Shoprite’s debt shocker
A startling increase in Shoprite’s debt makes for a new headache among SA Inc’s downbeat believers
Debt-leery investors, spooked by one local corporate car crash after another, have found another share to dump: mighty Shoprite.
Shares in the country’s biggest retailer cratered to an eight-year low this week, wiping out a recent recovery.
While stressed consumers, an overhaul of its IT systems and a strike at its distribution centre were well flagged, a 569% leap in its long-term borrowings must have unnerved even the most hardened buyers of the grocery chain.
Shoprite’s long-term debt now stands at R9bn from R1.37bn in June 2018, while short-term borrowings decreased to R2.6bn from R5.6bn a year ago.
That’s particularly surprising, says Sasfin Securities senior equity analyst Alec Abraham, given Shoprite’s recent contortions to release cash from the business by holding back on capital spending, and various sale and lease-back agreements.
"Then they go and gear up to expand into Africa."
Abraham is concerned that Shoprite has taken on dollar-denominated debt but makes its money in highly volatile currencies across the continent, and in rands at home.
As it is, Shoprite’s African operations have become its Achilles heel, posting a loss of R265m for the year.
Shoprite says: "Rampant inflation in recent years has reduced spending power and, therefore, our ability to maintain gross margins, while foreign currency shortages and an increasingly onerous regulatory environment around the importation of products have hampered availability."
The non-SA supermarket turnover dropped 7.7% to R21.3bn, with Angola especially hard hit.
Bjorn Samuels, equity analyst at Argon Asset Management, says "to call a turnaround in African operations at the moment would be very speculative; however, one would expect inflation to work its way into the system and for currencies to normalise in the medium term".
It’s not as if Shoprite has enjoyed a winning streak back home either, though the group is keen to stress that its SA supermarkets grew sales by 9.4% in the final quarter of the year, with trading margins at 5.5% in the second half.
Still, Shoprite’s overall headline earnings were almost a fifth lower and it cut the dividend by a third, to 319c a share.
Abraham says: "There’s nothing in these results that leaves anyone comfortable that it’s turned the corner, that it’s on the up and all things are on the go again."
Shoprite itself describes the year as "testing", particularly as it kept selling price inflation to just 1.2%.
The group is keen to point to market share gains, however. These, says CEO Pieter Engelbrecht, "are testament to our core SA business being back to full operational strength".
Shoprite is also resolute on building up its share of the premium food sector. Checkers now has 21 new-look FreshX stores and says: "Our medium-to long-term target of 80 stores in this format remains unchanged."