Pepkor expects headline earnings per share to rise 94,7%
The retailer's own trading statement points to a sharp recovery from a Covid-hit 2020, with annual results due on 19 November.
Pepkor expects headline earnings per share for the financial year to 30 September 2021 to rise by between 94,7% and 114,7%, to between 127,5 cents and 140,6 cents. The group said so in a trading statement published on the JSE’s Sens platform on Friday, as carried by Moneyweb.
The range is wide because the group has not yet closed its books for the year. It is still a striking number, and the statement sets out where it comes from.
What the group says drove the number
Pepkor lists four factors behind the increase.
The first is an improved trading performance against the 2020 financial year, which the group notes was hit by Covid-19 trading restrictions. The second is reduced finance costs, which the group attributes to a marked reduction in net debt. The third is impairment charges recognised in 2020 that weighed specifically on earnings per share, and which do not repeat in the same way this year. The fourth is lease modification gains under IFRS 16, arising from favourable lease renewals and the consolidation of the retail footprint in specific brands.
On the lease point, the group said the acquisition of a portfolio of leased properties, announced on Sens on 14 April, resulted in the derecognition of related right-of-use assets and lease liabilities.
That last item is worth pausing on. Lease modification gains and the derecognition of lease liabilities are accounting effects. They are real, and they are properly reported, but they are not the same thing as more customers walking through the doors. The trading performance the group describes in its first factor is the part of this number that comes from the shop floor.
The share, and what happens on 19 November
Pepkor’s share price has climbed steadily over the past year and is up almost 90% year to date, after falling in 2020.
The group expects to publish its annual results on 19 November. That is the date on which the range narrows to a single figure, and the date on which the balance between trading gains and accounting gains becomes clear.
A trading statement of this kind is a heads-up to the market, not the full accounts. It tells shareholders the direction and roughly the size of the move, and it obliges the company to say so when the move is large enough to matter. The detail, including the segment-by-segment performance of Pepkor’s retail brands, arrives with the results.
For South African retail, the wider read is straightforward. Pepkor sells largely to lower and middle income households, through brands that trade in malls, on main roads and in townships across the country. A recovery in its earnings is a recovery in the tills of that customer base, after a year in which those tills were closed for stretches by lockdown rules.
The 19 November results will show how much of it held.
This report is based on Pepkor’s trading statement published on JSE SENS announcements, via Moneyweb:
