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The Finance Ghost: Knock out for Boxer, Southern Sun shines and Mr Price dresses for success

The Finance Ghost: Knock out for Boxer, Southern Sun shines and Mr Price dresses for success
The Finance Ghost
By The Finance Ghost
24 Nov 2024
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The demand for Boxer shares bolsters the view that the price will only rise on day one of public trading.

No surprises here – Pick n Pay put the IPO of Boxer at an appealing price and the market responded, with such strong demand for the shares that the offering was many times oversubscribed at the top of the range of R42 to R54. In other words, institutional investors who put in bids below R54 will receive nothing.

This only strengthens my view that the price is going to pop much higher on the first day of public trading. Some of this will be IPO exuberance and some will be a genuine view on valuation, as Boxer can probably justify a price/earnings multiple in the early 20s. My gut feeling is that it should settle down around 20% higher than the IPO price.

That doesn’t mean that it won’t be 50% higher on the first day – or more!

Different approaches in hotel market


Both City Lodge and Southern Sun came out with updates on Thursday, 21 November. The share price charts couldn’t look more different, with City Lodge flat for the year and Southern Sun up 77%. That is spectacular outperformance.

In my view, this isn’t a reflection on City Lodge’s management. I think the team has done a solid job of repositioning a business that used to be focused on affordable business travel. The pandemic and the widespread adoption of video calling quickly disrupted that model, so City Lodge had to scramble to become more appealing to leisure travellers. This included initiatives like an improved food and beverage offering, creating a useful additional source of revenue. Anecdotal feedback from friends who travel regularly for work is that City Lodge has a compelling offering.

As for Southern Sun, its business has always been aimed at more upmarket travellers, whether for business or pleasure. This feels like the more desirable business model, with the group able to take advantage of trends like conferencing in South Africa and the weak rand encouraging foreign tourists to join us for biltong and wine.

If we look at the latest numbers, the difference in strategy is fascinating. City Lodge has opted to push pricing higher, with average room rates up 11% in the past two months. Although occupancy is slightly down from the prior year, it should come out decently on a net revenue basis.

Over at Southern Sun, the six months to September (admittedly not a directly comparable period to City Lodge) saw average room rates increase by just 3%, with improvements in the occupancy rate driving a 6% increase in income.

Thanks to excellent cost control and a healthier balance sheet, this income growth has driven a lovely jump in Heps of 35%. City Lodge hasn’t given an indication of Heps growth in its voluntary operating update, so we will have to wait and see.

I think City Lodge would benefit from more airlines servicing busy local routes, as the disappearance of most competition for FlySafair has left South Africans paying a lot more for local flights. This is another reason I prefer the Southern Sun model of appealing to international guests.

Market loves clothing


Mr Price has enjoyed share price growth of 93% this year. That’s huge, putting it well ahead of The Foschini Group and Truworths with gains of 59% and 48% respectively in 2024. The market has jumped into this sector in a big way, believing that the government of national unity and an environment of decreasing rates will make a major difference to trading conditions for clothing retailers.

Though it is true that improvements in consumer trends will come through in clothing before categories like DIY and home improvement, it’s important not to get swept away by the hype. These retailers are facing plenty of competition and there’s not much evidence yet of sales growth that would support these share prices. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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