Pick 'n Pay Execution risks on the turnaround are too high relative to the risk-reward profile

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Pick 'n Pay Execution risks on the turnaround are too high relative to the risk-reward profile

7% 1.8% 0.1pp

Execution risk is too high, in our view. During our local roadshow last week (see

Half Yearly Forecasts (FYE Feb)

link), the key debate around Pick ’n Pay centered on the valuation re-rating

Adj. EPS (c)

argument, with some investors questioning the implied negative equity value 2026A 2027E 2028E

(market cap R15bn vs its 53.1% stake in Boxer worth R19bn). Even investors H1 -60 -16 25

skeptical of the turnaround acknowledge that a business generating R76bn in sales H2 7 50 90

cannot have negative equity value, leading most to adopt the valuation argument FY -53 33 115

as a cautious margin of safety with upside optionality from a potential future sale. Style Exposure

Our view, however, is that Pick ’n Pay has lost its structural competitive advantage

over Shoprite in driving cash sales growth – Pick ’n Pay's incremental sales of R1bn

compare poorly to Shoprite's roughly R20bn. The rising cost-push inflation

environment further complicates the execution of the turnaround plan,

compounded by an estimated cash burn of R4bn over the next three years.

Rising inflation gains will be offset by input cost pressures and further price

investment. While food retail inflation is often viewed positively due to its impact

on improving like-for-like sales, we caution that the current inflation is supply-

driven rather than demand-led, eroding consumer purchasing power and limiting

retailers' ability to pass on costs in a weak SA environment – evidenced by the

widening gap between reported inflation (+1-2%) and Food CPI (~4%). Fuel

accounts for about 1% of total costs across retailers but has a meaningful impact

on operating profit, estimated at 5-10%.