Pick n Pay (PIK) – Boxer knocks out debt

We offer our initial views on PIK’s two-step recapitalisation plan announced yesterday. The ballooning debt is concerning, and while poor trading at PnP supermarkets and higher stock holdings contributed to this, we think accelerated capex may have been the main driver. Management seems to have responded to concerns that the company was under-investing in comparison to the market leader, Shoprite, but we believe they failed to ensure that the necessary resources were in place before ramping up capex. We think shareholders would be justified in seeking an explanation from the Board on how this situation was allowed to develop.


We estimate that Boxer may have a valuation of R15.4bn, based on an OPM of 4%. A share placement of 25%-30% could raise R3.8bn-R4.6bn, by our estimates. Combined with the R4bn rights issue, PIK could be largely debt-free after the restructuring. However, the underlying issues affecting PnP supermarkets remain.


We caution that Boxer’s margin could be lower as a standalone company, as it will lose the benefit of shared services provided by PIK. Similarly, the unbundling could result in stranded costs in PIK, which could weigh on the already struggling PnP supermarkets.


It is unclear if the controlling shareholder will follow their rights fully and we highlight salient terms from the 2016 share structure scheme which dismantled the previous pyramid structure. B-shareholders will be diluted if they do not follow their rights and the control structure could unwind if the 25% minimum threshold is passed. However, we calculate that even if the controlling shareholder does not take up any shares, the maximum dilution would be to 37% voting rights.