Shoprite: The burning issue
With the worst behind it, Shoprite’s interim results cheered the market — now for the plan to buy Wiese’s deferred shares ...
News that Shoprite was considering repurchasing Christo Wiese’s controversial high-voting deferred shares stole most of the limelight at Tuesday’s presentation of its interim results to end-December 2018.
Not that it received much attention during the presentation by relatively new CEO Pieter Engelbrecht and CFO Anton de Bruyn.
Engelbrecht quickly let analysts know there wouldn’t be much discussion of the very hot issue.
"We decided we would put it out there and let shareholders do what they want to do," said the CEO, who seems to be coping reasonably well with his baptism of fire.
Some analysts thought the Sens announcement about the potential buyback was a ploy to divert attention from one of the worst sets of results in the group’s 50-year history.
As it happened, no diversion was needed. With Shoprite having taken a hefty smack at the time of the trading update in January, the release of the actual details seemed to cheer up the market — or positions were being covered. Within hours the Shoprite share price had bounced over 5%, which must have been a relief for management even if, as Engelbrecht pointed out to analysts, the share price was R260 just 12 months ago, compared to R169.92 on Tuesday.
The share price bounce was puzzling in the context of a 24% drop in headline earnings to 398.5c a share and a similar-sized dividend cut to 156c a share. Completing the implementation of an extremely expensive and disruptive enterprise resource planning system was one of the four "extraordinary" factors to hit results; there was also the aftermath of the May-June industrial action at its largest distribution centre; the unprecedented devaluation of the Angolan currency; and the longest period of stagnant internal inflation in over a decade. Evidently analysts shared Engelbrecht’s optimism. "I’m not overly concerned about the drop in earnings — we know what happened and how to deal with it," he told analysts on Tuesday, adding: "I’m absolutely confident that the fundamentals of this business are strong." It helps that the worst of all four extraordinary factors is behind it.
With the group’s operations seemingly on a more stable trajectory, it’s inevitable the next few months of media headlines will focus on plans to buy out the deferred shares held by Wiese and his associated company, Thibault.
The shares, which have almost zero economic value, control about 32.3% of Shoprite’s voting rights. If sentiment among analysts at the presentation is anything to go by, Wiese could expect to get little more than the almost zero economic value attributed to shares created to secure his control over the company.
But even now, Wiese should not be underestimated.