Good news for Pick n Pay

Pick n Pay received so much interest in its Boxer business that it will only allocate shares at the highest end of the range, which bodes well for the retailer.

On 11 November 2024, Pick n Pay announced that it would offer up to 202.4 million Boxer shares, around 40% of its share capital, at between R42 and R54 per share.

The Boxer order book attracted so much interest that it was multiple times covered at the top end of the range.

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

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’s issued share capital.

The tremendous interest in Boxer and the retailer’s achievement of a R54 share price mean that current Pick n Pay shareholders will retain a larger Boxer share than initially anticipated.

Jean Pierre Verster, founder and CEO of Protea Capital Management, was upbeat about the Boxer listing and its valuation.

“Even at R54 per share, I believe it is reasonable for such a high-quality asset,” Verster told BusinessDayTV.

The Boxer listing followed a R4 billion rights offer earlier this year, and the proceeds will be used to cover debt and reinvest in the core Pick n Pay supermarket business.

At a R54 share price, Pick n Pay would raise R8.5 billion in capital, which would be sufficient to cover its interest-bearing debt, which stood at R7.2 billion prior to the initial public offering.

Before the Boxer listing price was announced, this was the best-case scenario for Pick n Pay and its shareholders.

Investors loved what they heard, and Pick n Pay’s share price increased by 20% over the last week.

Pick n Pay’s share price is up 50% since the start of the year and is trading at its highest levels in a year.

Pick n Pay investment case

Following the Boxer IPO, Pick n Pay will hold a majority stake in Boxer and the existing Pick n Pay stores business.

The big question is how much the Pick n Pay stores business, which includes Pick n Pay retail outlets, clothing stores, and hypermarkets, is worth.

Another question is whether Pick n Pay will be seen as an investment holding company, trading at a discount to the sum of its parts.

“It is a tough question to answer,” Verster said. “I would not be surprised if there is a slight discount.”

He explained that there is still uncertainty on whether the current Pick n Pay stores business will be turned around and start generating profits in 2026, as planned.

Grant Nader from Benguela Global Fund Managers said Pick n Pay shareholders will benefit from the Boxer unbundling.

“There is a value unlock coming their way, and they will still hold the majority of Boxer after the listing,” he said.

However, he agreed with Verster that turning around the core Pick n Pay business still has a long way to go.

“They will be rightsizing and cutting costs. This is a scale game, and they are moving in the opposite direction,” he said.

“I will sit on the sidelines and wait. It is not a quick turnaround, which makes it a speculative investment.”

Gary Booysen from Rand Swiss said it is tough for Pick n Pay and Boxer to compete with Shoprite, the leader in technology and supply chain management.