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Pick n Pay falls as first-half earnings rise less than expected

The stock has gained 18% this year, more than most counterparts.
Pick n Pay Stores, a South African supermarket chain, fell the most in more than five months after warning that trading conditions remain difficult and first-half earnings rose less than analysts had expected.

The shares declined as much as 8%, the most since April 22, and traded 7.6% lower at R61.90 as of 10:32 am in Johannesburg, a one-month low. The stock has gained 18% this year, valuing the company at R30.3 billion ($2.2 billion). Larger competitor Shoprite Holdings shares are down 8.4% this year.

“Headline earnings per share were lower than I expected,” Kyle Rollinson, an analyst at Avior Capital Markets who has an “underperform” rating on the stock, said by phone. The shares have rallied this year, more than most competitors, “so there is likely some profit taking,” he said.

South African retailers are battling with consumer confidence that remains depressed as shoppers hold back on spending and use of credit even as fuel prices fall, First National Bank said on Thursday. Unemployment of 25% and almost daily power cuts earlier this year also weighed on households.

Earnings per share will increase by between 15% and 25% in the six months through August, the Cape Town-based company said in a statement on Friday. Revenue growth was 8.5% in the period, compared with 6.1% a year earlier.

©2015 Bloomberg News

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Putting the second generation in charge of a very large business is a very risky affair. In the case of Pick ‘n Pay, Altron, Allan Gray (to name a few of the large ones) it has been pretty costly for shareholders/investors. Johann Rupert is one that has succeeded admirably. Perhaps Moneyweb will consider doing an article on the large businesses that have failed and succeeded when taken over by the second generation sometime, it would be interesting. In the PnP case some also report that the founder hung around about 10 years too long as well which caused a host of other issues. Then again they have an old fashioned pyramid control structure designed to keep the family in control no matter that the family do not possess the required skilles to compete with the Whitey Bassons of the world. I would suggest the new chap works for and reports to the Ackerman family and not the majority of shareholders of the trading company so it is probably a share best avoided until the Ackerman family are gone.

Not all family controlled businesses are a bad investment, think Walmart.

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