The announcement regarding a potential offer by Walmart (WMT) to acquire all the outstanding shares in Massmart (MSM) for R62.00 per share overshadowed MSM’s 1H22 results release. MSM’s continued underperformance resulted in a growing debt pile and a declining equity base. In our view, MSM needed a recapitalisation to shore up its capital base. There were three likely options, namely a rights issue (which WMT probably would have had to underwrite), a buyout by WMT, or WMT cutting its losses and selling its stake in MSM. Considering its initial investment in MSM dropped 89% in USD terms, the move sends a positive signal of WMT’s view of retailing in Africa, in our view.
The change in the CEO role is surprising, as the incumbent is an experienced WMT executive whose knowledge of the group would have facilitated the full absorption of MSM in the Walmart group.
MSM’s 1H22 results were disappointing as its discretionary product profile suffered from weaker demand from consumers grappling with rising inflation. The second half should have a soft base due to the civil unrest in the prior year, and the finalisation of the sale of its food retail business to SHP should provide some relief.