Getting there, but a way to go
Pick n Pay results show that the turnaround really has worked. Sure there is still more to do, but the group is finally at the starting blocks and can start to compete against the market leaders. Its biggest issue remains the trading margin at only 2.1%. This figure is half or less than those of its competitors and Pick n Pay needs to make it rise. The speed of the improvement is going to be critical; right now the retailer is priced as if this margin is around 4%, making for a very expensive share. Now, admittedly, I have been calling this share expensive for a long time, but sooner or later the market is going to want the profits to flow; even doubling that margin only puts Pick n Pay in line with its peers as far as share price valuations ultimately go. So, if the improving margin happens slowly, investors may tire and move elsewhere.
Right now Pick n Pay is priced as if this margin is around 4%, making for a very expensive share.