Mba Finance And Accounting Pick N Pay Retail Analyst Report 31 May 2010 Final
Transcript of Mba Finance And Accounting Pick N Pay Retail Analyst Report 31 May 2010 Final
Syndicate 5
Retail Analyst Presentation
Group Structure
Controlling InterestNo Outside
Shareholders Interest in PIK
Pick’n Pay Stores
Pick’n Pay Stores
Company Description
Pick’n Pay is one of the leading food (majority of sales), clothingand general merchandise retailers in South Africa
(33.7% market share). Its operations span Southern Africaand Australia through its Franklins operations and it has
small operations in select African Countries (Namibia, Lesotho, Swaziland, Botswana).
The Ackerman family, through separately listed Pickwik, control Pick ‘n Pay Stores
Food Retail Industry
782 stores in 6 countries(SA, Namibia, Botswana, Swaziland, Lesotho, Australia)
Targets LSM Group 5 – 10
1595 stores in 16 countriesShoprite / Checkers / Checkers Hyper U-save stores / OK / House & Home
1512 stores in SA onlySuper Spar / Quick Spar
Build it / TOPS
2009 Annual Report – Financial Highlights
Income Statement
EAT
EBIT
Turnover
Gross Profit
Income Statement Graph’s
2009 2008 2007 2006 2005R 0.0
R 10,000.0R 20,000.0R 30,000.0R 40,000.0R 50,000.0R 60,000.0R 70,000.0
Turnover
Pick n Pay ShopRite SPAR
2009 2008 2007 2006 20050.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
E.A.T
Pick n Pay ShopRite SPAR
2009 2008 2007 2006 20050.0
2,000.04,000.06,000.08,000.0
10,000.012,000.014,000.0
Gross Profit
Pick n Pay Shoprite SPAR
2009 2008 2007 2006 20050.0
500.01,000.01,500.02,000.02,500.03,000.03,500.0
EBIT
Pick n Pay ShopRite SPAR
Rm
Rm
Rm
Rm
Key Ratios
Sales increased 17.4% Food Inflation was around 5% for the period under review
Sales growth less than both Spar and Shoprite This indicates “buying-down” in Recessionary Environment
Gross Profit Margin 19% in line with Shoprite.
Lowest Operating Margin at 3.5%This is an area of concern. Total trading expenses increased a staggering 15.5%
(Comprising: Staff Costs, Rentals, Operations and Merchandising)
Lowest Interest Cover 15.68relative to both competitors
Lowest Dividend Cover 1.36relative to both competitors
Profitability Ratios - Competitor Analysis
Trading Expenses as % of Turnover
1 Employee Costs (20% Higher relative to competitors, and 10 – 15% overstaffed)
9.27%
2 Occupancy 2.15%
3 Operations 2.84%
4 Merchandising and Admin 1.70%
Stores Limited and it subsidiaries
Balance Sheetas @ 28 February 2009
68%
53%28%
17%
2009 2008 2007 2006 20050.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
Fixed Assets
NC ASSET
R’m
2009 2008 2007 2006 20050.0
5.0
10.0
15.0
20.0
25.0
Fixed Asset Turnover Ratio
ShopRite PicknPay SPAR
ShopRite : 1595 Stores in 16 CountriesPicknPay : 782 stores in 6 countriesSPAR : 1512 Stores in SA only
SPAR is performing the best, however no increase from last year.
PicknPay’s performance has increased slightly from last year to 11.5
ShopRite has maintained its position even with a 1bn increase in fixed Assets
2009 2008 2007 2006 20050.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
PPE
2009 2008 2007 2006 20050.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
PPE Turnover Ratio
ShopRite PicknPay SPAR
NC ASSET Cont..R’m
PicknPay Fixed Assets = 4.3bn, of which PPE = 3bn!
PicknPay’s PPE performance has increased from 2008 17.0 in 2009
Working Capital (Current Assets)
2009 2008 2007 2006 20050.05.0
10.015.020.025.030.035.040.045.050.0
Inventory Days
ShopRite PicknPay SPAR
SPAR is performing the best due to local Operations and efficient Distribution. Also easy access to suppliers hence no need for large storage
PicknPay and ShopRite on the other hand are expected to have larger inventory days because their operations span many countries. Depending on the location Supplier access may be limited hence the need for storage.
2009 2008 2007 2006 20050.05.0
10.015.020.025.030.035.040.045.050.0
Debtors Days
ShopRite PicknPay SPAR
Working Capital Cont. (Current Assets)
PicknPay and ShopRite are very similar! Even though their operations have increased, over the last 5 years, their debtors days have not slipped by much!
SPAR on the other hand, is a bit more relaxed! There seems to be no urgency to recover outstand debt.
2009 2008 2007 2006 20050.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
ShopRite PicknPay SPAR
Working Capital Cont.
(Creditor Days)
PicknPay Creditor days are currently at 66 days. This seems to be fair as compared to ShopRite and SPAR. A further increase in Creditor days may upset suppliers and possible tarnish PicknPay’s reputation!
Financial Structure
2009 2008 2007 2006 20050.0
10.0
20.0
30.0
40.0
50.0
60.0
Gearing(Debt / Equity) * 100
PicknPay Total debt = 716.4 million as @ year end 2009
Cash in the bank = 943 million (5 year Avg.)
The Retail industry is very stable, with Year on Year growth, hence PicknPay still has the capacity to gear up further.
PicknPay geared down possibly to maintain R.O.E > 60% due to poor Asset efficiency !
Gear down lower interest paid higher EAT
Performance Ratio’s
2009 2008 2007 2006 20050.02.04.06.08.0
10.012.014.016.018.020.0
R.O.A(Operating Profit / Total
Assets) * 100All companies have similar R.O.As
Their Operating profits are in proportion to their Total Assets
This is good indication of the ROA for the retail Industry!
2009 2008 2007 2006 20050.0
10.020.030.040.050.060.070.080.090.0
100.0
R.O.E(E.A.T / Total Equity) * 100
ShopRite PicknPay SPAR
PicknPay has the highest R.O.E as compared to its competitors. Their shareholders are well looked after. This sends out a clear
message to future investors.
Du Pont Analysis
R.O.E
R.O.A GEARING
PROFITABILITY ASSET EFFICIENCY
FIXED ASSET TURNOVER
WORKING CAPITAL
STOCK DEBTORS CREDITORS
ROE reduced by 7.8% from 2008
Increased by 1.5% from 2008. This is attributed to an increase
in T/O
Debtors days increased by 2.3 days – due to increase in
Revenue
Reduced Slightly Creditors was fairly constant
Ebit increased by 11.2% from 2008.
Geared down by 11.2% from 2008
Slipped Slightly from 2008 - 0.2%
Stores Limited and it subsidiaries
Cash Flowyear ending 28 February 2009
2009 2008 2007 2006 2005
-1,000.00
-500.00
-
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
Cash Flow from Operating Activities
Pick n PayShopRiteSPARRm
illio
n
Pick n Pay applying Banking and Retail Method. Suppliers are only paid after products are sold.
Cash Buffer generating interest income and increasing overall revenue & profit
2009 2008 2007 2006 2005
-2000
-1800
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
Pick n PayShopriteSPAR
Cash Flow Utilised by Investing Activities
Hundreds of supermarkets and hypermarkets have to be maintained as well as new ones to be opened
2009 2008 2007 2006 2005
-400
-300
-200
-100
0
100
200
300
400
Pick n PayShopRiteSPAR
Cash Flow From Financing Activities
Only significant item are R21.6 m of share purchases and R31m paid by employees for their share options.
2009 2008 2007 2006 2005
-500
0
500
1000
1500
2000
2500
3000
3500
Pick n PayShopriteSPAR
Cash and Cash Equivalents – Year End
During tough economic times, Pick n Pays cash pile of more than a R1 bn is still commendable, even though Shoprite super exceeds it!
RecommendationsFocus on Staff Costs
The key issue that has been a drag of trading margin over the last 3 years is Staff Costs, which has seen trading Margin decline from 3.6% (FY08) to 3% (FY10)
Dividend Policy Part of the historical appeal of Pick n Pays investors is the dividend payout. It has
the lowest dividend cover ratio amongst its competitors. However there is heightened pressure to deliver high dividend payouts.
Improve Distribution ChannelsPick n Pay can reduce its inventory days by improving its distribution channels.
Expansion in AfricaPick n Pay should pursue African expansion vigorously. Even though there is political
and economic uncertainty in the African markets, it is the high risk environment that yields highest financial returns as shown by MTN and Shoprite endeavors.
Economies of ScaleTo pursue price cuts, i.e targeting lower LSM, an effective strategy of volume driving
should be in place, so as to compensate loss through economies of scale.