Good news for Pick n Pay

Shane Watkins, chief investment officer at All Weather Capital, says Pick n Pay has a good opportunity to be turned around and become a good investment.

Pick n Pay has had a dismal few years. It failed to compete effectively against Shoprite, and its share price plummeted by over 60% since 2018.

The company’s Ekuseni strategy to turn things around was a disaster, costing the retailer billions.

Pick n Pay started reporting huge losses, becoming technically insolvent for the first time since it was founded decades ago.

It was time for drastic action. Pick n Pay replaced its chief executive, Pieter Boone, with a company stalwart, Sean Summers.

Summers appointed a new management team and implemented a new turnaround plan. It included rolling back many of the changes under the Ekuseni strategy.

It launched a rights offer and listed its Boxer business separately on the JSE as part of a recapitalisation programme through which it raised R12.5 billion.

This money was used to wipe out its debt and strengthen its balance sheet, allowing it to invest in its Pick n Pay stores and become fighting fit to take on Checkers Shoprite.

Pick n Pay CEO Sean Summers said the successful execution of the recapitalisation plan provides a solid foundation for the retailer’s ongoing turnaround.

Under the leadership of a refreshed management team, Pick n Pay has made early progress in turning the company around.

It includes enhancing its product range, improving its product availability and customer service, and advancing its store reset programme.

These aspects have delivered early improvements in the underlying performance of the core Pick n Pay business.

“This is a pivotal step forward in Pick n Pay’s journey to deliver shareholder value and to create a stronger and more competitive future for the group,” the company said.

Analyst and investor opinion

Shane Watkins from All Weather Capital said they gather information outside of the company’s finances and statements to see how Pick n Pay performs.

He explained that they spoke to large property landlords to learn more about Pick n Pay’s performance, who provided positive feedback.

“There is good evidence that Pick n Pay CEO Sean Summers is having a positive impact,” he said.

Watkins added that Summers is lucky in two regards when it comes to turning the retailer around –

• Pick n Pay was so appallingly managed before he took over that there are easy wins.

• Shortly after he took over as chief executive, the South African economy started to recover.

The green shoots in South Africa’s economy include an end to load-shedding, lower interest rates, higher GDP growth forecasts, and the two-pot system putting more money in people’s pockets.

“These factors give Sean Summers a better chance of turning the core business around,” Watkins said.

He added that most of Pick n Pay’s business units, including the franchise stores, clothing stores, and liquor stores, are profitable.

“Only the 400 Pick n Pay corporate stores and the 22 Hypers are unprofitable. He knows what to fix, and it is doable,” Watkins said.