Our opinion on the current state of PEPKORH(PPH)Pepkor Holdings (PPH), previously known simply as Pep, is a South African retail group predominantly owned by Steinhoff International, which holds 71.01% of its shares. Following the collapse of Steinhoff due to accounting irregularities, Pepkor rebranded to distance itself from the negative publicity associated with its parent company. Pepkor operates several well-known retail brands, including Ackermans, PEP Stores, Bradlows, and HiFi Corporation.
The share price experienced significant volatility, dropping as low as R10 in May 2020 during the height of the COVID-19 pandemic. However, it subsequently staged a remarkable recovery, more than doubling in value. The company capitalized on this recovery by raising R1.9 billion through an accelerated book-build, which was used primarily to reduce debt as a precautionary measure.
In February 2022, Pepkor announced its acquisition of 87% of Brazilian clothing retailer Avenida, aiming to expand its footprint in the South American market. However, in April 2022, the company faced challenges when its Isipingo distribution center sustained significant damage from flooding in the Natal area, although it reported adequate insurance coverage for the losses incurred.
For the six months ending March 31, 2024, Pepkor reported a 9.5% increase in revenue, while headline earnings per share (HEPS) declined by 3.8%. The company attributed the revenue growth to market share expansion and recovery in retail gross profit margins, particularly with its Avenida operations.
Looking ahead, in a trading statement for the year ending September 30, 2024, Pepkor estimated HEPS would fall between a loss of 132.5c and 146.5c, compared to a loss of 140.8c in the previous year. The group recognized a significant R2.7 billion impairment of goodwill and intangible assets during this period.
Technically, the share has been trading sideways and downward since November 2021, indicating potential vulnerability to economic conditions, particularly lower levels of consumer spending. However, the company was recently added to the JSE Top 40 index, replacing Amplats, which is expected to enhance its visibility and attract increased institutional interest. Despite the challenges, Pepkor is viewed as a good quality investment with opportunities for growth, especially as it continues to expand its retail offerings.
