{"id":800819,"date":"2024-11-21T14:30:00","date_gmt":"2024-11-21T12:30:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=800819"},"modified":"2024-11-21T16:27:19","modified_gmt":"2024-11-21T14:27:19","slug":"warning-about-pick-n-pay","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/800819\/warning-about-pick-n-pay\/","title":{"rendered":"Warning about Pick n Pay"},"content":{"rendered":"\n

High-profile analysts have warned that Pick n Pay\u2019s planned turnaround is far from guaranteed and that buying the share should be seen as speculative.<\/p>\n\n\n\n

Pick n Pay had a challenging few years, with declining market share, leadership changes, and a failed turnaround strategy.<\/p>\n\n\n\n

The retailer\u2019s audited results for the year that ended 25 February 2024 were disastrous. Net profit decreased by 373% as it swung from a R1.17 billion profit to a R3.2 billion net loss.<\/p>\n\n\n\n

Even more concerning was that Pick n Pay had, at the time, become technically insolvent for the first time in its listed history.<\/p>\n\n\n\n

The company\u2019s net debt-to-EBITDA increased from 1.1 to 6.3 times, and Pick n Pay breached all its debt covenants.<\/p>\n\n\n\n

It was time for drastic measures. The new chief executive, Sean Summer, announced a multi-pronged approach to turn the company around.<\/p>\n\n\n\n

His \u2018Back to Basics\u2019 strategy included a new leadership team with experienced executives with proven track records.<\/p>\n\n\n\n

He rolled back many changes under the failed Ekuseni strategy, including changing Qualisave stores to Pick n Pay stores.<\/p>\n\n\n\n

The retailer also reset its store estate, including closing poorly performing supermarkets and converting others into Boxer stores.<\/p>\n\n\n\n

It is also enhancing its product range, pricing, and promotions to attract and retain customers and compete more effectively with Checkers.<\/p>\n\n\n\n

Another key pillar is an optimised operating model, streamlining Pick n Pay\u2019s operations to reduce costs and improve efficiency.<\/p>\n\n\n\n

It also explores opportunities to collaborate with other retailers and suppliers to improve its product offering and reduce costs.<\/p>\n\n\n\n

It has made significant progress in all these areas. It has closed numerous stores, cut costs, and launched many promotions to attract customers.<\/p>\n\n\n\n

For example, last month, FNB and Pick n Pay extended their partnership to offer their clients lower prices and rewards on essentials, groceries, and clothing.<\/p>\n\n\n\n

More recently, it announced aggressive Black Friday deals and reported strong customer support for the promotional items in-store and across its online platforms.<\/p>\n\n\n\n

Pick n Pay recapitalisation<\/strong><\/h2>\n\n\n\n
\"\"<\/a><\/figure>\n\n\n\n

A core pillar of Pick n Pay\u2019s turnaround strategy is its recapitalisation plan to strengthen its balance sheet and reduce debt.<\/p>\n\n\n\n

The first step was the successful R4 billion rights offer completed three months ago. It helped Pick n Pay to return to a positive equity position of R2.9 billion.<\/p>\n\n\n\n

The second step is the Boxer initial public offering (IPO), through which the retailer will raise R8.5 billion.<\/p>\n\n\n\n

On 11 November 2024, Pick n Pay announced that it aims to raise between R8.0 billion and R8.5 billion through Boxer\u2019s initial public offering.<\/p>\n\n\n\n

Boxer planned to offer up to 202.4 million shares, around 40% of its total issued share capital, at a price of between R42 and R54 per share.<\/p>\n\n\n\n

There is great excitement around the Boxer listing, and many market commentators predicted that the share price will likely to on the high end of the guidance.<\/p>\n\n\n\n

On Wednesday, Pick n Pay informed qualifying investors that orders submitted below R54.00 per share risk receiving no allocation.<\/p>\n\n\n\n

\u201cThe order book is multiple times covered at the top end of the offer price range,\u201d Pick n Pay said in a SENS announcement.<\/p>\n\n\n\n

It said an offer price at the top end would result in the issue of up to 157,407,408 shares, representing up to 34.4% of Boxer\u2019s issued share capital.<\/p>\n\n\n\n

Pick n Pay will use the proceeds to settle its outstanding debt and reinvest in the core Pick n Pay supermarket business.<\/p>\n\n\n\n

This was the best possible outcome for Pick n Pay shareholders as it would raise all the needed capital while maintaining a large Boxer shareholding.<\/p>\n\n\n\n

Pick n Pay after the Boxer JSE listing<\/strong><\/h2>\n\n\n\n
\"\"<\/a>
Protea Capital Management founder and CEO Jean Pierre Verster <\/figcaption><\/figure>\n\n\n\n

The market responded positively to Pick n Pay\u2019s successful rights issue, oversubscribed Boxer listing, and progress on the turnaround plan.<\/p>\n\n\n\n

The company\u2019s share price increased by 59% in 2024, making it one of the best-performing stocks on the JSE.<\/p>\n\n\n\n

However, despite the strong run in 2024, analysts warned that investors should tread carefully when buying this stock.<\/p>\n\n\n\n

After Boxer\u2019s JSE listing, Pick n Pay will hold a majority stake in Boxer and the existing Pick n Pay stores business.<\/p>\n\n\n\n

It raises the question of how much the Pick n Pay stores business, which includes Pick n Pay retail outlets, clothing stores, and hypermarkets, is worth.<\/p>\n\n\n\n

Another question is whether Pick n Pay will be seen as an investment holding company that trades at a discount to the sum of its parts.<\/p>\n\n\n\n

Jean Pierre Verster, founder and CEO of Protea Capital Management, said he would not be surprised if Pick n Pay trades at a slight discount.<\/p>\n\n\n\n

There is great uncertainty on whether the current Pick n Pay stores business will be turned around and start generating profits in 2026, as planned.<\/p>\n\n\n\n

Grant Nader from Benguela Global Fund Managers added that turning around the core Pick n Pay business still has a long way to go.<\/p>\n\n\n\n

\u201cThey will be rightsizing and cutting costs. This is a scale game, and they are moving in the opposite direction,\u201d he said.<\/p>\n\n\n\n

He explained that Shoprite Checkers and Spar continue improving their offerings and aggressively rolling out new stores.<\/p>\n\n\n\n

\u201cIt is competitive on all fronts. This is a scale game where price and margin are important. The retailer with the biggest scale has the biggest advantage,\u201d Nader said.<\/p>\n\n\n\n

\u201cI will sit on the sidelines and wait. It is not a quick turnaround, which makes it a speculative investment.\u201d<\/p>\n\n\n\n

Devin Shutte from The Robert Group said Pick n Pay has underinvested in their business for many years.<\/p>\n\n\n\n

They are now playing catchup with Checkers with store formats, the look and feel of their supermarkets, and their distribution.<\/p>\n\n\n\n

He said although Pick n Pay, under the leadership of Sean Summers, can turn the company around, it will not be easy.<\/p>\n\n\n\n

He said it remains to be seen whether the company can flourish again. \u201cEven with the multiple recapitalisations, the execution risk is high,\u201d Shutte said.<\/p>\n\n\n\n

\n\n\n\n

Read: Massive swing for SAA \u2013 first profit in over a decade<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

High-profile analysts have warned that Pick n Pay\u2019s planned turnaround is far from guaranteed and that buying the share should be seen as speculative.<\/p>\n","protected":false},"author":10,"featured_media":774249,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[6655,5223,4067,19960,7520,9838],"class_list":["post-800819","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-boxer","tag-checkers","tag-pick-n-pay","tag-sean-summers","tag-shoprite","tag-spar"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/800819","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=800819"}],"version-history":[{"count":3,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/800819\/revisions"}],"predecessor-version":[{"id":800866,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/800819\/revisions\/800866"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/774249"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=800819"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=800819"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=800819"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}