The successful listing of Boxer, and the subsequent surge in its share price well above the upper end of the IPO’s proposed pricing range, suggests there is considerable market interest in the company. While we acknowledge that Boxer has a compelling business model, we believe it is prudent to consider the downside risks of the share.
Our research shows that Boxer’s R106bn quantification of its whitespace growth opportunity may be overstated, as it does not consider the market shares of incumbents such as Shoprite and Usave (SHP). We show that a large part of the perceived opportunity is already well serviced by SHP, which means Boxer may have to compete aggressively for market share.
Management’s target of mid-teens turnover growth over the next five years will critically depend on the rollout of sufficient Superstores. We believe there is some risk of underachieving this rollout. Moreover, we note that it will need to progressively open more Superstores as its base grows – we estimate the planned 70 new stores p.a. would need to increase to 100 stores p.a. by FY29, and to 145 stores p.a. by FY31, to deliver the targeted turnover growth.
We demonstrate the vital role of supplier funding in the growth of a food retailer. We estimate Boxer accumulated around R2.6bn in such capital by FY24, but the pre-IPO payments to PIK removed this capital. We argue that Boxer may be at a disadvantage to its competitors who draw on such funding, as its store rollouts will be debt-funded.
We highlight the succession risk of the seasoned management team, with the potential exit of more than half the team by FY27.