What now for Pick n Pay? Share price plummets after retailer announces R4bn rights issue

Pick n Pay in South Africa has announced a new strategy to raise R4 billion through a rights offer to shareholders.

The retailer also intends to list its top-performing discount Boxer chain as a separate entity on the Johannesburg Stock Exchange (JSE).

The plans were announced in its sales update for the 47 weeks ended 21 January 2024.

The fact that Pick n Pay needs both a capital raise and to sell some of Boxer reveals the severity of the situation in which the company finds itself, reports BusinessLIVE.

"Pick n Pay South Africa sales for the period declined by -0.1%, with like-for-like sales growth of +0.7% reflecting action taken to close under-performing stores..."

"Boxer continued to deliver on its commitment to providing exceptional value for customers... The Group believes that this leading performance demonstrates the strength of the Boxer brand and the resilience of its operating model in a difficult and highly competitive trading environment."

Pick n Pay Investor Relations

Bruce Whitfield gets some insight from Meryl Pick, portfolio manager at Old Mutual Investment Group.

Pick says she does not share the sentiment that investors would see Ackerman family control as the deciding factor around whether to follow their rights or not.

"The Ackerman control and the economic voting rights have been part of the investment case for decades now, and people have held the share... I think the question would be, how would that control influence capital allocation going forward?"

Meryl Pick, Portfolio Manager - Old Mutual Investment Group

She notes that the return of CEO Sean Summers to the Group, endorsed by the Ackerman family, has seen him given leeway to put forward his view of the strategy, apparently now resulting in decisive action around the balance sheet.

"After a number of years of potentially questionable capital allocation decisions... in particular prioritising, or one could argue funding the dividend through debt... we're seeing a pivot now to take some quite tough decisions on the balance sheet - so they're in control NOW, and making these decisions."

Meryl Pick, Portfolio Manager - Old Mutual Investment Group

It will become more evident during the course of 2024 what returns Boxer is actually generating, as those numbers are still somewhat of a mystery, Pick says.