The recent listing of Boxer on the Johannesburg Stock Exchange (JSE) has sparked significant interest among investors. Having listed at R54 per share last Thursday, Boxer shares have surged to around R65, delivering a remarkable near-instant return of 20% for those fortunate enough to secure shares during the initial offer.
This exceptional debut reflects both high demand and the company’s potential for robust growth in a competitive retail market. However, with Pick n Pay still holding a majority stake in Boxer, potential investors are now faced with a strategic decision: invest directly in Boxer or gain exposure through Pick n Pay shares.
Boxer: A Rising Star on the JSE
Boxer’s listing comes at a time when retail opportunities on the JSE are increasingly scarce. The retailer entered the market at a trailing price-to-earnings (P/E) ratio of 18, which has now climbed to 21 following the share price rally. While this valuation is higher than its listing price, it remains below the P/E ratio of 24 for industry giant Shoprite Holdings, signaling investor confidence in Boxer’s growth potential.
Management has projected ambitious growth targets, aiming for turnover growth in the “mid-teens” over the next three to five years and maintaining a trading margin of 5%. If achieved, this could result in headline earnings growing by 50% over the same period.
The company has also committed to paying out 40% of its earnings as dividends, although this is subject to reinvestment needs and debt management. Investors see this dividend policy as attractive, albeit with some caution about the flexibility caveat.
The Case for Boxer
Boxer’s strong listing performance and market capitalization of R29.5 billion highlight its promising position in the retail sector. The company’s ability to execute its aggressive growth plans will be crucial, especially as it competes with larger, established players like Shoprite.
For investors seeking direct exposure to a growth-driven, well-positioned retail player, Boxer shares appear to be an appealing option. The company’s focus on mid-tier and value-seeking consumers aligns with a growing segment of the South African market, particularly as economic pressures persist.
The Pick n Pay Alternative
Interestingly, Pick n Pay, which owns 65.6% of Boxer, offers a cheaper alternative for investors looking to capitalize on Boxer’s growth. At a market capitalization of R22.9 billion, Pick n Pay’s stake in Boxer alone is worth R19.4 billion at current Boxer share prices. This valuation discrepancy highlights an opportunity for investors to access Boxer’s growth potential indirectly through Pick n Pay shares.
Moreover, Pick n Pay itself stands to benefit from Boxer’s expansion. The listing was a strategic move to shore up Pick n Pay’s core operations, and as Boxer continues to outperform, it could significantly enhance Pick n Pay’s overall valuation.
What Should Investors Do?
The decision hinges on your investment goals and risk tolerance:
Direct Exposure Through BoxerIf you are confident in Boxer’s ability to execute its growth plans and prefer direct exposure to its performance, buying Boxer shares makes sense. However, the current price reflects high expectations, and further upside may depend on the company consistently delivering on its ambitious targets.
Cheaper Exposure Through Pick n PayFor those seeking a more diversified investment with exposure to Boxer at a lower effective valuation, Pick n Pay offers an intriguing alternative. Its core business recovery could complement Boxer’s growth, potentially providing a double benefit for investors.
Both Boxer and Pick n Pay present compelling cases, but the choice depends on your investment strategy. Boxer is an attractive option for those who believe in its long-term growth story and are comfortable with the higher valuation. On the other hand, Pick n Pay offers a more diversified entry point with indirect exposure to Boxer at a potentially lower cost.
Investors should weigh the opportunities and risks carefully, considering factors such as Boxer’s ability to sustain its current momentum and Pick n Pay’s broader turnaround strategy.
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