THE FINANCE GHOST Pick n Pay may need a miracle
It looks as though we are headed for another scenario of an ugly duckling and a swan emerging from an existing group on the JSE. Just like at Transaction Capital, where Webuycars will be unbundled and set free to the market to try to save the mother ship, Pick n Pay is planning to list Boxer separately and retain a controlling stake.
This means selling a significant minority stake in Boxer to the broader market and using that capital to breathe some life into the core Pick n Pay supermarkets business.
The latest sales figures make it clear why this needs to happen. Boxer grew 17.1% over the 47 weeks ended 21 January, whereas Pick n Pay’s core business fell by 0.1%. With Clothing sitting within that number and growing 17.5% (the star of the show), we can deduce that the core supermarkets business is going really, really badly. Just ask your
peer group where they do most of their grocery shopping and you’ll have your answer.
A retailer’s working capital cycle can break rather quickly when sales go wrong. Net debt at Pick n Pay has skyrocketed from R3.8-billion to R7.2-billion in months.
Pick n Pay may well be too big to fail for many reasons, ranging from unemployment to the exposure of banks and landlords, so I’m not surprised that lenders have waived the covenants to the debt facilities for the time being. The conversations in the background won’t be so friendly, though, which is why Pick n Pay has also signalled a potential rights offer of up to R4-billion to try to fix this mess.
If that sounds as if it won’t solve the problem, you would be correct. The real balance sheet fix is likely to come from the IPO of Boxer, a valuable and interesting business.