No more red for Pick n Pay

The successful Boxer listing helped Pick n Pay resolve its debt burden and enter positive territory in the Pick n Pay stores segment.

Discount retailer Boxer was listed on the Johannesburg Stock Exchange (JSE) under the ticker “BOX” on Thursday, 28 November 2024.

The retailer’s initial public offering (IPO) concluded on 22 November, with 157.4 million shares allocated to qualifying investors at a share price of R54.

The Boxer IPO raised R8.5 billion for its parent company, Pick n Pay. This was the final step in Pick n Pay’s two-phased recapitalisation plan.

The first step was the Pick n Pay rights offer. It was more than double oversubscribed and raised R4.0 billion in August 2024.

When Pick n Pay first announced its two-step capitalisation plan in February, Pick n Pay Group’s market cap was R10.7 billion.

Based on Pick n Pay’s market cap when it first announced the rights offer, its break-even ex-rights market cap should’ve been R14.7 billion.

However, by the time the rights offer was concluded, Pick n Pay’s market cap stood at R16.4 billion and had already unlocked R1.7 billion in value.

The second step, a capital raised through the Boxer listing, enabled Pick n Pay to repay its long-term debt and convert interest costs to interest earnings.

Pick n Pay now holds cash reserves critical for its turnaround, which will be used to invest in new stores and store refurbishments.

Boxer was a hit among investors. On Friday, its share price opened at just over R65 per share, putting its market cap at R29.7 billion.

Pick n Pay Group’s total market cap is currently R21.9 billion, and its 65.5% share of Boxer’s market cap is R19.5 billion.

This means that, after the completion of the Boxer IPO, the market priced the Pick n Pay stores segment at R2.4 billion.

Before the Boxer listing, Pick n Pay’s market cap was lower than Boxer’s. Considering Boxer was 100% owned by Pick n Pay, the market valued Pick n Pay stores negatively.

This shows that Boxer’s unbundling was a sound financial decision and that the market valued Boxer more as a standalone business as part of Pick n Pay.

Investors were prepared to pay much more for Boxer shares separate from the Pick n Pay Group, which unlocked roughly R17 billion since the conclusion of the rights offer.