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Boxer IPO likely to be oversubscribed as Pick n Pay scrambles to reduce debt

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By: Business Report

There is likely to be an over-subscription of shares in discount grocer Boxer when Pick n Pay takes it out for an initial public offering (IPO) due to the chain’s profitable nature compared to its troubled parent’s retail chain, analysts told “Business Report”.

Pick n Pay last week announced that it was undertaking a R4 billion rights offer and spinning off Boxer for a separate IPO.

This came after Pick n Pay reported a negative growth in retail sales for the 47 weeks trading period to January 21, 2024, which was further to the R570 million post-tax loss for the half-year period to the end of August 2023.

Shares in Pick n Pay – which has operations in the region – are down 22.81% in the past seven days at R20.55.

Last week’s rights issue announcement by Pick n Pay had taken the market “by surprise as there was no confirmation about the rights price, the potential underwriters” or the exact timing, Roy Topol, a portfolio manager at Cratos Asset Management, said in an interview.

He described the rights issue announcement by Pick n Pay as urgent.

“The urgency of this announcement seems to have come from pressure from the lenders due to the high debt levels over the last year, which seem to have breached lending covenants,” he said.

Amid a “disappointing trade performance from Pick n Pay supermarkets, increased inventory levels and strategic investments”, Pick n Pay’s net debt grew from R3.8bn on August 27, 2023, to R7.2bn as at January 21, 2024. This had moderated this month after Pick n Pay received R0.5m in cash proceeds from property sales.

With its debt problematic, Pick n Pay says it has been trying to engage with key lenders under its long-term syndicated and bilateral loan facilities to ensure continued compliance with its long-term debt covenants. Nonetheless, the R4bn that Pick n Pay is seeking under its rights issue is “large relative to the market capitalisation” of about R11.4bn for the company.

“But with the Ackermans indicating that they are in support of the recapitalisation, this would imply that the founding family would have to put in around R1bn to follow their rights,” Topol added.

The Ackerman family holds a 25.53% stake in Pick n Pay.

Pick n Pay’s discounted grocer, Boxer, has been top performing for the company compared to the Pick n Pay branded chain. Boxer, Pick n Pay Clothing and Online continued to deliver strong results, improving on the growth delivered in the first half of the year during the period under review.

Now Boxer is being spun off.

Analysts believe that the Boxer IPO will likely be oversubscribed owing to its profitable nature.

“Boxer is the very profitable part of the business, especially compared to the rest. They should be able to get investors easy enough,” market analyst Simon Brown told “Business Report”.

He said it “was not great” though that Pick n Pay was selling off “a significant part of their best” business. “But it will give them some good cash flow, as will the rights issue,” added Brown.

Topol also said there “is likely to be plenty of demand for shares in Boxer”, which he described as “a well-run and highly profitable part of the Pick n Pay group and is probably worth more than the entire market cap of Pick n Pay” on its own.

“The issues that the group has faced are primarily from corporate-owned Pick n Pay supermarkets. So they could actually raise the full R4bn from selling a minority stake in Boxer alone, which makes the urgency and size of the rights issue to be bizarre,” said Topol.

Last month Pick n Pay appointed a new executive team geared to return its major supermarkets division to growth amid rising competition from rival operators, especially in the South African market.

Sean Summers, Pick n Pay CEO, said: “We have totally reorganised our leadership team and strengthened and simplified our operational structure to drive rapid decision-making, focusing on better in-store execution and excellent customer service.”

He also said: “Cutting debt and creating a sustainable platform for investment in growth” was the “next big step towards unlocking” the grocer’s clear potential. The company was set to lay out further details of the turnaround plan when it releases its full-year financials in May.



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