No premium in the pyramid
Last operational results were poor
CAN THE SHAREHOLDING structure of a company affect operational performance? That’s difficult to determine and in most cases it would probably not. But Pick n Pay’s artificial control through a pyramid structure is being called to account, with shareholders claiming it’s affecting operating performance. “Shareholders are concerned about Pick n Pay’s poor operational performance. They believe deconstructing the pyramid would make the group more competitive. There’s also a concern that if performance remains poor, Pick n Pay could be taken over,” says Chris Logan, a director at Opportune Investments.
Just as owner control through a pyramid can be used to ward off a hostile predator, the best protection is good operational performance. That should translate to an appreciating share price – the best protection of all.
Pick n Pay’s most recent financial results (for its first half to end-August 2010) weren’t very inspiring and are even worse when compared with competitors in the retail food industry. Turnover grew by a credible 6% to R25,3bn but profit margins came under pressure, resulting in headline earnings per share dropping by 12%. The group put the results down to the competitive environment and reluctance of over-indebted consumers to spend too much. Critics said Pick n Pay had spent too much developing and redesigning stores, an investment that’s yet to yield results.
It’s quite typical for the share price of holding companies to trade at a discount to operating companies. In the case of