Pick n Pay launches R4bn rights offer

South African retailer Pick n Pay has unveiled a bold strategy to stabilize its balance sheet by raising R4 billion through a rights offer to shareholders and separately listing its successful Boxer business. This move comes after the company reported a loss of R570 million after tax for the six months ending August 2023. Despite facing challenges such as a decrease in overall sales and increased debt, Pick n Pay's Boxer business has shown promising figures. Under the leadership of CEO Sean Summers, the company is undergoing a restructuring of its leadership team and operational structure to improve decision-making and customer service. Thato Mashigo, Portfolio Manager at Sanlam Private Wealth, joined CNBC Africa to discuss Pick n Pay's recent decisions and future prospects. Mashigo acknowledged the disappointment Pick n Pay had been for shareholders in recent years, with the stock price declining by around 50% while competitors like Shoprite doubled in value. He noted that strategic and operational decisions played a significant role in this performance gap. However, Mashigo expressed optimism about the market's reaction to Pick n Pay's recent strategic moves, including the rights offer and partial listing of Boxer. The decision aims to address the company's financial sustainability and debt burden, positioning it for future growth. Mashigo highlighted the importance of improving the balance sheet and profitability, emphasizing that the capital raised through the rights offer and Boxer listing could significantly enhance Pick n Pay's financial position. The discussion also touched on the company's leadership changes, including the appointment of Summers as CEO. Mashigo pointed out the longtime partnership between Summers and the Ackerman family, Pick n Pay's largest shareholder, as a factor in the decision. While some market participants were initially skeptical about Summers' age and previous industry absence, Mashigo believes that Summers' appointment will bring stability to the company. The conversation delved into the need for Pick n Pay to focus on fundamentals to turn around its business, such as decentralizing decision-making, managing store rollouts effectively, and strengthening the brand positioning. Mashigo suggested that a clear strategy focused on improving trading densities and differentiating Pick n Pay from competitors like Shoprite and Woolworths will be crucial for the company's success. In conclusion, Mashigo highlighted Pick n Pay as a potential investment opportunity post-rights offer, particularly due to the strength of the Boxer business and the prospect of shedding loss-making stores. With a strategic roadmap in place and the support of shareholders, Pick n Pay is positioned to navigate its challenges and drive sustainable growth in the retail sector.