Although SPP reported good diluted HEPS growth of 11.1% for FY24, the slowdown in 2H24 is worrisome. We think Spar SA’s franchisee base may have weakened. Over the past six years, Spar SA acquired 56 stores and on-sold 30 stores. The average price of stores on-sold over the last two years dropped significantly, suggesting less interest from new franchisees, in our view. In addition, another 22 franchise stores closed in FY24 without Spar intervening as a defensive buyer. We estimate these store closures may have shaved 100bps off its top-line growth in FY24.
While loyalty rates are improving in KZN, the loyalty in the rest of SA may have dropped by 230bps, on our estimates. This is worrying, given that these regions were not affected by the SAP implementation. Management said they have plans to address the decline in loyalty, and we think this may come at some margin cost.
Spar Ireland’s turnover growth of 2.8% y-y is the lowest since FY17, highlighting its reliance on acquisitions for growth. Acquisitions slowed in FY24, and we estimate the businesses acquired over the past seven years contributed at least 15% of FY24 turnover.
We think management may be leaning toward exiting Switzerland, but there seems to be no urgency on the matter. We believe a delayed exit could reduce the amount that SPP may realise from the disposal. Spar Switizerland’s number of stores serviced dropped from 363 to 300 in FY24, and further declines could undermine the value of the operation.