PIK reduced its headline loss in FY25, following a R12.5bn cash injection from its two-step recapitalisation plan. Management is focused on improving LFL sales growth, but we think their willingness to forego market share by exiting some locations could be detrimental in the long term.
GPM improved by 20bps, but we find that this lags the margin uplift at its peers. We back out PnP corporate supermarkets’ GPM and estimate it could be 400bps lower than its competitors. While this could be an upside opportunity, we doubt the gap can be fully closed soon, as PnP could be operating less efficiently given the excess capacity in its supply chain.
We calculate that normalised expense growth, adjusted for non-recurring factors and depreciation, may have increased by 8.7% y-y. This raises some concerns about spending discipline after the capital injection. We question the appropriateness of some marketing campaigns and are worried that the excess cash could lead to poor capital allocation decisions.
The R85m NCI for Boxer provides an interesting read-through to its performance. We calculate that there was a sharp decline in Boxer’s profitability after the listing, which is worrisome as the period included the key festive season, and had the benefit of the 53rd week. This observation corroborates our bearish view on Boxer.
We make the case that PIK could pay a dividend based on Boxer’s earnings. PIK could receive R2.3bn in Boxer dividends over the next five years, and given its R12.5bn recapitalisation, any further cash infusion is unnecessary. This strategy could provide a 49cps dividend in FY26 (1.8% dividend yield), which can benefit shareholders while PIK executes its turnaround.