The last month hasn’t been pretty for economic performance, credit or retail sales. Everyone from Richemont to Mr Price has taken a beating. Woolies is down about 13% in the last month.
And now both Capitec and African Bank are reporting worse default experience (respectively through temporary strike-blips or through a cyclical downwards trend) and are pulling back on credit extension.
I think I buy African Bank’s more pessimistic view than Capitec’s “blip from the strike and growth will slow”. The reality is economic growth has been very low for several years and much of the consumption over this period has been through a reinflating credit “bud”. It’s not at bubble proportions, but when that bud starts slowing in growth the true impact of several years of poor economic and basically non-existent employment growth will be felt.
I still need to update 2013 predictions, but so far I’m not feeling particularly optimistic about being a credit retailer and certainly not enough to justify the still-high PE multiples.