In a bad place
The Pick n Pay results show its trading profit margin increasing to 2.3% versus 2.1% in the previous year. This is on the back of sales up by a very modest 7% and diluted HEPS up by 17.2%. However, the like-for-like sales figure was up only 3.4% while the company’s inflation was 6.1%, making for a negative 2.7% growth. Seemingly the retailer is still losing market share, and I wonder if changes to the Smart Shopper discount programme will cause this trend to continue. The share price is off by more than 25% since the high of 8 424c in August 2016, and for the first time in years the stock is only modestly expensive on a forward price-to-earnings ratio (P/E) of around 21. Shoprite*, on a forward P/E of some 19.5, boasting better margins and solid exposure in the rest of Africa, remains my preferred pick in the low-LSM food retail space.