THE INVESTMENT CASE
The market usually loves a redemption story and Pick n Pay’s turnaround is textbook stuff. The company is doing all the right things: cutting costs, improving efficiencies, delivering strong earnings growth.
Still, many investors won’t touch it with a barge pole. The company is trading at a price-to-earnings ratio (P/E) of 36 times − by comparison, the UK retailing giant Tesco trades at 15, while a retailer like Sainsbury’s is trading at a discount to the value of its properties alone, placing zero value on the supermarket business and brand, says Nic Norman-Smith of Lentus Asset Management, which manages discretionary portfolios for clients. “I won’t look at Pick n Pay until it moves down to a more rational 15 to 20 times.”
He says the company is clearly priced for rapid growth, at a time of slowing economic momentum and consumer pain. Norman-Smith believes the middle-income market, Pick n Pay’s main consumer base, looks set to take enormous strain in coming months amid rising prices and job losses.
Pick n Pay is incredibly expensive in a very tough environment, says Chris Gilmour of Absa Wealth and Investment Management.