Wunderbaar, it still is not. After an early drubbing by investors on the initial news of its R9.7bn German NKD acquisition, this week the Mr Price board set out to persuade investors that the deal was actually a real winner.
Judging by the response since, the market just isn’t buying it. Within two days the share price had slumped a further 5%. Clearly, many of the more than 200 analysts in attendance at Tuesday’s capital markets presentation brushed off CEO Mark Blair’s assertions that: “You’re going to leave the room and leave the presentation with quite a good and positive view of the company and its prospects.”
Not that the board didn’t give it good go. Blair’s remark was partly repeated when chair Nigel Payne wrapped up the two-and-a-half-hour session, attributing the retailer’s share slide to the lack of information publicly available. “Hopefully the fact that today we’re at last able to share more information … you’ve now got much greater clarity.”
For starters, said the board, they’d eventually found the right international target after years of careful search. Or rather, Mr Price had been found by a “top-notch financial adviser” acting on behalf of the seller – in this case, TDR Capital, the private equity firm selling NKD.
Turns out that during this “highly disciplined” search Mr Price had rejected several deals including Australia-based David Jones (which went on to nearly sink Woolworths) and an approach for a tie-up with Steinhoff.
Not a fixer-upper
Payne and Blair then waxed lyrical about the German purchase; how it fitted in so well with the Mr Price culture and strategy; how the two management teams would be kept separate so there would be no drain on South African management; how cash-generative it was; how it would be earnings accretive from financial 2027 and would underpin strong growth for the enlarged group in the many years ahead; and how, most importantly, it wasn’t a “fixer-upper”. What wasn’t to love about it?
Well, among the analysts that Currency canvassed, the prevailing view was that the presentation had provided little in the way of new information.
Victor Seanie, head of research at Benguela Global Fund Managers, which issued an excoriating report on the transaction early this year, was certainly not persuaded. “Our view on the merits of the NKD transaction remains unchanged,” he told Currency after the presentation.
The market reacted badly, said Seanie, “because we did not get assurances about several of our concerns”. He welcomed the interesting insights provided on a number of fronts, such as NKD’s data science tools, its historic gross profit margin trajectory and its limited overlap with Shein customers. “Unfortunately, other important metrics such as pre-IFRS 16 ebit [earnings before interest and tax] margins and free cash flow margins were not disclosed.”
Benguela Global Fund Managers was so irked by the deal, and the fact that the board hadn’t sought shareholder approval, that in January it made the unprecedented decision to request the JSE to intervene. The deal should not be a category 2 transaction – below the 30% of market capitalisation threshold for shareholder approval – but should be category 1, argued Benguela, on the basis of the cumulative value of deals done since 2021.
The JSE rejected the request, and the Takeover Regulation Panel subsequently dismissed the appeal with costs.
A R17bn rejection
Yet Benguela is hardly alone in its dislike of the purchase: since early December, Mr Price’s shares have plunged nearly 30%, wiping out almost R17bn worth of value from the retailer’s market capitalisation. So, with one week to go before finalisation of the deal on March 31, it has already been massively destructive of shareholder value.
Of course, the disruptive war in the Gulf has hit all equities hard this week, and Mr Price’s director of investor relations, Matt Warriner, was keen to tell Currency the share price move “more likely reflects the sell-off of domestic stocks based on tensions in the Middle East”.
Warriner described the presentation as a “good engagement”; management, he said, had received “positive” feedback on several key messages.
And apparently there’s more information to come. “This will be a multi-stage process until such time that we own NKD and disclosure increases in our reporting cycle,” said Warriner.
However, like others, Seanie is concerned about Mr Price’s unsubstantiated optimism for NKD. Much of it appears to be based on NKD’s business plan for the future rather than its actual past performance.
Overly optimistic?
As Seanie pointed out: between 2019 and 2024, NKD’s revenue compound annual growth rate (CAGR) was 3.1%. Yet, for 2024-2030, it’s targeting revenue CAGR of 6.5%, without much explanation for the sudden doubling in the growth rate.
“In the context of intense competition among European value retailers, online competitors, NKD’s disadvantages (such as scale and brand recognition) as well as low European GDP growth, Mr Price’s forecasts seem optimistic,” said Seanie.
36ONE’s Cy Jacobs, who publicly slammed the deal within days of the December announcement, tells Currency that NKD’s typical customer profile – heavily weighted towards women 40-65 years old who shop in store – does not bode well for long-term growth.
And few investors seemed to take comfort from Blair urging them essentially to disregard the past including the “unfortunate set of events” that occurred between 2019 and 2025.
“We firmly believe the past history and past performance is not reflective of the future potential of this business … the business plan is working, what management put in place is working,” said Blair. A view reinforced a little later by Mr Price CFO Praneel Nundkumar, who told those attending the presentation that NKD’s past “is not reflective of the future”.
Not locked in
Jacobs, however, is stunned that the management team behind this new business plan had not yet been locked in with enticing remuneration packages. Given the heavy reliance placed on this plan and the importance of the two executives in charge, this seems essential. But don’t worry: Payne told investors the group’s remuneration committee is “working on it”.
Muneer Ahmed, chief investment officer of Aeon Investment Management is also concerned about optimistic margin projections provided without details on how they’ll be achieved. But he confessed to feeling a little more positive after the presentation and in particular was happy with assurances that Mr Price would not have to pump capital into a capex-starved NKD after the deal.
However, Ahmed isn’t happy enough to change his mind about Mr Price overpaying for the acquisition. “I still think they hugely overpaid for it,” he tells Currency, though he does think the share price slump might have been overdone.
As for the deal’s long-term prospects, as Ahmed says: “Let’s hope we’re all wrong and Mark [Blair] is right.”
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Top image: Rawpixel/Currency collage.
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