Share

Pick n Pay targets local priorities

Johannesburg - Welcoming the decision of Pick n Pay Stores [JSE:PIK] to exit Australia after nine painful years, analysts have said the retail group should now channel its capital towards local store expansion and improving supply chains.  

Pick n Pay announced on Thursday it had decided to sell its struggling Australian subsidiary Franklins to Metcash Trading for R1.4bn. Metcash is based in Australia.
    
"This is a positive step in the right direction," said BoE Private Clients equity analyst Shanay Narsi. "The immediate need is to roll out centralised distribution capabilities throughout the country, by building state-of-the-art distribution centres."

Pick n Pay has lagged its peers in the development of distribution centres. The group has, however, been working hard of late to address that. Measures taken include the extension of its Longmeadow distribution centre in Gauteng.   
 
RMB Morgan Stanley retail analyst Danie Pretorius said the sale allows the group to redeploy capital at higher rates of return domestically. 

"They need capital to fund the build-out of their distribution centres, as well as for new store growth in South Africa and other African territories."

Pick n Pay entered the Australian market in 2001 through the acquisition of Franklins and Fresco stores. It has struggled with the business, making unsuccessful attempts for years to turn it around. 

Conservative on African expansion

"The [Australian] team did a fantastic job but it was difficult for them. We're struggling to compete," said Pick n Pay finance director Dennis Cope.
 
Pretorius said the Australian market is very competitive, with Coles and Woolworths formidable and much larger competitors. "Franklins as a standalone operation lacks the necessary scale to compete effectively in that market," he said. 

As a result Pick n Pay has never really been able to make significant profit out of the Franklins business. In its last financial year, the group said revenue from Franklins marginally grew 1.4% while profit was flat.

Though the R1.4bn price tag isn't a premium, analysts say it exceeds market expectations and is essentially a return of the original investment, estimated at about R1.5bn.

Cope said from an operational point of view, Pick n Pay incurred a loss in the Franklins business because the small profit the group made in recent years was not enough to cover losses from the early years. 

Cope said proceeds from the sale would be channelled towards the many programmes the group has put in place for the next couple of years, including local store expansion, refurbishment and supply chains.

The group has previously said it plans to erect 120 new stores over the next two years.

Cope said Pick n Pay remains conservative on African expansion, although this does form part of the group's long-term strategies.   

Narsi said because Pick n Pay prefers African operations to be franchised, he expects small investments in that area.

On Thursday afternoon, Pick n Pay shares were 2.7% up at 4 457c.

 - Fin24.com
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.9%
Rand - Pound
24.10
-0.9%
Rand - Euro
20.59
-0.7%
Rand - Aus dollar
12.42
-0.9%
Rand - Yen
0.13
-0.8%
Platinum
915.75
-0.8%
Palladium
1,028.36
-3.5%
Gold
2,159.96
+0.2%
Silver
25.03
-0.6%
Brent Crude
85.34
-0.1%
Top 40
66,252
0.0%
All Share
72,431
0.0%
Resource 10
53,317
0.0%
Industrial 25
100,473
0.0%
Financial 15
16,622
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders