PPH delivered an improved performance in FY24, albeit off a low base due to the disposal of The Building Company. The performance of CGM was modest, mainly due to a slowdown in sales growth (+2.3% y-y) in the second half, attributable to warmer temperatures during winter months. PEP and Ackermans had more full-price sales during the period, but Ackermans’ recovery did not meet management’s expectations, thus PPH impaired the business. We also think that PPH’s over-indexed position in kids and babywear may have negatively impacted sales, which were muted for this category according to RLC data, with volumes under pressure for most of 2H24.
Now that TBCo has been sold, management has initiated several acquisitions to bolster existing segments, namely through the acquisitions of Shoprite Furniture and Choice Clothing, the latter for a purchase consideration of less than R100m. This acquisition could allow PPH to increase its adultwear exposure, but we are cautious that a low-margin, off-price retailer could dampen CGM margins.
Pepkor Lifestyle had a much-improved performance in FY24, with good expense control helping to expand OPM by 90bps to 5.9%. We believe the Home division should benefit from economic tailwinds such as lower interest rates and increased discretionary spend from retirement savings withdrawals, reflected in the division achieving sales growth of 11.5% y-y in the first seven weeks of 1H25. The acquisition of SHP Furniture would provide Lifestyle with greater scale and revenue, but the addition could dampen OPM as SHP’s low trading margins and lower densities would need to be rectified.
FinTech experienced strong revenue growth of 24.5% y-y, mainly aided by the reclassification of the credit books and the normalisation of the Flash product mix. Although the credit book is healthy, PPH is expected to slow down book growth, particularly in A+, which should help to improve returns, in our view.