THE BOTTOM LINE
Trolley for trolley, which retailer are you going to pick?
Despite Pick n Pay’s promising interim results, the market still seems to prefer Woolworths and Shoprite
It might be tempting to view Pick n Pay’s latest upbeat interims as a challenge to other retailers. The results do show a marked improvement compared with a few years ago. Its debt is paid off and the group is making progress with same-store sales.
But the reality is that Pick n Pay is still just another player in a crowded field. And is likely to remain one.
Shoprite remains the colossus with a market cap of R111bn compared to Pick n Pay’s R32bn. Although not a totally fair comparison, as Shoprite is strong in Africa in markets in which Pick n Pay does not have a presence, it does show that Shoprite is in a better position to use its market dominance to its own advantage.
Despite pedestrian annual results to end-July, reflecting a rise of 3.1% in turnover and headline earnings per share down 3.8%, Shoprite might still be in a position to effectively undercut Pick n Pay’s prices at the lower end of the market.
A lot of Pick n Pay’s turnaround success is already reflected in its present market price, with Pick n Pay at a price:earnings of 23. Shoprite is sitting at 20.
Competition from other players such as Spar and Woolworths is also unlikely to let up. The Woolworths market cap, after having retreated 25% so far this year, is at R51bn. Spar is at R33bn.
Woolworths is trading at a p:e of 14 and Spar at 17. Woolworths might offer the biggest upside potential. The market seems to agree – Pick n Pay shares are down 8% so far in 2018.