Get­ting there, but a way to go

Finweek English Edition - - MARKET PLACE -

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.

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