SHARES in Mr Price rose more than 3% yesterday after the JSE said SA’s third-biggest listed clothes retailer would join its blue-chip index next week.
Mr Price, which is valued at R29.7bn, rose as much as 3.38% to an intraday high of R122.50, extending gains so far this year to more than 50%.
South African retailers have been the darling of investors in recent months despite domestic analysts’ warnings that their share prices have risen to levels from which they can only disappoint.
“Mr Price, as well as most major retailers, is hopelessly overvalued, but because its market cap has reached a certain level, it qualifies for inclusion in the index,” Syd Vianello, an analyst at Nedbank Capital, said.
Mr Vianello said foreign investors, benchmarking the sector against little or no growth in developed-markets retailers, have been the primary drivers of share price rises.
A Reuters consensus of 11 analysts rates the stock — which trades at 20 times its forward earnings — as “underperform”.
Four analysts have a sell rating on it. More than 40% of Mr Price shares are held by foreign investors.
Mr Price is replacing mass-market lender African Bank Limited in the JSE top-40 index. African Bank, whose share price is virtually unchanged this year, would be demoted to the JSE mid-cap index.
The benchmark JSE top-40 index inched up 0.14% to 32,166.6 yesterday and the broader all-share index was 0.23% higher at 36,445.75.
“There’s lots of cash on the sidelines to see if the labour unrest can be resolved,” said Thys van Zyl, a trader at Thebe Securities. “It would also be important to see if the latest stimulus from the US will be enough to get the global economy going.”