Our opinion on the current state of PICKNPAY(PIK)Pick 'n Pay (PIK) is a retail grocery chain with 1,858 stores, mostly in South Africa but also in the rest of Africa. The company was started by Raymond Ackerman in 1967 and became the dominant grocery retailer over time, before being displaced by Shoprite/Checkers. Pick 'n Pay was in a slump when Richard Brasher took over as CEO in early 2013. Brasher set in motion a centralisation of distribution, which is now beginning to have a significant impact on efficiency and prices. He also implemented a store roll-out and a revamping of existing stores, which brought customers back to the chain.
The essential difference between Brasher's strategy and that of Pick 'n Pay's main rival, Shoprite, has been that he focused on making the South African operation more efficient and winning back customers through good pricing. Shoprite, on the other hand, expanded aggressively into Africa, which has not always been beneficial. This is shown by the fact that it was forced to abandon Nigeria and is subject to the relatively high inflation rate in Angola, which became a distinct problem for Shoprite. Summers has once again resumed the role of CEO, following his stint at Pick 'n Pay as CEO between 1999 and 2007.
In its results for the 52 weeks to 25th February 2024, the company reported turnover up 5.4% and a headline loss of 203.06c compared with a profit of 259.25c in the previous year. The company said, "Trading profit declined 87.4% to R385.0 million, reflecting a R1.5 billion trading loss for Pick 'n Pay (a sharp reversal versus FY23's R1.3 billion profit), and a R1.9 billion trading profit for Boxer (R1.8 billion profit in FY23). The result was further impacted by a 198.8% increase in net interest paid to R701.8 million, as a result of higher gearing and increased interest rates."
Technically, Pick 'n Pay has been in a downward trend since 2016 and has lost substantial ground to Shoprite. On the latest results, it remains in a long-term downward trend. The link-up with Mr. D and Takealot should help the company to catch up in the online shopping market. To recapitalise the business, it is planning to separately list Boxer and conduct a rights issue to raise R4bn in mid-2024. This would require the Ackerman family to inject R1bn to retain their position as 25% shareholders.
We recommended that you apply a 200-day simple moving average and wait for a clear upside break before investigating further. That break came on 27th May 2024 at a price of 2558c. Despite this, the share remains risky.