R20m price tag on Pick 'n Pay's woes
July 9, 2003
By Nicky Smith
Johannesburg - The poison scare at Pick 'n Pay could cost the retailer R20 million, Rob Forsyth, an industrial analyst at Investec Asset Management, said yesterday.
Pick 'n Pay's share price climbed 3.7 percent yesterday to close at R15.95 after touching an intraday high of R15.15.
This was just 15c shy of the stock's year high of R15.30 and R2.15 higher than the low it touched after the retailer announced last week it was the victim of extortion.
Forsyth said his best guesstimate on how much the extortion would cost Pick 'n Pay was R20 million.
Sean Summers, the chief executive of Pick 'n Pay, said the costs were "enormous and substantial, but insignificant".
Forsyth said the communication costs and above-the-line advertising on television, radio and in newspapers might have cost Pick 'n Pay R15 million at the outside.
"Destroying the four products targeted by the extortionist might cost Pick 'n Pay R5 million," Forsyth said.
"R20 million is only 0.25 percent of Pick 'n Pay's market capitalisation
."
Even if the extortion happened every year to Pick 'n Pay for the next 10 to 15 years, Forsyth said it would not mean more than a 4 percent overall loss on the company's share price.
It was also difficult to know how many people were switching to other retailers.
Pick 'n Pay is insured against this type of damage, although it is not clear how much the retailer would be able to recover.
Forsyth said the extortion would not have a permanent effect on the company.
"Personally, I don't think people will stop shopping there."
A spokesperson for Pick 'n Pay said the return of the four products to the regional warehouses was taking place in dribs and drabs.
The company would crush all the returns regardless of whether they had been tampered with or not, the spokesperson explained.
Syd Vianello, an analyst with Nedcor Securities, said for a company that had a R20 billion turnover the effects of the extortion on Pick 'n Pay would be hardly noticeable.
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