Lewis regarded as the best of a bad bunch

Brokerage Renaissance Capital upgraded struggling furniture retail group Lewis to a "buy" and, two days later, downgraded it to a "hold" after investors piled in.

Some investors were expecting the worst after an August update in which CEO Johan Enslin said trading conditions were "extremely challenging".

Although Lewis released grim results on Monday for the six months to September - showing a 9.9% drop in operating profit to R472-million and revenue inching up only 1.1% - investors kept buying, sending the share price up nearly 17% for the full week.

Perhaps it was Enslin's view that the labour market is "more stable", or talk of "improved collections" at stores, but Renaissance seemed to see the silver lining, at least initially, as it upgraded Lewis to a "buy".

After the share price rocketed, Renaissance Capital downgraded it to a hold but still seemed to believe Lewis was the best punt in a particularly stressed sector.

This week, Lewis was given the green light to take over 63 of Ellerines's 184 Beares stores that were deemed "viable".

Most analysts rate Lewis as a "hold", expecting the share price to hit about R63.84 over the next year on average - much lower than its current price of R76.

One analyst, who asked not to be named, said: "There's clearly still stress in the system and it's not a great business sector. But if you believe Lewis is the best of a bad bunch and it's well valued, there is still upside for you."

Enslin said one of the reasons Lewis had suffered was because of "aggressive discounting by competitors ahead of store closures".

Presumably, he was referring to Ellerines, which floundered into business rescue in August, one day before its owner, African Bank, was placed under curatorship.

Though Lewis has spent R90-million buying the most profitable Beares stores, its target market of lower-income customers who buy on credit remains deeply overstretched.

The fact that Lewis makes a large chunk of its money providing loans helped push up revenue 1.6% .

Shares in Lewis are up 13% at R76 from a year ago, while shares in JD Group, owned by Steinhoff International, are down nearly 8% at R28.