Peter Armitage is the CEO of Anchor Capital
Buy: Pepkor
Pepkor can be a long-term holding in any South African market portfolio. It is one of the highest-quality retail businesses in South Africa, with a long track record of disciplined execution, market share gains and resilient earnings growth across economic cycles. Its core strength lies in offering best-in-class value to lower- and middle-income consumers through highly trusted brands such as Pep and Ackermans, supported by an unmatched national footprint and extremely efficient operating model.
What has got people excited is the bank. Pepkor is increasingly evolving beyond traditional retail into a fintech and financial services platform. With more than 30-million customer relationships, extensive physical infrastructure and daily engagement with cash-based consumers, the group is uniquely positioned to expand into mass-market banking, payments, lending and insurance. If executed well, this could materially increase returns and valuation multiples over time.
What has got people worried is global wanderings. The recent share price weakness appears largely linked to investor concerns around a proposed offshore acquisition. However, this may create an attractive entry point into a fundamentally strong business with significant long-term optionality.
Sell: Spar
Spar has already declined from over R140 to the mid-R60s since the start of 2025, but it might not be time to buy yet. The company continues to face significant structural and operational pressure. Spar has exited several underperforming European operations after years of weak profitability and execution challenges, while the South African business has struggled to generate meaningful turnover growth as competitors, particularly Shoprite, continue taking market share in core grocery categories.
Importantly, Spar operates primarily as a distribution and wholesale business rather than a fully integrated retailer. This means franchisees earn the gross margins while Spar itself carries a large logistics and distribution cost base. With operating margins already thin at about 2%, rising fuel prices and transport costs create meaningful downside risk to profitability. Food inflation may further squeeze the group as franchisees battle weak consumer spending and intensifying price competition.
Operating conditions appear to be worsening, potentially making the recovery path significantly longer and more difficult than investors might expect.
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