Consumer Research Africa

Shoprite (SHP) – Dealing with Debt

We assess the cash generation and utilisation of SHP over the past 16 years and argue the company’s capex intensity and its dividend payouts were more than their cash earnings generated over this period, which explains the rise in SHP debt. A comparison to 12 other food retailers,local and international shows most other retailers have sustainable cash utilisation to cash generation ratios, unlike SHP. We assess the cost and valuation of SHP’s property portfolio and its distribution fleet and estimate the proceeds SHP could raise through a sale and leaseback strategy. Regardless of the measures taken to free up capital, we believe SHP will have to reduce its combined capex to sales ratio and dividend to sales ratios to more sustainable levels.