Bull case vs. bear case: Pepkor

The Finance Ghost is a Chartered Accountant and ex-investment banker who is deeply passionate about markets and business in general and about helping people understand them. As the founder of the Ghost Mail daily newsletter and the Magic Markets podcast, he combines his entrepreneurial and corporate experience in delivering market insights. He is also a longstanding columnist for Financial Mail and The Daily Maverick

At time of writing, Pepkor’s share price is down nearly 20% in the past 12 months. Most of that pressure began in early March 2026, catalysed by the conflict in Iran and the impact this had on global risk appetite.

The stock is currently trading roughly in line with the levels we saw in August / September 2024, which is nearly two years ago. With no material capital growth over that period, shareholders have had to rely on dividends for their returns.

But how has the underlying business performed over the past two years? Has the performance been similar to the share price movement?

Using the company’s published financial results for the six months to March 2026 vs. the six months to March 2024, we find the following growth metrics over two years:

●        Revenue has grown by 26.6% to R54.8 billion

●        Gross profit margin has expanded by 270 basis points to 40.8%

●        Operating profit has increased by 23.5% to R6.3 billion

●        HEPS has increased by 24.1% to 93.1 cents

●        Cash generated from operations has increased by 56% to R4.1 billion

(note: this is total growth over two years, not a compound annual growth rate)

Pepkor has achieved significant growth in revenue and operating profit. Pressure on operating expenses has been absorbed by the gross profit margin uplift, so operating profit margin is only slightly down over the past two years. Cash generated from operations has shown meaningful growth.

There is considerable deviation between the underlying performance of the company vs. its share price over the past two years.

This begs the question: is Pepkor the baby thrown out with the bathwater in a clothing sector that has come under immense selling pressure? Or is the share price pressure justified despite the two-year growth stack?

We will highlight a couple of arguments in each of the bull case and the bear case. This is not an exhaustive list.

THE BULL CASE

There are several internal and external factors that supporters of Pepkor’s investment case may point to when assessing the company’s prospects.

One argument is that Pepkor’s competitors are dealing with many problems at present.

For example, The Foschini Group has shed more than a quarter of its value year-to-date based on poor performance in the UK and Australia businesses, coupled with pressure on key operating metrics in the South African business.

Mr Price has an arguably positive story to tell in South Africa based on their recent numbers, but the market has voted with its feet when it comes to the NKD acquisition in Europe. Mr Price is trading almost 20% down from the levels in early December 2025 before the NKD deal was announced.

It’s likely that the management teams at both The Foschini Group and Mr Price will need to pay considerable attention to the offshore businesses vs. the South African operations.

Other local names include Truworths and Pick n Pay Clothing, both of whom have been reporting little in the way of growth in their South African earnings.

Pepkor’s competitor universe is wider than just these names, but the point is that Pepkor seems to be benefitting from Napoleon Bonaparte’s classic line:

“Never interrupt your enemy when he is making a mistake.”

While competitors are trying to put out fires and manage the pressure in their local businesses, Pepkor is consolidating its market position and expanding its footprint. In addition to new stores under existing banners, Pepkor has made strategic acquisitions to address areas of under-representation (like in adultwear).

Another argument could be based on Pepkor’s own strategic decisions around growing their fintech business.

In the six months to March 2024 (two years ago), Pepkor generated revenue of R5.8 billion in the FinTech segment. Today, that segment has grown to the point where that they’ve split it into two reporting segments: Financial Services (R3 billion) and Informal Market Platform (R5.9 billion). In the six months to March 2026, Financial Services contributed 5% of group revenue and Informal Market Platform contributed 9%.

The growth rate in operating profit in these segments is much higher than in the Retail Platform (the traditional retail businesses at Pepkor). Financial Services operating profit increased by 63.4% and Informal Market Platform was up 23.5%. In stark contrast, Clothing and General Merchandise was up 3.6% and Furniture, Appliances and Electronics increased 1.0%.

To further broaden the financial services offering, Pepkor is planning an expansion into banking. They appear to have a sound strategy here, built around a combination of the existing strength in distribution (the store footprint), the trusted positioning in the market around payments and the opportunities delivered by financing of devices like smartphones.

The build cost for the banking project looks much lower than we’ve seen at many competitors who have ventured into banking in recent years. Pepkor appears to be taking a simplified, efficient approach to their solution – perhaps learning from the success that Capitec has had in the market.

The competitive landscape is an example of an external factor in the bull case, while Pepkor’s strategic push into non-traditional revenue channels is an internal factor.

THE BEAR CASE 

As in the bull case, there are a number of factors at play for investors who believe that the sell-off in the share price is justified.

The risk of a slowdown in performance is important to highlight, as Pepkor’s traditional retail business (approximately 80% of group operating profit) only demonstrated modest growth in the latest period.

There are many possible reasons for this, including the extent of competition in the market both from local retailers and the influx of cheap Chinese clothing into South Africa. Much as we’ve seen in the automotive sector, cheap imports can quickly displace existing market leaders.

A slowdown in activity in the traditional retail business would have a knock-on effect in the fintech operations. The top of the funnel for the fintech business is the in-store activity that drives sales and associated opportunities around value-added services. A negative impact on the funnel would likely impact the profits that drop out of the bottom.

There’s another distinct argument in the bear case that deserves a mention: the macroeconomic environment is fraught with danger.

Recent inflationary pressures led to an interest rate hike by the South African Reserve Bank (SARB). Consumers are under more pressure than before, including from the downstream impacts of the recent spike in fuel prices. This is particularly relevant to the most vulnerable consumers in South Africa who spend a high proportion of their income on transport.

This consumer base is Pepkor’s core customer, hence the look-through risk of these macroeconomic factors.

Pepkor is also exposed to the credit quality of their customer base, creating a second layer of risk that could impact earnings growth in the Financial Services part of the business. As this becomes an increasingly important part of the group, a material negative change in the credit environment in South Africa becomes a larger risk.

FORMING A CONCLUSION 

Pepkor is currently trading on an EV/EBIT multiple* of 9.4x, lower than the three-year average of 10.7x. The multiple reached a high of 13.4x in late 2024. It is now trading close to the lowest level observed during the past three years of 9.1x.

This suggests that the market is currently assigning a lower valuation to the company than has been the case on average in recent years. Importantly, this period has also seen volatility macroeconomic cycles and ongoing changes in sentiment towards South African consumer stocks, all of which would impact prevailing market multiples (including Pepkor).

Still, the lower valuation seems to be at odds with the operational and strategic performance over the past couple of years. It remains open to interpretation whether this is because of market sentiment towards the company’s long-term prospects, or due to broader concerns relating to the retail and consumer environment and the resultant impact on Pepkor’s core retail business.

Readers should consider both the opportunities and risks discussed above when evaluating the information presented. It’s also important to do further research into the performance of the company in forming a view, as there are many more bull and bear arguments that can be made.

*Source: TIKR, 14 July 2026'

Conflict of Interest Disclosure: The author holds shares in Pepkor. The views expressed in this article are personal opinions based on publicly available information and are provided for informational and educational purposes only. This article does not constitute financial advice, a recommendation, an endorsement, or a solicitation to buy, sell or hold any financial product. Readers should conduct their own research and consider their individual circumstances before making any investment decisions. Past performance is not indicative of future results.

Disclaimer: This article is provided for informational and educational purposes only and does not constitute financial advice, a recommendation, an offer, or a solicitation to buy, sell or hold any financial product. The views expressed are based on publicly available information and are intended to present a balanced discussion of potential opportunities and risks. Any forward-looking statements, expectations or opinions are subject to change and may not materialise. Past performance is not indicative of future results. Readers should conduct their own research and consider their individual objectives, financial circumstances and risk tolerance before making any investment decisions. Any investment decision remains the sole responsibility of the reader.

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