Warning about Boxer

Drikus Combrinck from Capicraft Investment Partners warned that the Boxer IPO would be overhyped and that investors should exercise caution when buying the stock after listing.

Boxer, which is currently wholly owned by Pick n Pay, has formally announced its intention to list on the main board of the Johannesburg Stock Exchange (JSE) on 28 November 2024.

As part of the initial public offering (IPO), Pick n Pay aims to raise between R8.0 billion and R8.5 billion.

Boxer will offer up to 202.4 million shares, around 40% of its total issued share capital, at a share price of between R42 and R54 per share.

The share price implies a total market capitalisation of between R21.1 billion and R24.7 billion for Boxer.

There is great excitement around the Boxer listing, especially since it is a growing company and new listings on the JSE are few and far between.

Combrinck warned that investors should note this excitement, which raises concerns about it being overhyped.

He told BusinessDayTV investors who did not form part of the institutional investors who received stock before listing are at risk.

“The first day of trading will be overhyped. I have seen this before. The market is hungry for a growth story and will slap a very high multiply on it when it opens,” he said.

Combrinck said he does not think standard investors who did not enjoy early access will get in at a fair price.

Ricus Reeders from PSG Hole In One Ruimsig said he would also avoid the Boxer IP as most of these listings do not work out. “Let the market find its level and volumes,” he said.

He added that Boxer is a middle-weight champion going up against the heavyweight champion, Shoprite.

“Boxer may get it right or may not. Let’s get a track record and eliminate the hype, after which you can assess the investment case.”

The Boxer numbers

Boxer Superstores is a leading discount grocery retailer in South Africa with an annual turnover of R37.4 billion, a trading profit of R2.1 billion, and 489 stores.

Boxer has a 47-year history and track record of consistent growth since Pick n Pay acquired the business in 2002 under the leadership of then-CEO Sean Summers.

The company has a market share of 68% of the discount grocery retail market and an estimated market share of 4.2% of the formal grocery market.

Boxer has added an average of a new store every week for the last three financial years and has experienced a 14% CAGR in store numbers over the same period.

It expects to add 65 new stores by the end of this financial year. In the medium to long term, it aims to double its store footprint by opening 60 to 70 stores yearly for the next six to seven years.

Boxer’s turnover grew at a CAGR of 18.6% between FY2022 and FY2024, with like-for-like growth of 7.7%. Boxer’s revenue grew by 19% in 2023 and 17% in 2024 to R37.8 billion.

Boxer also has strong profitability, reporting a net profit margin of 3.7% in its latest financial year, which is higher than Shoprite’s comparable net profit margin of 2.6%.

Over the past three reporting periods, Boxer’s net profit margin has strengthened, indicating that the company is growing its revenue at a faster pace than its expenses.

Boxer will issue 190,476,191 shares with a possible additional 11,904,762 shares if the IPO is oversubscribed.

The price range of the Boxer shares is estimated to fall between R42 to R54 per share. This translates into a market capitalisation of between R23 billion and R29 billion.

This would put Boxer’s IPO price at a price-to-earnings (P/E) ratio of 16 to 21 times earnings.

Interestingly, Pick n Pay, who currently owns 100% of Boxer, has a market cap of only R19 billion, less than Boxer’s IPO estimates.

Therefore, Pick n Pay stores in isolation have a negative market cap, which reduces the value of the overall Pick n Pay group. 

When Boxer’s equity and revenue figures are isolated from those of Pick n Pay, it becomes clear that Pick n Pay stores are valued negatively.

Boxer’s lowest expected market cap puts its price-to-sales ratio at 0.6 times revenue and its price-to-book at 12.3 times equity.

This means that the Pick n Pay group’s market value increases by R0.6 for every revenue unit and by 12.31 for every equity unit.

When isolating Pick n Pay’s revenue and equity at the group’s current market cap, the price-to-sales ratio is -0.01 times revenue, and the price-to-book ratio is -3.6 times equity.

Every unit of Pick n Pay store revenue decreases the group’s value by R0.01, and every unit of Pick n Pay store equity reduces the group’s value by R3.6.

If Boxer were to achieve its lowest estimate of a R23 billion market cap, it would imply that Pick n Pay stores contributed negatively to Pick n Pay’s value by R3.5 billion.