JD GROUP’s shares continued their tumble on Wednesday, recording their biggest two-day fall in 12 years as investors remained jittery over the company’s bad debts.
The company, which provides unsecured loans and is South Africa’s biggest listed furniture retailer, expects to suffer a half-year loss.
The owner of brands including Joshua Doore, Russells and Bradlows is also proceeding with a rights issue.
Consumers, particularly those at the lower end, are under financial strain because of escalating living costs and rising personal debt. A lack of jobs and moderation in income growth has eroded their spending power.
JD Group shares shed as much as 10% yesterday on the JSE, extending the slide to 16% over the past two days.
Travis Robson, head of premium client management at IG SA. said the way businesses managed their debt books was “really important”.
The deteriorating credit quality in the secured and unsecured lending market saw JD Group’s impairment provisions rise by R602m — a sum more than the R161m provided for in the previous period and that takes provisions up to R1.6bn.
Investors are anxious over unsecured lending.
“It started in the financial sectors, especially with Abil (African Bank Investments Ltd), going on to Ellerines. There are now also concerns around Lewis Group, and it’s stemming to susceptible retailers like Foschini Group, Truworths and JD Group,” Mr Robson said. “With rising interest rates it’s difficult for investors to have faith in these retailers.
“C onsumers are facing the pinch more and more.”
JD Group said that provisions had been increased to 15.1%, a figure which stood at 9.9% on June 30 last year. The company is adamant that it has followed an adequate and appropriate provisioning processes, but analysts say it has had a history of not carrying a sufficient provision against its debt book.
“They were always underprovided into every cycle,” 36One Asset Management portfolio manager Evan Walker has said.
At JD Group’s last annual general meeting, shareholder activist Theo Botha drew the ire of management when he asked whether the amount set aside for bad debts was not understated.
“Oh no, they said, don’t worry, we’re following all the regulations … and they all received bonuses … and now their share price is tanking,” Mr Botha said.
“I was right, they were wrong. Their underprovisions have caught up with them, they have damaged the share price tremendously, heads should roll.
” New people need to come in. Len Koner has been on the board for almost 19 years, how can that be? They need some fresh ideas.
“They have … suffered (in their) reputation. David Sussman (CEO and chairman) should move on”.