We evaluate the capital investments of SHP in recent years, and argue that its excellent 5.76% net margin comes at a hefty capital requirement. We show that the level of DC space approaches that of a much larger Tesco UK, and that our assessment of the financial case for the latest ZAR1.6bn DC in Cape Town, show that this DC may operate at a loss in its early years. As SHP’s OPM approaches 6%, we think it may be nearing a ceiling and SHP may need to slow down capex investment (and boost Asset Turnover) to deliver higher ROE’s going forward.
