Investors buying into Pick n Pay turnaround

Pick n Pay’s share price has performed exceptionally well over the past week despite the retailer having reported dismal results.

Pick n Pay recently released its results for the 2024 financial year, which revealed a poor financial performance.

Revenue increased from R109.28 billion to R115.37 billion, while trading expenses rose from R20.15 billion to R22.55 billion.

The retailer reported a 373% decrease in its net profit, dropping from a R1.17 billion profit to a R3.2 billion net loss. 

Earnings per share also swung to a loss, with basic earnings per share declining from 243.37 cents per share in 2023 to a loss of 661.67 cents per share.

For the first time in Pick n Pay’s listed history, it has become technically insolvent, with total liabilities exceeding total assets by R183 million. 

The retailer’s total assets amount to R46.51 billion, while its total liabilities amount to R46.69 billion.

Its debt increased tremendously, with its total liabilities increasing by R8 billion from the previous period.

Despite these dismal results, Pick n Pay’s share price jumped as much as 6% on the day they were released and are up 25% over the past five days.

Sasfin analyst Alec Abraham told Daily Investor that, while Pick n Pay’s results were disastrous, he can think of a couple of possible reasons for the share price increase.

The first is that the substantial write-offs Pick n Pay took in these latest results, combined with the company’s proposed recapitalisation, set the scene for much better financial results next year.

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 for stabilising the balance sheet, strengthening liquidity, and providing adequate capital funding for growth.

In addition, Abraham said that while there is always execution risk and the risk of conditions changing, the corporate plan to turn around the business appears comprehensively thought-through. 

He said the plan has visibility on targeted timelines, is focused on the key problem areas and is plausible. 

“It also helps that it was delivered by the charismatic Sean Summers,” he added.

Abrahams also said Boxer’s improved disclosure clarifies its profitability relative to the Pick n Pay chain, which should enhance its valuation when listed.

This could potentially net Pick n Pay greater proceeds from the listing while limiting the size of the stake that the group needs to list, thus retaining a greater stake.