It looks as though we are headed for another scenario of an ugly duckling and a swan emerging from an existing group on the JSE. Just like at Transaction Capital, where WeBuyCars will be unbundled and set free to the market to try to save the mother ship, Pick n Pay is planning to list Boxer separately and retain a controlling stake.

This means selling a significant minority stake in Boxer to the broader market and using that capital to breathe some life into the core Pick n Pay supermarket business.

The latest sales figures make it clear why this needs to happen. Boxer grew by 17.1% over the 47 weeks that ended on 21 January, whereas Pick n Pay’s core business fell by 0.1%. With the Clothing division sitting within that number and growing by 17.5% (the star of the show), we can deduce that the core supermarket business is doing extremely badly. Just ask your peer group where they do most of their grocery shopping and you’ll have your answer.

A retailer’s working capital cycle can break quickly when sales go wrong. Net debt at Pick n Pay has skyrocketed from R3.8-billion to R7.2-billion in months.

Pick n Pay may well be too big to fail for many reasons, ranging from unemployment to the exposure of banks and landlords, so I’m not surprised that lenders have waived the covenants to the debt facilities for the time being. The conversations in the background won’t be so friendly, though, which is why Pick n Pay has also signalled a potential rights offer of up to R4-billion to try to fix this mess.

If that sounds as if it won’t solve the problem, you would be correct. The real balance sheet fix is likely to come from the IPO of Boxer, a valuable and interesting business.

Spar outperforms Pick n Pay 

One has to be careful when comparing retailer results, particularly as the reporting cycles can differ so significantly. South Africa is a volatile environment and load shedding is a major factor, so small differences in performance can easily be explained by the numbers being for different periods.

Large differences are harder to explain away like that, so Spar’s core grocery and liquor turnover growth in South Africa of 6.1% for the 26 weeks to 16 February only makes the Pick n Pay numbers look even worse. Spar has had its own challenges, having given itself the near-term kiss of death with an SAP implementation at the KZN distribution centre. Have you ever seen an SAP implementation at a retailer go smoothly? Me neither. And yet there is considerable outperfor­mance compared with Pick n Pay.

The pain in the building materials sector is still clear to see, as Build it grew turnover by only 0.5%. Based on recent numbers from Italtile and Cashbuild and the associated outlook, the situation isn’t improving in that space any time soon. At least we make up for the stress on weekends, as Tops at Spar increased sales by 12.7%.

The weak rand gave the numbers from the offshore businesses a significant boost. Even in Switzerland, where turnover fell 5.7% in CHF, our battered currency transformed that into a 9.2% growth in ZAR.

Like Pick n Pay, Spar has work to do on the balance sheet and it has a headache in the form of its business in Poland. Unlike Pick n Pay, Spar’s core business is functioning fairly well, with obvious upside potential as the SAP issues are ironed out, which means drastic action probably isn’t needed.

Bidcorp: a different story

To end on a more positive note, we can consider Bidcorp as a global food services giant that is available to you right here on the JSE. Very little of the group revenue and profitability is achieved in South Africa, so this is one of the best rand hedges available on the local market.

In the six months to December, Bidcorp grew revenue by 24% and trading profit by 20.8%. Those are strong numbers, but you can see margin pressure on trading profit. The source is the UK business, where revenue increased by 21.2% and trading profit fell by 15%.

What can we learn from this? The first thing is that consumer problems aren’t exclusive to South Africa when interest rates have moved higher across the globe. The second is that even when things aren’t great, they still aren’t bad at Bidcorp. The share price may trade at a premium valuation, but the track record explains why.