Days after announcing the sale of its non-core, loss making operations (Cambridge Foods, Rhino Cash & Carry) to Shoprite, Massmart has set forth its intentions to enter the e-commerce industry with the purchase of online fast moving consumer goods (FMCG) retailer OneCart. Massmart, which is controlled by American retail giant Walmart, is looking to re-engineer the business from a high turnover, low-margin retailer which has largely been unsuccessful for the better part of a decade. Despite top-line generating over R86bn in the 2020 financial year (2019: R93bn), Massmart has been loss making both financial years. This despite Walmart bringing in highly rated American Mitchell Slape to try turn the tide. Shoprite chief executive Pieter Engelbrecht said that South Africa’s most valuable retailer would be able to run Massmart’s Cambridge, Rhino and Cash and Carry businesses profitably. Given Massmart issued a cautionary announcement regarding the OneCart acquisition (refer below for ease of reference), the transaction will be significant and material relative to Massmart’s market capitalisation. Despite OneCart being a private company with very little publicly available information, Chantal Marx (analyst at FNB Wealth and Investments) extrapolated the following valuation for OneCart. As noted above, given the lack of information on private companies, these are merely educated guesses.
London-based on-line retailer Ocado trades on a price to sales ratio of 5.4 times. Applying this to the mid-point of the unverified estimated sales range translates to a potential price tag of R1.1 billion. Massmart’s market cap is R12.5 billion.
— Chantal Marx (@chantal_marx) August 25, 2021
If the valuation above is deemed to be correct, Massmart are essentially using the proceeds from the sale of its non-core operations to Shoprite (c.R1.35bn) to purchase OneCart (c.R1.1bn). It’s a radical pivot in strategy. That is possibly what is needed though – despite ringing all the changes possible, implementing cost cutting initiatives and attempting to maximise all efficiencies possible – Walmart as the controlling shareholder has not been able to run the low-margin retailer profitably. If the largest brick-and-mortar retailer in the world can’t get it right, who can? The change in strategy is a last ditch attempt to turn the business around. The sale of its non-core operations will streamline the business and the integration execution of the e-commerce arm will be integral to the success of the wholesale retailer. Walmart’s value-based e-commerce strategy has been a roaring success. Massmart shareholders will be hoping that the Americans can help replicate that success on local shores. – Justin Rowe-Roberts
Massmart SENS statement:Â
Cautionary announcement: e-commerce updateÂ
Shareholders are advised that the Company has entered into negotiations, which if successfully concluded, may result in the acquisition of a controlling stake in OneCart Pty Ltd (“OneCart”). OneCart is a fast moving consumer goods market place and logistics platform that partners with leading retailers in South Africa to enable fast, flexible and efficient online sales and home delivery to consumers across the country. The platform provides access to products across the dry grocery, frozen and fresh foods, liquor, baby, health and beauty, household and pet supplies categories, all made available to consumers via a single shopping interface.
In keeping with the Company’s strategy to invest in and accelerate its eCommerce presence, this potential acquisition will allow the Company to further expand its capabilities in the fast growing on-demand delivery segment, while continuing to support the independent retailer marketplace model of OneCart. Massmart is currently in the process of negotiating and finalising transaction documentation. Negotiations are at an advanced stage and Massmart is hopeful to conclude discussions in the coming weeks pending finalisation of a few key matters.
Accordingly, shareholders are advised to exercise caution when dealing in the Company’s securities until a further announcement is made.
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