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Brasher anything but rash in yanking Pick n Pay into line


Brasher anything but rash in yanking Pick n Pay into line

Without harsh measures, CEO has overseen a powerful share price rise since he took over five years ago

Ann Crotty

Pick n Pay CEO Richard Brasher has overseen one of the strongest share price performances in the food retail sector over the past five years.
Pick n Pay’s share price of R74.15 is 49% ahead of the R37 it was trading at in August 2013, just months after Brasher took the helm. Only Spar, which enjoyed a 65.5% surge in its share price over the five years, did better.
Shoprite is currently 28% ahead of its August 2013 level and the sector outlier, Woolworths is down 21%.
The five years have been a tough time for all of the retail groups, not just food retailers. All have battled to deal with exceptionally difficult trading conditions.Woolworths looked to Australia to protect its profits from the sluggish SA economy. It was also hoping for a currency boost from the expected decline in the rand. The R21.5bn purchase of David Jones generated much investor excitement, pushing the share price to a high of R107 in November 2015. The excitement quickly turned to resentment as the new South African owners failed to deal with the problems of the ageing store format in Australia.
Spar’s overseas venture, in Ireland and Switzerland, proved to be considerably more successful and explains the steadier upward trend the share price has enjoyed in the past five years. It is currently off its five-year high of R222.65, reached in March this year, but not by much.The Shoprite share price seemed trapped in a band between R150 and R200 until March 2017 when it began a surge to a high of R277 in March 2018. Disappointing performances from its previously strong businesses in other African countries has knocked the share price in recent months.
Meanwhile over at Pick n Pay last year’s voluntary severance programme (VSP) and the new entry-level wage agreed with the trade unions seem to have lifted investors hopes that the group will finally deliver on its long-promised turnaround. The VSP removed 3,500 employees from the payroll at a cost of R200m.A research report by JP Morgan, released earlier this year, said the two employee initiatives, implemented in financial 2018, should significantly reduce employee costs. According to the report employee costs are the “key cause of the substantial operating margin differential between Pick n Pay (2.3%) and Shoprite (5.8%)”.
The new entry-level wage agreement brings Pick n Pay into line with Shoprite and the regulated sectoral minimum wage, which JP Morgan estimates is about 20% below Pick n Pay’s previous entry level wage. Given the annual 25% employee turnover and management’s aggressive store rollout plans, the cost savings will grow as new workers are taken on at the lower rate. Chairman Gareth Ackerman is talking of 15,000 new jobs over the next three years.
Sasfin portfolio manager Alec Abraham says the expected benefits from the VSP are underpinning demanding profit expectations for the six months to end-August. “I’m on the conservative side with an expected earnings increase of 22.8%; the FACTSET consensus is around 29%,” said Abraham. He said the VSP was necessary but must have been difficult for the Ackerman family, which has always prided itself on taking good care of its staff. “I’m hoping this year they’ll make good on their long-promised turnaround programme,” said Abraham.

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