THE BOTTOM LINE
Pick n Pay: CEO has no option but to sweat that share price
Brasher has a million options but they’re all underwater. He's got 12 months to get investors excited about retail
Investors did not appear overly impressed with the recent trading update from Pick n Pay although it was one of the most upbeat statements from the retail sector in months.
Like-for-like volume growth of 3.5% in the six months to end-August is a sterling performance given that most of its competitors are struggling to hold on to their previous reporting period’s sales. Evidently savings on labour costs have been used to entice customers with lower prices.
After an initial slight firming following the update, the retailer’s share price eased back to around R65. At this level it is on a price:earnings ratio of a comparatively expensive 23 times; Shoprite is on 19 times and Woolworths on 14 times. It may be that, despite indications of a much-improved performance, investors have become too jittery about the grim conditions in which Pick n Pay and its competitors are trading to push ratings much higher.
Comparison with the previous financial year have been complicated by the R200m one-off costs relating to the voluntary severance packages accepted by around 3,500 employees. The trading update indicates that if those costs are stripped out of the earlier period then the normalised headline earnings a share show an increase of around 20%.
The interim results are due in mid-October and they may, or may not, prompt a review of the share price. At its current level of R65.60 it looks uncomfortably tight for CEO Richard Brasher’s million share options. Those options were due to vest in November 2017 on condition that the weighted average share price for the 20 days to November 12 was at least R68.03. That condition was not met and the options would have lapsed had Brasher not been granted a 12-month extension.