Disgruntled investors take Spar to the cleaners
Grocery wholesaler and retailer Spar plunged almost 13% on Wednesday after missing its full-year profit target and slashing its dividend as disgruntled investors unloaded stock, wiping R4bn off its market value.
The news was especially bad for shareholders as the company also slashed its dividend by more than half to fund an upgrade of its IT systems across SA and Europe.
That decision had been communicated to the market previously, though.
By the close of trade the shares were down 12.7% to R144.10 — the biggest drop since the company listed on the JSE in October 2004 — after it reported headline earings per share (HEPS) of R11.61 for the 12 months to end-september — 3% lower than a year earlier.
Spar’s mainstay business is in SA, where competition among retailers is intense as hardpressed consumers are under pressure from rising inflation and interest rates.
The group also has operations in Ireland, Poland and Switzerland where the cost of living is also rising sharply as a result of an energy crisis brought on by Russia’s invasion of Ukraine.
“Earnings missed expectations. A lower dividend to pay for certain expenses, while prudent, was also bad news,” said Alec Abraham, an analyst at Sasfin Securities.
“SA sales were weak, again. While those Ireland, Switzerland and Poland sales were ahead of the market in local currencies, the gross margin was impacted by rising fuel, utility and people expenses.”
Spar Southern Africa reported wholesale turnover growth of 8.4% to R88.1bn, boosted by its core grocery business.
Total group turnover was up 6% to R135.6bn, with the bulk coming from Southern Africa (64.96%), then Ireland (23.08%), Switzerland and Poland.
Spar said the consequences of the Covid-19 pandemic, as well as higher energy prices saw operating expenses rise 8.5% to R15.9bn. These pressures were magnified in SA by load-shedding, it added.
The Polish business reported another loss, R455.4m this time around, mostly a result of many retailers quitting their contracts with the group’s wholesale division in response to new terms that would have required them to buy almost 40% of their goods from Spar.
Spar bought troubled distributor Piotr i Paweoefor a nominal €1 in 2019, and thereafter acquired the Polish wholesale licence when the previous supplier ran into difficulties.
It has since been trying to turn these operations around and management had said it expected the Polish business to break even by 2022.
“The market was possibly taken aback by the extent of the problems in Poland despite Spar’s efforts to rehabilitate this division,” said Caroline Cremen, portfolio manager at Adviceworx.
“SA investors have been repeatedly burnt by offshore investments made by other companies going off the rails so any hint of this in the current environment is going to cause jitters,” she said.
Spar declared a final dividend of R2.25 per share, bringing the total payout for the year to R4 down from R8.16 in 2021.