DISCOUNT food retailer Shoprite made a #9.8m cash-call yesterday,
which would normally have sent the shares plummeting. Instead, they
soared 65p to a 733p peak placing a #115m value on this distinctly
unusual company, which is based in the Isle of Man but is intent on
flooding Scotland with its stores.
The company launched its campaign in 1990 by paying Safeway #1.1m for
a five-acre distribution centre in Cambuslang, then opening shops at
Linwood and Bridge of Allan.
Further expansion last year took the number to 35, and the intention
is to add another 22 this year with the new funding.
Shoprite's secret is not so much that it piles 1200 grocery lines high
and sells them cheap, but rather that it saw that others had hit the
English discount market. Sensibly it targeted Scotland instead.
Not least because there was no lack of low-cost sites available, even
if planning delays are apt to cause frustration. A store can still be
opened for from #500,000 to #750,000, which is a far cry from rivals'
gleaming supermarkets which can involve a #22m investment.
Interestingly, it is a case of second time round for the Nicholson
family, who own 60.7% of the equity, because the late Ken Nicholson
helped to start the #1220m Kwik Save discount star before retiring to
the Isle of Man with a stake in a holiday camp, four petrol stations,
and a Mercedes dealership.
Sons Deryck and Ian Nicholson learned marketing and store operations
respectively, before going into retail food on their own account. In
1989 they reversed their interests into the family business. Shrewd and
cautious operators they tend to shun publicity, although City analysts
are invariably impressed.
There has certainly been no slowing Shoprite enterprise recently, as
rivals know to their cost, with turnover up from #20m to a recent #85m,
profits trebled, and assets jumping from #6m to over #25m.
The shares, which stood at 100p in early 1991 and got to 553p last
summer, went shot up yesterday until late profit-taking left them 65p up
overall at 733p.
The main problem with the stock is that solid family and institutional
stakes do not leave many to trade. The Nicholsons are not taking up any
of the new stock which will help. However, as the issue is through a
placing and open offer, the shareholder register is unlikely to multiply
beyond existing institutions.
Especially as the new Ordinary at 645p are offered only on the basis
of one for every nine shares held, which will hardly create much paper.
The indicated ex-rights price would be 730p, with scope for an early
split.
Last night Deryck Nicholson, chairman and managing director (his
brother is joint deputy MD), said that trading during the key Christmas
period had been satisfactory and in line with expectations.
A stated policy of pegging gearing to 60% was 6% higher at the
year-end, which the new money will reduce short-term. Expansion by
in-store concessions is working well and there are close links through
joint ventures with Iceland Frozen Foods and other complementary
retailers.
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