• ·        R2.8 billion asset impairment in Pick n Pay Supermarkets business.
  • ·        Recapitalization plan includes R4 billion rights offer and Boxer IPO.
  • ·        Boxer delivers strong growth, potential spin-off to unlock value.

Harare - Pick n Pay, the prominent South African grocery and retail group which has a partnership with TM Supermarkets in Zimbabwe, a Meikles subsidiary, has unveiled a significant strategic plan that could reshape the company's future. The key developments include a proposed rights offer of up to R4 billion, followed by a planned initial public offering (IPO) of the group's Boxer business on the Johannesburg Stock Exchange.

Pick n Pay is a South African supermarket chain that was founded in 1967 and has grown to become one of the largest retailers in the country. The Pick n Pay group operates over 1685 stores across several countries operating through multiple store formats under two brands – Pick n Pay and Boxer. While the majority of Pick n Pay's stores are located within South Africa, the company also has a presence in several other southern African countries, including Namibia, Botswana, Zambia, Zimbabwe, and Swaziland, making it a significant player in the regional retail market.

The centerpiece of Pick n Pay's plan is a two-step recapitalization process. The first step involves a renounceable right offer of up to R4 billion, expected to take place in mid-2024. This capital raise will be used to repay the group's existing debt, which stood at R6.1 billion as of February 2024.

By reducing its debt burden, Pick n Pay aims to improve its financial flexibility and resilience. This move aligns with the group's strategic focus on turning around its underperforming Pick n Pay Supermarkets business, while capitalizing on the strong growth of its Boxer, Pick n Pay Clothing, and Online segments.

The second part of the recapitalization plan involves a proposed IPO of the Boxer business, which is expected to take place towards the end of 2024. Boxer, the group's value retail chain, has been a standout performer, delivering double-digit sales growth during the 52-week period ended February 2024.

By potentially listing Boxer as a separate entity, Pick n Pay aims to unlock the inherent value of this high-growth division and provide shareholders with a direct investment opportunity. This strategic move could also allow Boxer to pursue its own growth initiatives more independently, potentially enhancing its competitive positioning.

Sales Update

Source: Pick and Pay IR/ Equity Axis

The proposed recapitalization and Boxer IPO could have significant implications for Pick n Pay shareholders. The rights offer will provide existing shareholders with the opportunity to participate in the capital raise, potentially increasing their stakes in the company.

Moreover, the separation of Boxer could create a distinct investment proposition, potentially attracting new investors and enhancing the overall valuation of the Pick n Pay group. Shareholders will also benefit from the reduced debt levels, which are expected to lead to lower interest expenses and improved profitability in the long run.

While the announced developments present opportunities for Pick n Pay, the group also faces challenges. The underperformance of the Pick n Pay Supermarkets business, which has led to significant asset impairments and contributed to the expected loss for the 2024 financial year, remains a pressing concern.

However, the strategic plan's focus on turning around the Pick n Pay Supermarkets division, coupled with the continued growth of Boxer and the group's other high-performing segments, could potentially restore the group's overall profitability and long-term competitiveness.

Pick n Pay's announcement of a major recapitalization plan and a potential Boxer IPO signifies a pivotal moment in the group's evolution. These strategic moves aim to strengthen the company's financial position, unlock the value of its diverse business units, and position Pick n Pay for future growth and success. As the group executes on this plan, shareholders and the broader market will closely monitor the outcomes and their impact on the company's performance and shareholder value.

- Equity Axis News