Although it’s been disclosed before, empowerment group Brimstone’s decision to help fund fishing subsidiary Sea Harvest's bid to broaden its profit catch is an important development.
Brimstone has been cautious on the deal-making front in recent years, not willing to overpay for assets that have been enticingly dangled.
So pumping R300m into Sea Harvest in a share-subscription agreement at R14/share is a weighty decision for Brimstone.
Essentially, the proceeds will part-fund the recent acquisition of the Ladismith Cheese Company (LCC), a deal that market watchers still appear divided over. Clearly Brimstone believe LCC’s dairy niches are attractive over the longer term, and – more importantly – will offer Sea Harvest a profitable platform on which to build other non-seafood brands.
Gut feel is that Sea Harvest will not look for sweeping commodity plays in the food sector. So instead of pursuing opportunities in sectors such as poultry the company is expected to rather gather a basket of niche brands that have margin-enhancement opportunities under a larger operating structure. With the food sector on the JSE not looking that appetising, this might be a perfect time for Sea Harvest to snatch niche food brands from larger players at prices that are easy to digest.
Another key issue is that the proposed share subscription will push Brimstone’s shareholding in Sea Harvest from 50.6% to 54.2%.
Stronger empowerment credentials will be useful in the run-up to the 2020 fishing-rights allocation process, where it seems likely the authorities will favour black-owned ventures and community fishing enterprises.
It might be tempting to view Pick n Pay's latest upbeat interims as a challenge to other retailers.
The results do show a marked improvement compared with a few years ago. Its debt is paid off and the group is making progress with same-store sales.
But the reality is that Pick 'n Pay is still just another player in a crowded field. And is likely to remain one.
Shoprite remains the colossus in the market value stakes, with a market cap of R111bn, compared to Pick n Pay's R32bn. Although not a totally fair comparison, as Shoprite is strong in Africa in markets in which Pick n Pay does not have a presence, it does show that Shoprite is in a better position to use its market dominance to its own advantage.
Despite pedestrian annual results to end-July, reflecting a rise of 3.1% in turnover and headline earnings per share down 3.8%, it might still be in a position to effectively undercut Pick n Pay's prices at the lower end of the market.
A lot of Pick n Pay's turnaround success is already reflected in its present market price, with Pick n Pay at a price: earnings of 23. Shoprite is sitting at 20.
Competition from other players such as Spar and Woolworths is also unlikely to let up. Woolworth's market cap, after having retreated 25% so far this year, is at R51bn. Spar is at R33bn.
Woolworths is trading at a p:e of 14 and Spar at 17. Woolworths might offer the biggest upside potential. The market seems to agree with Pick n Pay down 8% so far in 2018.
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