THE IN­VEST­MENT CASE

Finweek English Edition - - COVER -

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.

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