Spar (SPP) operates a chain of supermarkets across Southern Africa with 2,402 stores. It also runs the Build-It chain in hardware and building materials and the Tops Liquor chain. Additionally, Spar has operations in Southern Ireland under the name "BWG," which operates through 1,392 stores, and the Spar chain of 388 stores in Switzerland. The company is expanding into Poland with the acquisition of 80% of Piotr i Pawel, which has 77 delicatessens, for 1 euro. This operation is expected to break even in about two years as its outlets are converted into Spar stores. Spar spent about 80 million euros to stabilize the Polish company.
As a group, Spar is a serious competitor in the South African retail industry, making extensive use of franchising to expand its network. The development of the new Polish enterprise has been frustrated by COVID-19. Its diversification into Ireland and Switzerland gives it a solid rand-hedge component, which does not appear to be reflected in its multiple.
In its results for the year to 30th September 2023, the company reported turnover up 10.1% and headline earnings per share (HEPS) down 47.7%. The company said, "Of the factors negatively impacting operating profit, approximately R1.4 billion is considered non-recurring. Increased net finance costs due to rising interest rates significantly impacted profit before tax. Trading was negatively impacted by the general consumer environment as well as continued electricity load shedding. Internally measured wholesale price inflation was 9.7% for the reporting period. Our building materials business, Build it, reported a decline in turnover of 4.3%."
In a trading update for the 24 weeks to 15th March 2024, the company reported turnover up 8.8%, with Southern Africa showing a growth of 5.7%. The company said, "Build it delivered pleasing sales growth of 1.1% after a sustained period of market contraction. The pharmaceutical business delivered excellent turnover growth of 17.7%, driven by increased loyalty from Pharmacy at SPAR retailers and growth in Scriptwise revenue."
In a trading statement for the six months to 31st March 2024, the company estimated that HEPS would be between 3% and 13% lower. The company said, "The following factors impacted earnings from continuing operations during the current reporting period: • operating costs have been well managed, however, cost increases for the Group slightly exceeded lower-than-expected turnover growth; • the ongoing IT system issues at the KwaZulu-Natal distribution centre resulted in lost gross margin, impacting Southern African profitability; and • prolonged high interest rates have caused a significant increase in Group net finance costs."
In our view, the share is now underpriced at current levels and represents something of a bargain. However, investors should wait until the share breaks up through its long-term downward trendline, which does not appear imminent.
As a group, Spar is a serious competitor in the South African retail industry, making extensive use of franchising to expand its network. The development of the new Polish enterprise has been frustrated by COVID-19. Its diversification into Ireland and Switzerland gives it a solid rand-hedge component, which does not appear to be reflected in its multiple.
In its results for the year to 30th September 2023, the company reported turnover up 10.1% and headline earnings per share (HEPS) down 47.7%. The company said, "Of the factors negatively impacting operating profit, approximately R1.4 billion is considered non-recurring. Increased net finance costs due to rising interest rates significantly impacted profit before tax. Trading was negatively impacted by the general consumer environment as well as continued electricity load shedding. Internally measured wholesale price inflation was 9.7% for the reporting period. Our building materials business, Build it, reported a decline in turnover of 4.3%."
In a trading update for the 24 weeks to 15th March 2024, the company reported turnover up 8.8%, with Southern Africa showing a growth of 5.7%. The company said, "Build it delivered pleasing sales growth of 1.1% after a sustained period of market contraction. The pharmaceutical business delivered excellent turnover growth of 17.7%, driven by increased loyalty from Pharmacy at SPAR retailers and growth in Scriptwise revenue."
In a trading statement for the six months to 31st March 2024, the company estimated that HEPS would be between 3% and 13% lower. The company said, "The following factors impacted earnings from continuing operations during the current reporting period: • operating costs have been well managed, however, cost increases for the Group slightly exceeded lower-than-expected turnover growth; • the ongoing IT system issues at the KwaZulu-Natal distribution centre resulted in lost gross margin, impacting Southern African profitability; and • prolonged high interest rates have caused a significant increase in Group net finance costs."
In our view, the share is now underpriced at current levels and represents something of a bargain. However, investors should wait until the share breaks up through its long-term downward trendline, which does not appear imminent.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.