Boxer’s off with a bang!

Woof! Animal spirits ruled Boxer’s Thursday debut on the JSE. The question now is which stock to buy: the fast-growing retailer or its deeply discounted parent, Pick n Pay?
5 mins read

The Boxer tribe was out in full force on Thursday morning to cheer the retailer’s listing, which JSE CEO Leila Fourie somewhat implausibly hailed as an inflection point for the exchange.  

The JSE has seen a slow puncture of public companies on its platform in the past few years rather than any stampede towards the bourse – but Boxer’s public debut was a move essentially forced by parent Pick n Pay’s debts as a way to crystallise money and wipe the slate clean.  

That’s not to say it wasn’t a hugely successful debut: such was demand for its shares that the opening auction was extended and Boxer’s first trade came in at R63.01 – more than 16% up on its pre-listing price of R54 a share, giving the retailer a market cap of almost R30bn.  

That compares to Shoprite’s R174.7bn, Woolworths’ R62bn, Spar’s R26bn and Pick n Pay’s own R22.3bn. 

Pick n Pay CEO Sean Summers – who can finally talk freely about the listing – and who had been criticised for taking the private placement route rather than a fully-fledged IPO tells Currency: “You can’t solve for everybody’s itch.” 

“When we came to the process of doing the placements we gave a far greater proportion of stock to normal retail shareholders than would normally be the case. And all I can say is that, having been through it now and having had a look at the merits on both sides of the fence, I can absolutely see why these processes go the private placement route, because it’s very important that in building up your shareholder register you get a good balance of shareholders. Those that have been supporters; those that are long-only, hedge funds etc. I think we’ve got that.”

Today’s mood was jovial, though a few of the former executives who Currency spoke to indicated they’d have preferred for it to not have occurred at all. Being in the unforgiving glare of public ownership is also something that Boxer CEO Marek Masojada, 31 years with the company, will now have to get used to. 

“We were very well known as a brand in the customer base that we served but not much further. And that suited us absolutely fine,” Masojada says. “When Sean and I met last year and Sean told me about the plan it took a lot of personal reflection to work out what this meant. And for myself, and obviously the CFO, it opens up a bit of a different job description than the one we signed up for. But we’re never too old to stop learning.” 

Speaking of his close-knit team, Masojada says: “We’ve got our own culture and structures and supply chain, but for [the team] at a personal level it gives an opportunity to participate in value creation directly in the company we work for every day and that’s a big thing. The Pick n Pay incentive schemes have obviously been hurting … so for us we’ve been on an extraordinary journey getting to know this new world of investors but we’re up for it.”  

Sean Summers, Pick n Pay CEO and Marek Masojada, Boxer CEO. Image supplied

Boxer vs Pick n Pay

The question for investors is which company to buy: Boxer or Pick n Pay, which retains a 65% stake in Boxer but whose market cap reflects a negative value for the parent business. 

“It’s not a cleanly calculated view on an unbundling,” says Rand Swiss portfolio manager Gary Booysen, arguing that an investment in either is the same as the conundrum that faces investors in Naspers: do you buy Naspers, with the implied discount in the company that is caused by the outsized value of its investment in China’s Tencent, or do you just buy Tencent? 

Booysen, who called a short on Pick n Pay last year when the stock was at R62, has no horse in this race yet.  

“On the one hand you’ve got Pick n Pay plus Boxer inside, on the other hand you have a very targeted exposure to the lower-cost retail segment.” 

Booysen is awake to Boxer’s considerable growth profile – from a store base of about 477 now, the retailer aims to double in size within seven years, and capitalise on the strong growth expected for the low-cost retail segment that it serves. 

“We haven’t bought any Boxer shares for our clients – yet,” says Booysen. “Give it a little bit of space to settle and see how the market receives it, but obviously there’s been great institutional support and there’s keen retail interest, but as an investor that tends to lead to mispricing so perhaps it would be better to look at a recapitalised Pick n Pay under new management.” 

All Weather Capital’s Shane Watkins describes Boxer as the “low-risk, high-quality” alternative to Shoprite, but says the value opportunity is Pick n Pay. 

“There’s a good case to be made for both, but they are quite different. I think Boxer should trade at a premium to Shoprite because the operating margin is slightly higher and because Boxer is a smaller business and therefore likely to grow faster.” 

Simplistically, with Boxer’s market cap at R30bn and Pick n Pay at R22bn, “you’re getting Boxer at an R8bn discount if you buy it via Pick n Pay”, he says. 

The kicker there is that you’re not paying for the balance of Pick n Pay – its 800 corporate and franchise-owned stores, or its liquor business or its clothing chain. And that is prefaced on arresting losses in the core Pick n Pay business. But Watkins is optimistic that will happen.  

“If you talk to property landlords it’s like night and day since Sean took over. Part of the thing that helps them is how appallingly the business was run up until he got there. If you think about it, 25 years ago Pick n Pay was double the size of Shoprite [in terms of market cap] and now Shoprite is eight times the size.” 

Banks calling the shots? 

As for the future, Masojada says the listing makes Boxer even more independent of Pick n Pay. “We took everything unashamedly that we could from Pick n Pay that helped our business and we said no thank you where we thought it was going to hold us back, and Sean allowed that and agreed to it and it’s never really been an issue.” 

Boxer’s board includes five independent non-executives, Masojada, CFO David Wayne, Summers, and James Formby, a former CEO at Rand Merchant Bank (RMB). 

One former retail head who spoke to Currency takes a jaundiced view of RMB’s involvement in the retailer, given that the bank had plenty to lose as a result of its credit to the group. Asked whether the banks have called all the shots, Summers says: “Not at all.” 

“James had a long, distinguished career at RMB. He shows interest in the business at a retail level and what happens in the organisation, and having had him on the board has been an extraordinary help to us, given his experience and background. We’ve had to step through two massive corporate transactions with a very complex lender situation with 11 banks.” 

Interestingly, one of RMB’s founders – Pat Goss – has been involved in Boxer for decades.  

Says Masojada: “I joined Boxer in 1993 and our chair and major shareholder was Pat Goss. He has been my mentor for 30 years, and the entrepreneurial spirit that lives within RMB is something that is a massive positive. And James has got the same qualities. He’s got the ability to look wide, when we’re [just] baked bean salesmen at the end of the day.” 

For Summers, the accusation that the bankers are running Pick n Pay “has no substance”. 

“The two-step recapitalisation means that we now sit here as Pick n Pay with a balance sheet of zero debt, R4bn in cash, a working capital facility, and two-thirds of Boxer scrip, unencumbered. We’re a much stronger company today than we were a year ago because it’s these times when you’re put to the test that it really pulls people together and builds a team.” 

Top image: Marek Masojada, Boxer CEO. Image supplied

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Giulietta Talevi

A prominent voice in print and broadcast financial journalism with a sharp edge in market and company news. Former Financial Mail Money editor and BusinessDayTV anchor, Giulietta boasts an influential digital footprint that commands industry respect.

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