Although SPP’s 1H25 results were disappointing, the decisive action to exit Switzerland and the loss-making UK business could provide a sound base to grow from and allow management to focus on its core divisions.
The sales contraction in the Spar SA grocery business is worrisome, highlighting its vulnerability to low inflation and low space growth. Spar SA’s store base declined for the first time, and we believe this may be more due to offshore distractions than weak economic growth in SA. We argue that SPP could capitalise on Pick n Pay’s declining franchise base to support its space and top-line growth.
Spar Ireland recorded its first top-line decline since SPP acquired the business in 2014. We think that, absent a pipeline of acquisitions, Spar Ireland’s turnover growth could remain subdued. We think the trend towards value-seeking by Irish consumers could present a strategic challenge for Spar Ireland, as 74% of its space is smaller convenience outlets.
The exit from Spar Switzerland could free up capital, lower SPP’s gearing, and allow management to focus on the core SA and Irish businesses. We think Spar Switzerland operated at subscale, and it may be more appealing as a bolt-on acquisition for a retailer in the country. Spar Switzerland’s owned DC could be a valuable asset, although any proceeds would likely service the mortgage debt on it. The risk of the Swiss debt transferring to SA is, therefore, reduced, in our view.