![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2024\/05\/Jean-Pierre-Verster.jpg\")
<\/a>Protea Capital Management CEO Jean Pierre Verster said he is cautiously pessimistic about Pick n Pay\u2019s prospects.<\/p>\n\n\n\n
He highlighted that Pick n Pay is technically insolvent, which means it has negative equity. To address the weak balance sheet, it wants to raise billions.<\/p>\n\n\n\n
\u201cThey want to raise R10 billion to R12 billion. It includes a R4 billion rights issue and another R6 billion to R8 billion by listing a minority stake in Boxer,\u201d he said.<\/p>\n\n\n\n
He said the positivity around Pick n Pay comes from stripping out Boxer and saying it makes a profit of between R1 billion and R1.5 billion.<\/p>\n\n\n\n
Analysts then multiply Boxer\u2019s profit by a price-to-earning (P\/E) ratio of fifteen to twenty, which gives a big number. You then discount the rest to zero.<\/p>\n\n\n\n
\u201cI question that type of calculation, which a lot of the sell-side analysts and brokers are doing,\u201d Verster said.<\/p>\n\n\n\n
One of the big problems is that, according to its own targets, the Pick n Pay group will take at least three years to become profitable again.<\/p>\n\n\n\n
\u201cThey will be up to be a billion-rand cash flow negative for the next year, and potentially the year thereafter.\u201d<\/p>\n\n\n\n
\u201cWhen you do a segmental analysis of a company with a very profitable division, I always wonder about the cost allocation.\u201d<\/p>\n\n\n\n
It raises the question of whether Boxer will remain as profitable as the pro forma numbers show if it becomes a standalone business.<\/p>\n\n\n\n
\u201cThey have not finalised the transfer pricing, where Boxer may use Pick n Pay\u2019s head office,\u201d he said.<\/p>\n\n\n\n
\u201cThere is a lot to be done here, so I am cautiously pessimistic about Pick n Pay.\u201d<\/p>\n\n\n\n
Alex Duys from Umthombo Wealth is more upbeat about Pick n Pay\u2019s prospects, saying he is cautiously optimistic.<\/p>\n\n\n\n
However, a successful turnaround is not guaranteed, as the retailer must deal with a weak economy, limited time, and a poor balance sheet.<\/p>\n\n\n\n
\u201cThe question is whether Pick n Pay can execute its turnaround plan within these parameters efficiently enough,\u201d Duys said.<\/p>\n\n\n\n
He said Summers\u2019 turnaround plan makes strategic sense. \u201cThe question is whether they will have enough time to implement it and whether the economy will allow it.\u201d<\/p>\n\n\n\n
Declining inflation will add pressure to Pick n Pay\u2019s top line, and revenue will come under pressure because the company’s focus is not on sales and marketing.<\/p>\n\n\n\n
Despite these challenges, if Summers can get the core Pick n Pay business back to break even, the overall basket will have a lot of upside.<\/p>\n\n\n\n
Duys highlighted that this will rely on Boxer\u2019s successful listing and that the evaluations provided are achieved.<\/p>\n\n\n\n
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