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Pepkor expects 20% surge in half-year earnings

Strong cash generation sees group slash debt by R8bn since March last year, despite Covid-19.
Image: Nadine Hutton/Bloomberg

South Africa’s largest non-grocery retailer Pepkor is in-line for a strong half-year to March 31, 2021, noting in a trading update on Wednesday that it expects its earnings per share (EPS) and headline earnings per share (Heps) for the period “to increase by at least 20%” on the back of robust trade and market share gains in nearly all its retail brands.

The clothing and home furnishing giant, which owns retail brands such as Pep, Ackermans, Tekkie Town, Bradlows, HiFi Corp and Incredible Connection, saw double-digit sales growth in some of its chains, which largely target the discount and value end of the retail market.

This sector is performing better in the face of Covid-19, as consumers look for value. In addition, leisure clothing and home furnishings have seen a boom in sales due to the work-from-home trend.

Read: Cashbuild to buy Pepkor’s building company

Pepkor says strong cash generation during the period facilitated a reduction in net debt to R6.1 billion at March 31, 2021 compared to R14.1 billion at March 31, 2020 (including discontinued operations).

This means the group has slashed its debt by R8 billion, or more than 57%, since March last year, despite the volatility caused by Covid-19.

The group’s net debt stood at around R7.1 billion at the end of its 2020 financial year (ending 30 September), which means it cut its debt by R1 billion during its latest half-year period, to the end of March. Its interim results are expected to be published on 27 May.

“In terms of the JSE Limited [JSE’s] Listings Requirements, a listed company is required to publish a trading statement as soon as it becomes aware that a reasonable degree of certainty exists that the financial results for the financial period to be reported on next will differ by at least 20% from the financial results for the previous corresponding period,” Pepkor notes in the trading statement.

The group thus advised shareholders and noteholders that “a reasonable degree of certainty exists” that its EPS and Heps for its latest half-year will increase by at least 20%. It notes that both EPS and Heps in the comparable period have been adjusted to reflect The Building Company (TBC) as a discontinued operation.

TBC has been sold to JSE-listed Cashbuild, however the deal is still awaiting approval from the competition authorities. Pepkor also sold its John Craig retail chain in February this year.

Read:

Studio 88 owner saves John Craig retail chain and 422 jobs

Interim results show Cashbuild cashing in on home improvement boom

Pepkor points out that EPS is expected to increase by at least 8.8 cents (20%) when compared to the EPS of 43.8 cents reported for the comparable period (ending March 2020).

Heps is expected to increase by at least 9.1 cents (20%) when compared to the Heps of 45.6 cents reported for the comparable period, the group adds.

“The increase in EPS and Heps is attributed to strong trading performance in addition to the marked reduction in net debt and related finance costs during the period,” the group notes.

Pepkor’s solid trading update saw its share price increase more than 3% in midday trade on Wednesday, trading at around R16 a share.

Pepkor share price

“The period under review [ending March 2021] included restrictions imposed to deal with the second wave of Covid-19 [December to January] and the delayed start to the academic school year. From a group perspective, cash sales increased by 10.7% while credit sales decreased by 3.8%,” the group notes.

Pepkor also points out that the comparable six-months period ended March 31, 2020 was largely unaffected by the coronavirus pandemic.

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