By Vera von Lieres and Lynda Loxton

Cape Town - While the retail sector still offered pockets of opportunity, it was far less of a sector play than 18 months ago and more of an individual stock play, retail analysts said last week.

Commentators have questioned how much further the sector could go after a strong run of more than 18 months.

The consensus seems to be there is still potential, but it is not as easy to spot.

Terence Craig, portfolio manager at Frater Asset Management, said the retail sector had moved from undervalued 18 months ago to close to fair value.

"At that stage [18 months ago], the sector was extremely cheap relative to historical average ratings and values, with benefits such as tax cuts still to work their way through into earnings," Craig said.

Now the ratings of major players in food and clothing were closer to fair value. Craig said the focus had moved to company-specific information, requiring company-specific research.

Africa Harvest Fund Managers retail analyst Mark Ansley said retailers had performed well operationally, driven to a large extent by factors such as high inflation, tax cuts and a fall in consumer debt.

"Retailers' share prices have risen nicely in line with their earnings but still, a year on, there are pockets of opportunity in the sector," Ansley said.  

Retail valuations were now not "the dripping-roast opportunity" they had been a year ago, but there were some companies that offered relatively good value.

The ability to generate strong cash flow was key. Ansley said some retailers were in a position where they generated more cash than earnings.

The management of many of these companies, such as Foschini, Truworths, Pepkor, JD Group, Woolworths, Pick 'n Pay, Shoprite and Massmart, was strong.

Neil Young, investment analyst at Coronation Fund Managers, said the next 12 months looked "fundamentally very good" for the sector.

There had been some consolidation, with a more sensible management of retail space growth. Consumers would start benefiting from the latest round of interest rate cuts and the stronger rand.

The bottom end of the market was holding up reasonably well, as had been seen in the recent results of groups such as Pep.

Evan Jones, retail analyst at Cadiz Specialised Asset Management, said that within his group's new absolute return fund series, the retail sector was still regarded as having good value in any portfolio.