Pick 'n Pay Stores (PIK) will be the stock in focus: (Price at time of writing: R64.01 as 9 January 2017)
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Background and overview of Pick 'n Pay Stores (PIK)
Pick n Pay is the quintessential family store focused on the customer. Since 1967 when consumer champion Raymond Ackerman purchased the first few stores, the Ackerman family’s vision has grown and expanded to now encompass stores in South Africa, Namibia, Botswana, Zambia, Mozambique, Mauritius, Swaziland and Lesotho. Additionally Pick n Pay owns a 49% share of a Zimbabwean supermarket business, TM Supermarkets. Our offer to customers focuses on groceries, clothing and general merchandise, but also includes additional value-added services to cater for our customers’ expectations and evolving needs. To ensure a convenient and accessible shopping experience the Group operates across multiple store formats, both franchised and owned. For more information on Pick and Pay click here.
Pick 'n Pay is one of the largest general retailers in South Africa, doing battle with Woolworths, Shoprite and Spar for market share in this industry. PIK has been having a tough time over the last five to ten years, but their turnaround plan is starting to gain traction and they have delivered solid earnings growth over the last three years.
Problems in Zimbabwe with import restrictions is having an effect on their Zimbabwean operations .
The graphic below shows PIK share price history over the last 4 years as well as provide various technical analysis tools
Pick 'n Pay is one of the largest general retailers in South Africa, doing battle with Woolworths, Shoprite and Spar for market share in this industry. PIK has been having a tough time over the last five to ten years, but their turnaround plan is starting to gain traction and they have delivered solid earnings growth over the last three years.
Problems in Zimbabwe with import restrictions is having an effect on their Zimbabwean operations .
The graphic below shows PIK share price history over the last 4 years as well as provide various technical analysis tools
PIK share price history chart
Data for the above graphic supplied by www.psg.co.za
Scroll over or click on the funnel chart to get more details of PIK's latest financial results
Financial review:
As can be see from the funnel chart above, one can hardly see the value for their profits as the amount is so small compared to turnover achieved. As was the case with Shoprite (SHP), margins for general retailers are extremely thin in South Africa, because of the amount of competition out there. This does bode well for consumers though as price wars between large retails helps to keep inflation in check. But ofcourse there is not a lot of meat on the bone in terms of profits being taken home after bringing in such large amounts of revenue.
The graphic below shows the contribution of some of PIK's operating divisions
As can be seen from the pie charts above, PIK earns the majority of its revenue from its South African retail operations. As this makes up 95.7% of their reported revenue. However 25.6% of their pre-tax profit is made up from their operations outside of South Africa. Clearly indicating that margins in South Africa is squeezed due to the though competition in its home market. Margins seem to be a lot stronger on their operations outside of South Africa. And this phenomenon has not changed since our previous valuation on Pick 'n Pay
While diluted headline earnings per share amounted to 79.9c a share, assuming the same earnings in the next 6months PIK will have earnings of R1.60 per share, placing PIK on a massive PE of 40.Which is extremely high, especially considering the thin margins they are working with, and the lack of room to increase their margins. At this rate an investor will wait 40 years for profits earned per share to match what they are currently paying for the share.
PIK did however generate R3.34 per share which shows they are for the most part a cash business and not dependent on credit sales. With Woolworths and Shoprite in the same space, PIK has its work cut out for it competing against the biggest retailer in Africa which is Shoprite and the more luxurious retailer, Woolworths.
While diluted headline earnings per share amounted to 79.9c a share, assuming the same earnings in the next 6months PIK will have earnings of R1.60 per share, placing PIK on a massive PE of 40.Which is extremely high, especially considering the thin margins they are working with, and the lack of room to increase their margins. At this rate an investor will wait 40 years for profits earned per share to match what they are currently paying for the share.
PIK did however generate R3.34 per share which shows they are for the most part a cash business and not dependent on credit sales. With Woolworths and Shoprite in the same space, PIK has its work cut out for it competing against the biggest retailer in Africa which is Shoprite and the more luxurious retailer, Woolworths.
A few financial ratios for PIK (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 3.92 (more than 2 shows high levels of financial leverage).
- Current Ratio: 0.88 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities).
- Quick Ratio: 0.38 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).
- Return on Assets (ROA): 2.23%
- Return on Equity (ROE): 10.98%
- Net Profit Margin: 0.1%
- Dividend Yield: 0.94%
Valuation:
Based on PIK's financial results, the markets they operate in and the economic environment they find themselves in, we value PIK at between R64.56 and R64.70 a share. We therefore feel that PIK is fully valued and would not recommend investing in them yet. It has come down since our last valuation when we mentioned that it is over valued, but our advise stands, we would rather suggest looking at Shoprite or Woolworths.
We use our Share Valuation Calculator as guide to valuing shares.
We use our Share Valuation Calculator as guide to valuing shares.