Spar (SPP) – Factor in Franchise risk

We think there is a risk that a growing number of franchisees could come under financial pressure during the abnormal Covid-19 trading environment, and delay their payments to SPP. Without visibility of the franchisees’ balance sheets SPP could be surprised by a surge of franchisees requiring assistance, in our view. We demonstrate the sensitivity of SPP’s operational cashflow to franchisee payments, noting that a slowdown of more than 10% could have a significant negative impact on monthly cashflow. While competitors are looking to preserve cash, SPP has forthcoming capital commitments which could exacerbate its liquidity position.