Although PIK reduced its headline losses by 45.3% y-y in 1H26, management’s guidance that the FY26 PnP operating loss will be in line with the prior year was disappointing. The PnP segment’s turnover was flat, but management was pleased with the improvement in corporate supermarkets’ LFL sales growth. We estimate that c. R6bn in annual sales may be sacrificed through its store rationalisation.
While total turnover has been maintained thus far despite store closures, we believe this could become more challenging once the impact of the closures annualises. Moreover, we think the rapid rollout of competitor Checkers’ stores could cannibalise neighbouring PnP stores’ sales, impacting their LFL growth. We calculate that a sales loss in excess of 15% to a new competitor store could significantly lower the trading margin of the existing store.
We attempt to unpack PnP’s GPM and argue that increased transparency through better segmental disclosure (by splitting corporate supermarkets, franchise, clothing and liquor) will allow investors to better understand the business, much as the increased transparency on Boxer revealed the underlying value of that business unit.
We doubt that the new supply chain partnership with DP World will significantly improve PnP’s supply chain efficiency. The Eastport DC was designed to optimise the flow of merchandise for one retailer. It may not be easy to partition the DC space for different businesses, and it could increase the risk of shrinkage, in our view.
We note that goodwill of R195m was recognised on the acquisition of the Botswana franchise operation. However, this business was underperforming, and PIK had previously impaired it. The transaction results in a debtor (whose recoverability was considered doubtful) being replaced by goodwill.