Shoprite continues to deliver strong results with HEPS growth of 9.9% y-y in 1H25. Its market-leading sales growth was underpinned by aggressive space expansion, mainly in the Checkers chain. However, we find same-store volume growth was less impressive, with flat volumes in Shoprite and declines in Checkers and Usave.
Management has indicated that capex levels will remain at around 3% of sales (c. R8bn) until at least 2030. We reviewed SHP’s historical capex activity and found that while its higher investments allowed it to gain significant market share, its ROE has not shown significant improvements.
We assessed whether SHP can sustain this elevated capex by analysing its cash flows over the last 20 years. We found that past capex and dividend levels have resulted in higher debt, but in recent years, its higher cash earnings comfortably covered its extensive capex programme and dividend payouts. We think SHP can even afford a higher dividend payout ratio if its cash earnings to sales ratio remains above 6%.