The Finance Ghost — the market lowdown on Bidcorp, Pick n Pay, Boxer and Southern Sun

The Finance Ghost — the market lowdown on Bidcorp, Pick n Pay, Boxer and Southern Sun
Illustrative image – From left: Bidcorp; Boxer, a Pick n Pay subsidiary; and Southern Sun. (Photos: Supplied)

Bidcorp continues to be a top pick for investors; Boxer and Pick n Pay Clothing rescue their struggling parent company; and Southern Sun adds some shine through rising tourism numbers and improved food and beverage revenue. 

Bidcorp delivers – again

Bidcorp has to be one of the most impressive South African business stories. The group has built a global empire in the food service sector, with a combination of organic growth and bolt-on acquisitions that drive market penetration in many different regions. As rand hedges go, this is easily one of the best ones.

Despite food inflation having softened dramatically and now running below core inflation on a global basis for the first time in two years, Bidcorp has managed to grow group revenue by 8.8% for the 10 months to April. Rand weakness has obviously helped here as the group earns revenue around the world, but that’s also why investors enjoy this company and are willing to pay a high multiple for it.

This isn’t just a top-line story. Gross margins are slightly up, which was enough to offset some pressure in operating costs. Ebitda margin was in line with 2023 and even working capital trends were in line with management expectations.

The business model works well, giving management the confidence to continue with the strategy of bolt-on acquisitions. It bought two businesses in this period and it looks as if it has at least three more lined up for the new financial year. If ever you wanted to invest in a great consolidator of businesses in a particular sector, this should be on your shortlist.

Knockout performance at Boxer

Pick n Pay is a mess. It’s suffering an ugly drop in volumes, with the core grocery business going backwards at pace. It bundles the Pick n Pay Clothing numbers in with the supermarkets, making it difficult to know exactly how poorly the grocery stores are doing. We do at least know that Pick n Pay South Africa was up 0.2% on a like-for-like basis and Pick n Pay Clothing was up 7.7% on the same basis, so the grocery stores have completely offset all the good work in the clothing business.

The star of the show is Boxer, with growth of 8.1% on a like-for-like basis. Sales are up 17.5% overall, which tells us that the store footprint continues to expand rapidly.

Pick n Pay Africa actually grew like-for-like sales even faster than Boxer, but the market doesn’t give much attention to the Africa strategy. Things are far too broken in the core market to think too much about anything outside our borders.

Aside from the R2.8-billion impairment on the supermarkets, another clue to how bad things are comes in the form of a R400-million trade receivables provision.

This suggests that franchisees are also struggling, which makes sense as consumers don’t know the difference between company-owned and franchised stores when they choose where to shop. Across the store footprint, Pick n Pay isn’t resonating with customers right now.

If you use comparable Heps as the group’s preferred metric, you’ll find a loss of -281.13 to -228.31 cents. In an attempt to fix this catastrophe, Pick n Pay is planning a rights offer of up to R4-billion as well as a separate listing of Boxer on the JSE.

Southern Sun and record profits

The tourism industry is alive and well. We have great weather and a currency that makes us an incredibly cheap destination for tourists from developed countries.

Whatever the reasons, Southern Sun has reported a 77% increase in adjusted Heps for the year ended March 2024. Before you get worried about the use of adjusted Heps, this is completely warranted as the base period included a once-off separation payment of R399-million from Tsogo Sun that ruins year-on-year comparability and doesn’t reflect the ongoing economics.

An increase in the average room rate of 9% is a handy driver of revenue alongside an improvement in the occupancy rate that takes it nearly back to pre-Covid levels. Another highlight is that food and beverage revenue is up 15%. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.


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