Boxer’s JSE listing analysed

On 22 February, Pick n Pay announced that it was planning to launch its Boxer business on the main board of the JSE.

The listing forms part of Pick n Pay’s two-step recapitalisation plan – a R4 billion rights offer to provide near-term liquidity, followed by the Boxer listing.

The rights offer is expected to take place in the middle of 2024, followed by the Boxer listing towards the end of 2024. Pick n Pay intends to retain a majority stake in Boxer after its listing.

The Pick n Pay board said the recapitalisation plan is the best option to stabilise the balance sheet, strengthen liquidity, and provide adequate capital funding for growth.

Pick n Pay did not share any further information about Boxer’s initial public offering, like the capital it plans to raise or its listing price.

The retailer also did not share detailed financials about Boxer. It previously said it was highly profitable but did not share income numbers.

Pick n Pay did, however, share revenue numbers. Over the last four quarters, Boxer generated R34.18 billion.

In its latest interim trading update, Pick n Pay said Boxer delivered South African sales growth of 16.1%, with 27 new stores opened to take the portfolio to 454 Boxer stores.

It added that Boxer was on track to finish the financial year with 55 new stores, behind the 75 targeted at the beginning of the year.

However, it still represents an accelerated rollout pace in the context of the 36 and 60 new stores opened in two previous years, respectively.

It added that Boxer remains on track to open 200 new stores by 2026 and double sales in the process.

Analysing Boxer’s value is challenging without the company’s earnings performance over the last few years.

However, one can create a rough estimate of the retailer’s valuation using a price-to-sales (P/S) ratio.

P/S ratios tend to follow a company’s profitability closely, and a company with high profits will have a greater sales valuation.

Comparing Boxer’s sales growth with other publicly traded food retailers gives an idea of how the market will value its sales.

Boxer has seen exceptional sales growth in the past few years, outperforming other listed food retailers.

Its most recent annual sales growth of 20.20% is even greater than Shoprite’s 16.91% sales growth.

The market may, therefore, value Boxer’s share price similarly to Shoprite, with a P/S ratio of 0.67. It is much higher than Pick n Pay and Spar.

This is because Shoprite generates significantly more profit from its revenue than Spar and Pick n Pay.

Shoprite boasts a net margin of 2.74%, much higher than Spar’s net margin of 1.10% and Pick n Pay’s net margin of 0.27%.

Daily Investor calculated a growth-weighted average P/S ratio for Boxer to give greater weight to the Shoprite P/S ratio.

Using this price-to-sales ratio of 0.38 times, it translated to a valuation of R12.9 billion.

Ultimately, Boxer’s ability to turn sales into profit and grow sales cost-effectively will determine its valuation.

If Boxer generates the same profit margins as Shoprite, its sales growth can justify a P/S ratio of 0.8 times. This translates into a market cap of R27 billion.

However, if its profit margins are similar to Pick n Pay and Spar, its market cap would likely be closer to R3.5 to R4.5 billion.

Investors will only get a clearer picture when Pick n Pay releases more in-depth financial information on Boxer.

Company	P/S ratio	Latest annual sales growth
Pick n Pay	0.10	8.90%
Spar	0.13	10.11%
Shoprite	0.67	16.91%
Boxer	–	20.20%
Growth weighted average Boxer P/S ratio	0.38	–
Boxer Value	R12,878,588,168	–