 254 254 254 254

Operating lease liability 520 577 577 577 577 577 577

Deferred tax liabilities 152 197 197 197 197 197 197

Total non-current liabilities 5 040 4 852 4 845 4 845 4 845 4 845 4 845

Total liabilities 18 098 18 237 19 678 21 452 23 482 25 797 28 459

Total equity and liabilities 30 906 33 489 37 137 41 549 46 397 52 249 59 065 Source: Company data, Credit Suisse estimates

02 December 2013


Figure 37: Shoprite cash flow statement Year to Jun R'm FY2012 FY2013 2014E 2015E 2016E 2017E 2018E

Cash flows from operating activities

Operating profit 4 563 5 359 6 030 6 995 8 123 9 353 10 805

Depreciation + amortisation 1 200 1 412 1 860 2 441 3 276 4 142 4 685

Less: Investment income (82) (39)

Impairments 79 0 0 0 0 0 0

Other cash flows 436 173 0 0 0 0 0

Cash operating profit 6 195 6 905 7 890 9 436 11 399 13 494 15 490

Changes in working capital 649 (1 893) (116) (143) (163) (186) (214)

Other changes in capital (289) (535)

Cash generated from operations 6 555 4 478 7 773 9 294 11 236 13 308 15 276

Cash generated from operations (from accounts) 6 555 4 478 7 773 9 294 11 236 13 308 15 276

Tax paid (1 885) (1 594) (1 780) (2 078) (2 433) (2 827) (3 303)

Net cash from operating activities 4 670 2 883 5 993 7 216 8 804 10 481 11 973

Cash flows from investing activities

Replacement / maintenance capex - ppe (759) (703) (837) (942) (1 062) (1 199) (1 356)

Expansionary capex - ppe (2 359) (2 610) (2 893) (3 022) (3 276) (3 254) (3 681)

Proceeds from disposal of ppe and intangible assets 149 369 0 0 0 0 0

Proceeds from disposal of investment property 0 (4) 0 0 0 0 0

Other investing activities 34 (9) 0 0 0 0 0

(Acquisition) / disposal of subsidiary and jvs (177) (83) 0 0 0 0 0

Net cash (used in)/from investing activities (3 111) (3 039) (3 730) (3 965) (4 338) (4 453) (5 037)

Cash flows from financing activities

Proceeds / (repayments) from interest-bearing borrowings 10 13 0 0 0 0 0

Proceeds / (repayments) from shareholders' loans 0 0 0 0 0 0 0

Minority loan and dividend payments received 65 14 0 0 0 0 0

Finance costs (126) (327) (332) (332) (332) (332) (332)

Finance income 159 283 237 262 317 404 538

Capital distribution / dividends paid (1 434) (1 707) (1 890) (2 210) (2 858) (3 060) (3 553)

Proceeds from ordinary share issues 3 410 0.01 0 0 0 0 0

Proceeds from convertible bond issues 4 348 0 0 0 0 0 0

Net cash (used in)/from financing activities 6 433 (1 723) (1 986) (2 280) (2 873) (2 988) (3 348)

Movement in cash before exchange rate changes 7 992 (1 878) 277 972 1 593 3 040 3 588 Source: Company data, Credit Suisse estimates

02 December 2013


Global retail valuation Figure 38: Global retail valuation comparisons

Company CS Cur. Share Target Upside Market

Rating Price Price +/- Cap. (USDm) 2012A 2013E 2014E 2012A 2013E 2014E 2012A 2013E 2014E

2012C 2013C 2014C 2012C 2013C 2014C 2012C 2013C 2014C

South Africa

^JD Group Ltd NR ZAR 28.69 NR ###### 648 6.6 6.7 6.0 7.2 7.4 7.2 8.1% 7.9% 8.0%

^Lew is Group NR ZAR 65.60 NR ###### 634 6.3 6.1 5.9 6.8 6.7 6.5 7.6% 7.8% 8.1%

Mr. Price N ZAR 157.50 147.50 -6% 3 897 17.7 14.7 12.4 28.2 23.1 19.6 2.4% 2.9% 3.5%

^MassMart Holding NR ZAR 145.00 NR ###### 3 101 10.3 9.0 31.0 23.5 21.0 2.9% 2.8% 3.3%

Pick n Pay O ZAR 48.85 62.00 27% 2 312 13.8 12.3 9.7 42.6 37.9 26.5 1.9% 1.8% 2.6%

^Steinhoff International Holdings NR ZAR 40.00 NR ###### 7 505 10.1 7.9 7.2 12.5 10.6 9.4 2.0% 2.2% 2.6%

Shoprite Holdings Limited N ZAR 176.81 185.00 5% 9 938 15.8 13.5 11.5 27.6 24.4 21.1 1.8% 2.1% 2.4%

^Spar Group NR ZAR 129.00 NR ###### 2 200 12.4 11.2 21.8 19.4 17.6 3.4% 3.8% 4.2%

The Foschini Group U ZAR 100.85 90.50 -10% 2 237 7.2 6.9 6.5 12.1 11.5 10.4 4.9% 5.1% 5.6%

Truw orths International Limited O ZAR 81.00 92.50 14% 3 701 13.7 12.8 11.5 15.0 13.7 12.3 4.5% 5.2% 5.3%

Woolw orths Holdings Limited O ZAR 73.96 87.50 18% 6 168 16.5 13.2 11.0 24.7 19.4 16.1 2.9% 3.5% 4.3%

Average 12.0 10.6 9.3 20.9 18.0 15.2 3.9% 4.1% 4.5%

LatAm

GRUPO COMERCIAL CHEDRAUI ORDU MXN 42.28 40.00 -5% 3 118 10.9 10.4 9.6 27.1 25.0 23.6 0.5% 0.0% 0.0%

Walmex U MXN 33.97 37.00 9% 45 831 14.0 12.2 10.6 25.9 22.4 18.6 1.6% 3.6% 2.6%

Soriana N MXN 41.80 48.00 15% 5 756 10.4 10.3 9.4 21.0 20.5 18.7 0.7% 0.0% 0.8%

Brasil Foods S.A. O BRL 50.54 55.00 9% 19 029 21.9 12.7 10.3 54.0 22.1 18.1 0.0% 1.1% 1.4%

International Meal Company Holdings O BRL 20.00 31.00 55% 729 11.6 8.4 6.5 48.2 19.8 13.2 0.3% 1.3% 1.9%

Cencosud SA N CLP 1935.40 3 000 55% 10 290 13.3 11.4 10.5 23.7 20.5 15.9 1.1% 1.5% 1.5%

^AREZZO INDUSTRIA N ZAR 29.39 40.00 36% 257 80.7 63.9 52.7 26.9 21.0 17.1 1.8% 1.9% 2.2%

^Lojas Americanas N BRL 15.87 20.00 26% 6 212 10.2 9.4 7.8 37.2 32.7 26.5 0.4% 0.7% 0.9%

^B2W U BRL 14.20 10.00 -30% 974 8.8 7.2 5.2 13.0- 12.7- 18.5- 0.0% 0.0% 0.0%

^Lojas Renner N BRL 62.82 74.00 18% 3 413 11.0 9.8 7.8 22.3 19.6 16.9 3.3% 3.3% 3.5%

^Marisa S.A. N BRL 19.45 23.00 18% 1 557 8.2 7.4 6.3 15.7 15.7 12.7 1.5% 2.4% 2.7%

^Natura N BRL 42.90 52.00 21% 7 983 12.6 11.8 10.6 21.5 20.7 18.8 4.6% 4.6% 4.8%

Almacenes Exito O COP 30980.00 34 000 10% 7 195 15.1 11.4 9.7 34.3 24.2 20.8 1.0% 1.0% 1.0%

S.A.C.I. FALABELLA N CLP 4928.40 5 100 3% 22 610 15.5 13.4 11.5 26.3 22.3 18.7 0.0% 0.0% 0.0%

Ripley Corp SA N CLP 399.47 640.00 60% 1 465 9.6 8.4 7.4 11.3 10.4 8.9 2.4% 2.7% 2.9%

^Hypermarcas O BRL 18.80 23.00 22% 5 128 16.9 15.0 13.1 57.0 37.1 23.7 0.9% 0.8% 1.1%

Grupo Famsa O MXN 23.43 31.00 32% 788 10.4 9.3 8.4 19.9 15.1 13.0 0.0% 0.0% 0.0%

Average 16.1 13.4 11.4 28.6 20.8 16.2 1.1% 1.3% 1.5%

Russia

Magnit O USD 66.50 70.00 5% 33 294 22.9 19.2 15.9 38.9 33.6 26.4 0.4% 0.5% 1.1%

X5 Retail Group N USD 16.88 18.00 7% 4 579 7.3 7.2 6.4 40.2- 16.8 14.0 0.0% 0.0% 0.0%

Average 15.1 13.2 11.2 -0.7 25.2 20.2 0.2% 0.3% 0.6%

EMEA

BIM N TRY 44.00 44.05 0% 6 641 26.4 22.5 18.6 40.3 34.3 28.5 1.6% 2.5% 3.0%

Migros O TRY 17.60 26.70 52% 1 558 11.4 10.9 9.1 92.4 39.9 25.0 0.0% 0.0% 0.0%

Average 18.9 16.7 13.8 66.3 37.1 26.7 0.8% 1.2% 1.5%

Europe

Average 9.0 8.9 8.1 18.1 20.3 15.5 1.6% 1.6% 1.9%

United States

Average 7.9 7.8 8.1 17.1 18.3 14.8 1.8% 1.5% 1.3%

Asia

Average 10.7 9.7 8.4 21.5 21.0 18.3 1.7% 1.8% 2.1%

Australia

Average 9.6 9.4 8.9 15.8 15.6 14.7 5.6% 5.3% 5.2%

Canada

Average 9.0 8.1 7.8 18.5 17.2 15.7 1.4% 1.6% 1.6%

Global Average (incl SA) 12.0x 10.8x 9.7x 22.9x 21.5x 17.5x 2.0% 2.1% 2.2%

Global Average (excl SA) 12.0x 10.9x 9.7x 23.2x 22.0x 17.8x 1.8% 1.8% 2.0%

EMEA Average 15.3x 13.5x 11.4x 28.9x 26.8x 20.7x 1.6% 1.9% 2.2%

EMEA & LatAm Average 15.5x 13.5x 11.4x 28.8x 25.3x 19.6x 1.5% 1.7% 2.0%

EV/EBITDA (x) P/E (x) Dividend Yield

Source: Company data, Thomson Reuters, Credit Suisse estimates for all companies except those market ^ = I/B/E/S consensus data Priced

as at close 28 November 2013

02 December 2013


Global retail margins Figure 39: Global retail margins

Company Reuters

2012A 2013E 2014E 2012A 2013E 2014E 2012A 2013E 2014E 2012A 2013E 2014E

2012C 2013C 2014C 2012C 2013C 2014C 2012C 2013C 2014C 2012C 2013C 2014C

South Africa

^JD Group JDGJ.J 7.0% 6.2% 6.7% 5.7% 4.7% 5.2% 5.7% 4.7% 5.2% 3.0% 2.8% 2.9%

^Lew is LEWJ.J 24.6% 24.1% 23.6% 23.6% 22.8% 22.3% 23.6% 22.8% 22.3% 16.9% 16.3% 15.8%

Mr. Price MPCJ.J 16.9% 18.0% 18.5% 15.4% 16.6% 17.0% 15.4% 16.6% 17.0% 11.3% 12.3% 12.7%

^MassMart MSMJ.J 4.2% 4.3% 2.7% 3.1% 3.1% 2.7% 3.1% 3.1% 1.6% 1.9% 1.9%

Pick n Pay PIKJ.J 3.1% 3.2% 3.7% 1.6% 1.6% 2.0% 1.6% 1.6% 2.0% 1.1% 1.0% 1.3%

^Steinhoff SHFJ.J 12.2% 12.3% 12.6% 9.9% 10.1% 10.5% 9.9% 10.1% 10.5% 6.4% 6.5% 7.1%

Shoprite SHPJ.J 7.1% 7.5% 7.8% 5.7% 5.8% 5.9% 5.7% 5.8% 5.9% 3.8% 4.0% 4.1%

^Spar SPPJ.J 3.7% 3.7% 3.5% 3.4% 3.4% 3.5% 3.4% 3.4% 2.5% 2.5% 2.5%

Foschini TFGJ.J 26.3% 24.6% 23.3% 23.7% 22.3% 21.6% 23.7% 22.3% 21.6% 13.8% 13.0% 12.8%

Truw orths TRUJ.J 28.6% 27.6% 27.7% 27.0% 26.1% 26.2% 27.0% 26.1% 26.2% 24.9% 24.7% 24.8%

Woolw orths WHLJ.J 11.8% 12.4% 13.2% 9.6% 10.1% 10.7% 9.6% 10.1% 10.7% 7.3% 7.7% 8.1%

Average 15.3% 13.1% 13.2% 11.7% 11.5% 11.6% 11.7% 11.5% 11.6% 8.4% 8.4% 8.5%

LatAm

GRUPO COMERCIAL CHEDRAUI ORD CHDRAUIB.MX 6.7% 6.7% 6.9% 4.7% 4.7% 4.8% 4.7% 4.7% 4.8% 2.3% 2.4% 2.4%

Walmex WALMEXV.MX 9.8% 10.2% 10.5% 7.8% 8.2% 8.5% 7.8% 8.2% 8.5% 5.6% 5.8% 6.2%

Soriana SORIANAB.MX 7.0% 7.1% 7.2% 5.1% 5.2% 5.4% 5.1% 5.2% 5.4% 3.4% 3.5% 3.6%

Brasil Foods S.A. BRFS3.SA 8.2% 12.6% 13.8% 4.8% 9.9% 10.5% 4.8% 9.9% 10.5% 2.9% 6.2% 6.8%

International Meal Company Holdings IMCH3.SA 13.1% 14.7% 15.2% 5.8% 8.8% 10.0% 5.8% 8.8% 10.0% 3.0% 5.8% 7.0%

Cencosud SA CEN.SN 7.2% 7.2% 7.5% 6.6% 5.7% 5.8% 6.6% 5.7% 5.8% 2.2% 2.5% 3.1%

AREZZO INDUSTRIA ARZZ3.SA 15.7% 16.7% 17.4% 14.8% 15.8% 16.5% 14.8% 15.8% 16.5% 11.1% 11.9% 12.8%

Lojas Americanas LAME4.SA 13.9% 13.8% 14.5% 12.0% 11.7% 12.0% 12.0% 11.7% 12.0% 3.6% 3.4% 3.9%

B2W BTOW3.SA 6.8% 7.1% 8.7% 4.8% 5.3% 6.8% 4.8% 5.3% 6.8% -3.5% -2.9% -1.3%

Lojas Renner LREN3.SA 18.5% 18.3% 18.2% 15.1% 14.4% 13.7% 15.1% 14.4% 13.7% 9.2% 8.7% 8.5%

Marisa S.A. AMAR3.SA 17.3% 16.3% 16.9% 12.3% 11.0% 11.5% 12.3% 11.0% 11.5% 8.0% 6.1% 6.8%

Hypermarcas HYPE3.SA 22.4% 22.0% 23.3% 19.9% 19.7% 21.0% 19.9% 19.7% 21.0% 5.3% 7.2% 13.8%

Natura NATU3.SA 23.8% 23.4% 23.1% 21.6% 20.9% 20.5% 21.6% 20.9% 20.5% 13.6% 12.9% 12.6%

Almacenes Exito IMI.CN 8.5% 10.2% 10.9% 4.8% 6.9% 8.0% 4.8% 6.9% 8.0% 3.8% 4.8% 5.2%

S.A.C.I. FALABELLA FAL.SN 15.1% 15.1% 15.4% 12.7% 12.7% 13.0% 12.7% 12.7% 13.0% 7.5% 7.7% 8.0%

Ripley Corp SA RIP.SN 9.5% 9.7% 10.3% 6.6% 6.9% 7.4% 6.6% 6.9% 7.4% 5.2% 5.1% 5.6%

Hypermarcas HYPE3.SA 22.4% 22.0% 23.3% 19.9% 19.7% 21.0% 19.9% 19.7% 21.0% 5.3% 7.2% 13.8%

Grupo Famsa GFAMSAA.MX 13.0% 13.3% 13.4% 10.4% 10.6% 10.7% 10.4% 10.6% 10.7% 3.0% 3.6% 3.8%

Average 12.9% 13.3% 13.9% 10.3% 10.7% 11.2% 10.3% 10.7% 11.2% 4.9% 5.5% 6.6%

Russia

Magnit MGNTq.L 10.6% 10.1% 10.0% 8.0% 7.7% 7.8% 8.0% 7.7% 7.8% 5.6% 5.2% 5.4%

X5 Retail Group PJPq.L 7.1% 7.0% 7.3% 1.2% 4.1% 4.3% 1.2% 4.1% 4.3% -0.7% 1.7% 1.9%

Average 8.8% 8.6% 8.6% 4.6% 5.9% 6.0% 4.6% 5.9% 6.0% 2.4% 3.4% 3.6%

EMEA

BIM BIMAS.IS 5.0% 5.0% 5.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 3.3% 3.4% 3.4%

Migros MGROS.IS 6.2% 5.9% 6.3% 4.2% 3.9% 4.3% 4.2% 3.9% 4.3% 0.5% 1.1% 1.6%

Average 5.6% 5.4% 5.6% 4.1% 4.0% 4.1% 4.1% 4.0% 4.1% 1.9% 2.2% 2.5%

Europe

Average 10.2% 10.2% 10.4% 7.5% 7.4% 7.6% 7.5% 7.4% 7.6% 5.2% 5.1% 5.3%

United States

Average 8.3% 8.3% 8.7% 5.5% 5.4% 5.8% 5.5% 5.4% 5.8% 2.9% 2.6% 3.1%

Asia

Average 11.8% 11.6% 11.8% 8.0% 7.8% 8.1% 8.0% 7.8% 8.1% 5.0% 4.4% 4.5%

Australia

Average 11.9% 12.2% 12.6% 9.0% 9.2% 9.7% 9.0% 9.2% 9.7% 5.9% 6.0% 6.2%

Canada

Average 6.2% 6.3% 6.3% 4.2% 4.2% 4.3% 4.2% 4.2% 4.3% 2.5% 2.5% 2.5%

Global Average (incl SA) 10.1% 9.9% 10.1% 7.2% 7.3% 7.6% 7.2% 7.3% 7.6% 4.3% 4.5% 4.8%

Global Average (excl SA) 9.5% 9.5% 9.7% 6.6% 6.8% 7.1% 6.6% 6.8% 7.1% 3.8% 4.0% 4.3%

EMEA Average 9.9% 9.0% 9.2% 6.8% 7.1% 7.3% 6.8% 7.1% 7.3% 4.3% 4.7% 4.9%

EMEA & LatAm Average 10.7% 10.1% 10.3% 7.7% 8.0% 8.3% 7.7% 8.0% 8.3% 4.4% 4.9% 5.3%

EBITDA margin EBIT margin (before one-offs) EBIT margin Net margin

Source: Company data, Thomson Reuters, Credit Suisse estimates for all companies except those market ^ = I/B/E/S consensus data

02 December 2013


PEERs map PEERs is a global database that captures unique information about companies within the

Credit Suisse coverage universe based on their relationships with other companies – their

customers, suppliers and competitors. The database is built from our research analysts’

insight regarding these relationships. Credit Suisse covers over 3,000 companies globally.

These companies form the core of the PEERs database, but it also includes relationships

on stocks that are not under coverage.

Figure 40: Shoprite PEERs map

Source: Credit Suisse PEERs

02 December 2013


Companies Mentioned (Price as of 28-Nov-2013)

Almacenes Exito (IMI.CN, peso30980.0) Arezzo Industria e Comercio SA (ARZZ3.SA, R$29.39) B2W (BTOW3.SA, R$14.2) BIM (BIMAS.IS, TL44.0) Brasil Foods S.A. (BRFS3.SA, R$50.54) Cencosud SA (CEN.SN, CLP$1935.4) GRUPO COMERCIAL CHEDRAUI ORD (CHDRAUIB.MX, $42.28) Grupo Famsa (GFAMSAA.MX, $23.43) Hypermarcas S.A. (HYPE3.SA, R$18.8) International Meal Company Holdings (IMCH3.SA, R$20.0) JD Group Ltd (JDGJ.J, R28.69) Lewis Group (LEWJ.J, R65.6) Lojas Americanas S.A. (LAME4.SA, R$15.87) Lojas Renner S.A. (LREN3.SA, R$62.82) Magnit (MGNTq.L, $66.5) Marisa S.A. (AMAR3.SA, R$19.45) MassMart Holding (MSMJ.J, R145.0) Migros (MGROS.IS, TL17.6) Mr Price Group Limited (MPCJ.J, R157.5) Natura Cosméticos S.A. (NATU3.SA, R$42.9) Pao de Acucar (PCAR4.SA, R$108.5) Pick N Pay Stores Limited (PIKJ.J, R48.85) Ripley Corp SA (RIP.SN, CLP$399.47) S.A.C.I. FALABELLA (FAL.SN, CLP$4928.4) Shoprite Holdings Limited (SHPJ.J, R176.81, NEUTRAL, TP R185.0) Soriana (SORIANAB.MX, $41.8) Spar Group (SPPJ.J, R129.0) Steinhoff International Holdings (SHFJ.J, R40.0) The Foschini Group (TFGJ.J, R100.85) Truworths International Limited (TRUJ.J, R81.0) Walmex (WALMEXV.MX, $33.97) Woolworths Holdings Limited (WHLJ.J, R73.96) X5 Retail Group (PJPq.L, $16.88)

Disclosure Appendix

Important Global Disclosures

Pieter Vorster and Mukhtar Mustapha, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Shoprite Holdings Limited (SHPJ.J)

SHPJ.J Closing Price Target Price

Date (R) (R) Rating

04-Oct-11 112.70 116.00 N *

02-Dec-11 134.71 124.00 U

29-Feb-12 136.00 125.00

01-Jun-12 138.10 128.00

31-Oct-12 178.30 142.00

20-Feb-13 176.50 NR

28-Aug-13 158.05 145.00 U *

28-Nov-13 176.81 NR

* Asterisk signifies initiation or assumption of coverage. N EU T RA L

U N D ERPERFO RM

N O T RA T ED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and

02 December 2013


Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 42% (54% banking clients)

Neutral/Hold* 41% (50% banking clients)

Underperform/Sell* 15% (41% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock rat ings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Shoprite Holdings Limited (SHPJ.J)

Method: Owing to the stable cash flow growth of the retail industry, we believe it is appropriate to value it using the discounted cash flow (DCF) methodology. We forecast explicit cash flows for five years, after which the growth rate free cash flow return in invested capital is faded to the final year growth rate and WACC respectivle over the competitive advantage period (CAP). We calculate the CAP by solving for the current share price in our DCF model, the margins and revenue growth as implied by the current share price in HOLT. Our DCF fair value is adjusted by the WACC to determine our 12-month target price of R185. For Shoprite, we use a 10.95% WACC, 18-year CAP and a final year growth rate of 8%.

Risk: Risks to our target price include: (i) Execution risks across Africa. (ii) Management succession planning (iii) More effective competition from Pick 'n Pay in South African market (iv) Increased competition from Walmart through Massmart holding (vi) Food price volatility (vii) Prolonged weakness in South African consumer spending

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (WHLJ.J, LREN3.SA, CHDRAUIB.MX, CEN.SN, HYPE3.SA, IMCH3.SA, PJPq.L, IMI.CN, LAME4.SA, WALMEXV.MX, GFAMSAA.MX) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

02 December 2013


Credit Suisse provided investment banking services to the subject company (LREN3.SA, CEN.SN, IMCH3.SA, PJPq.L, IMI.CN, LAME4.SA, WALMEXV.MX, GFAMSAA.MX) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (WHLJ.J, LAME4.SA) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (IMI.CN, WALMEXV.MX, GFAMSAA.MX) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (LREN3.SA, CEN.SN, IMCH3.SA, PJPq.L, IMI.CN, LAME4.SA, WALMEXV.MX, GFAMSAA.MX) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (LREN3.SA, NATU3.SA, CHDRAUIB.MX, CEN.SN, HYPE3.SA, IMCH3.SA, PJPq.L, IMI.CN, BIMAS.IS, LAME4.SA, WALMEXV.MX, GFAMSAA.MX, FAL.SN) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (WHLJ.J, LAME4.SA) within the past 12 months

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (IMCH3.SA).

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (SHPJ.J, TRUJ.J, TFGJ.J, MPCJ.J, PIKJ.J, WHLJ.J, SORIANAB.MX, AMAR3.SA, BTOW3.SA, LREN3.SA, NATU3.SA, CHDRAUIB.MX, CEN.SN, HYPE3.SA, IMCH3.SA, PJPq.L, IMI.CN, BIMAS.IS, LAME4.SA, WALMEXV.MX, MGNTq.L, GFAMSAA.MX, RIP.SN, ARZZ3.SA, MGROS.IS, BRFS3.SA, FAL.SN) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

The following disclosed European company/ies have estimates that comply with IFRS: (PJPq.L, BIMAS.IS, MGNTq.L).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (CEN.SN, HYPE3.SA, IMCH3.SA, IMI.CN, WALMEXV.MX, GFAMSAA.MX, ARZZ3.SA) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities Johannesburg (PTY) Ltd ........................................................................................... Pieter Vorster ; Mukhtar Mustapha

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

02 December 2013


The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.

CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

02 December 2013


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