Great deal in a mar­ket grow­ing faster than SA

Financial Mail - Investors Monthly - - Analysis -

Spar’s im­age has long been one of a re­li­able but dull in­vest­ment. It is rapidly los­ing that im­age as it moves into a new phase of dy­namic in­ter­na­tional growth.

The game changer is an 80% stake in Ir­ish Spar brand owner BWG, ac­quired in Au­gust for €55m. The deal, struck at a low 4.8 PE, fell into Spar’s lap.

“BWG ap­proached us,” says Spar CE Gra­ham O’Con­nor. “They turned down two bet­ter of­fers. They wanted our ex­per­tise.”

BWG is a per­fect fit for Spar, both shar­ing a business model of whole­sale dis­tri­bu­tion to owner-run stores. They also have a 50-year re­la­tion­ship through Spar In­ter­na­tional, co­or­di­nat­ing body of Spar brand own­ers in 36 coun­tries.

“BWG is a great ac­qui­si­tion,” says Richard Mid­dle­ton, man­ager of In­vestec Growth Fund. “It will be a win­ner for Spar.”

It is al­ready prov­ing so. Con­sol­i­dated for only two months of Spar’s year to Septem­ber, BWG boosted Spar’s pre-tax profit from what would have been a 8.2% rise to 11.2%.

BWG brought with it 850 Spar and Mace branded stores in Ire­land and 250 Spar stores in south­west Eng­land. Un­like Spar in SA, where the fo­cus is on large Su­pers­par stores, those served by BWG are con­cen­trated in the con­ve­nience sec­tor.

BWG’s mar­ket fo­cus could not be bet­ter at a time when Ger­man dis­coun­ters Aldi and Lidl are mak­ing big in­roads into UK and Ir­ish food re­tail mar­kets.

“They are tar­get­ing big su­per­mar­kets, not the con­ve­nience sec­tor,” says O’Con­nor.

The tim­ing of Spar’s BWG deal was also op­por­tune. Ire­land, hard-hit by the global fi­nan­cial cri­sis, is on a ro­bust re­cov­ery path. End­ing a five-year re­ces­sion, Ire­land’s GDP growth has re­bounded and, says its cen­tral bank, will in 2014 come in at 4.5%, the high­est in Europe. An­nual growth will av­er­age 3% over the next five years, pre­dicts Ir­ish fi­nance min­is­ter Michael Noo­nan.

BWG is well po­si­tioned to ride Ire­land’s growth surge. Hav­ing used the pro­ceeds from the Spar deal to re­pay a heavy debt bur­den, it will plough €100m into ex­pan­sion over the next five years, says O’Con­nor.

Spar is also look­ing to ramp up op­er­at­ing mar­gin on BWG’s an­nual turnover of some R17bn. At 2.4% it is well be­low Spar’s 3.5% in SA. Moves so far in­clude shift­ing BWG’s per­ish­able prod­uct dis­tri­bu­tion into its own ware­houses with as­sis­tance from Spar’s lo­gis­tics spe­cial­ists, says O’Con­nor.

In SA, Spar is more than

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.