SPAR, the local retailer group in South Africa, has announced it will be selling its Pinetown head office and other non-core assets. The move comes in the wake of poor results in 2023 and its large debt that sits at the R9-billion level currently.
Poor Investment Consequences
The group has also indicated that it would be exploring the possibility of leasing its vehicle fleet and potentially selling some of its company owned stores. These steps follow a disastrous investment in Poland, which cost Spar R185-million and a failed SAP system implementation at its main distribution centre, resulted in a further R1.6-billion in losses.
The group requires around R2.7-billion in additional capital needed to recapitalise the business, and while they have secured a R2-billion bridge loan from South African lenders to address this deficit, it remains a tenuous time as the group fights for survival.
Retail competitor, Pick n Pay, has recently gone through a similar period of poor trading that resulted in the listing of its Boxer stores as a separate entity in order to settle a massive debt.
Group Profitable but Debt Burden too High
SPAR produced a profit of R1,3 billion in its last full trading year, which was up significantly from the slump seen in 2023 that produced a mere R305 million in operating profit, however this is still below the level of profit produced in the five years prior to 2023.
It also does not provide the cash value that would allow the group to reduce its debt significantly enough to be able to improve or expand operations at this point
SPAR’s share price has however seen growth of over 26% in the past year, but has fallen by almost 6% in the last month and is down over 17% from its share price three years ago.
SPAR Group Ltd traded at R140.04 on Thursday January 16th, decreasing 98.00 or 0.69 percent since the previous trading session.
Looking back, over the last four weeks, SPAR’s share price has lost 5.78 percent, and looking ahead, analysts have forecast SPAR Group Ltd to be priced at 143.10 by the end of this quarter and at 134.52 in one year.
Positive Actions May yield Returns
It would appear that the pain at SPAR is far from over, but practical steps are being taken by the group’s management, to ensure better results in the medium term.
The more than 460 000 employees of the group globally, are also at risk and they will be looking to support an effective turn-around strategy in the hope of retaining the company as a going concern.
Overall sentiment for the group is still relatively positive with most analysts indicating it may be a good buy option for investors looking for longer term investments.
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