Pick n Pay – HEPS update

Following the release of PIK’s trading update for the 43 weeks ended 25 December 2022, we update our forecasts and target price. While turnover growth for the period was respectable at 9.3% y-y, the slowdown in the last 17 weeks of the period is concerning. The company also has to contend with significant additional load shedding-related operating costs, which we believe will be an indefinite recurring expense for all food retailers, given the poor outlook for Eskom’s generation performance.

We cut our diluted HEPS forecast for FY23 from 308cps to 254cps (-2.8% y-y) with DPS of 212cps (-4.1% y-y). Our DCF valuation is R47.81. We cut our one-year TP from R64.00 to R48.00 (on an exit forward P/E of 13.5x). We anticipate a 12-month return of 7.3% (including a dividend yield of 4.5%) and we revise our Hold recommendation to Sell.