Pepkor: revenue up 13.2%, but margin compression is not accidental

On March 31, 2026, Pepkor released its results for the first half of fiscal 2026. Revenue grew 13.2% year on year, EBITDA 11.6%, and net profit 9.8%. However, EBITDA margin fell from 16.9% to 16.6%, and net margin from 6.3% to 6.1%. The shares trade at a P/E of 12.2 and EV/EBITDA of 4.5, which looks attractive relative to its own history, but margin pressure and modest free cash flow lead us to rate the stock as 'rather attractive'.

Key takeaways

— Pepkor's revenue for the first half grew 13.2%, but the pace slowed compared to the previous half-year

— EBITDA margin fell 0.3 p.p. to 16.6% due to higher operating expenses

— Net profit rose 9.8%, but net margin declined to 6.1%

— Leverage remains low: net debt/EBITDA for the trailing twelve months is 0.49

— Dividend yield of 2.7% is below the key rate, but payments are supported by a strong balance sheet

— On the portal's model, the upside potential of the shares is +11% from the current price

— Operating cash flow for the trailing twelve months was 4.5 billion ZAR, limiting room for dividend growth

Attractiveness

Key figures, ZAR bn

Pepkor's revenue for the first half grew 13.2%, but the pace slowed compared to the previous half-year

For the first half of fiscal 2026, Pepkor's revenue reached 101.7 billion ZAR (LTM), up 13.2% year on year. Growth continues, but the pace has slowed: in the second half of fiscal 2025, revenue grew faster than in the reporting period.

The main driver remains the retail network in South Africa and other African countries, where Pepkor continues to open new stores and expand its assortment. However, inflationary pressure on consumer demand and competition from online retailers may limit further acceleration.

EBITDA margin fell 0.3 p.p. to 16.6% due to higher operating expenses

EBITDA for the first half grew 11.6% year on year to 18.2 billion ZAR (LTM), but the margin declined from 16.9% to 16.6%. This means operating expenses grew faster than revenue, which is typical for a period of active network expansion.

The margin decline is not critical, but it indicates that the company cannot fully offset cost increases with price hikes. If the trend continues, it could pressure profitability in future periods.

Net profit rose 9.8%, but net margin declined to 6.1%

Net profit for the first half increased 9.8% year on year to 5.9 billion ZAR (LTM). However, net margin declined from 6.3% to 6.1%, reflecting higher interest expenses and tax burden.

Despite the slowdown in profit growth, absolute figures remain stable. The company continues to generate sufficient profit to service debt and pay dividends.

Leverage remains low: net debt/EBITDA for the trailing twelve months is 0.49

Pepkor's net debt at the latest reporting date was 8.9 billion ZAR, and the net debt/EBITDA ratio for the trailing twelve months is 0.49. This is a low level, giving the company significant financial flexibility.

Over the past twelve months, net debt increased by 3.3 billion ZAR, related to investments in network expansion and possible lease payments. Nevertheless, the debt level remains comfortable and does not restrict dividend payments.

Dividend yield of 2.7% is below the key rate, but payments are supported by a strong balance sheet

Over the trailing twelve months, Pepkor paid dividends providing a yield of 2.7% at the current price. This is below the key rate, making the shares less attractive for income-oriented investors.

However, payments are supported by low debt and stable profit. We expect the company to continue paying dividends this year, but the amount will depend on profit growth rates and investment needs.

On the portal's model, the upside potential of the shares is +11% from the current price

Our value creation model, based on EBITDA growth and target multiple, shows that Pepkor shares have an upside potential of +11% from the current price. This is a moderate upside, not exceptional, but confirms that the stock is not overvalued.

At the current P/E of 12.2 and EV/EBITDA of 4.5, the shares trade below their three-year averages, providing some margin of safety. However, the realization of potential will depend on the company's ability to maintain growth rates and stabilize margins.

Operating cash flow for the trailing twelve months was 4.5 billion ZAR, limiting room for dividend growth

Operating cash flow for the trailing twelve months was 4.5 billion ZAR, significantly below net profit for the same period. This is due to working capital growth and capital expenditures on network expansion.

Low operating cash flow means the company may be forced to limit dividend growth or attract debt financing for investments. This is an important factor for investors expecting higher payouts.

Valuation on the latest reported figures

Bottom line

Pepkor shows steady revenue and profit growth, but margin compression and weak operating cash flow raise questions. Leverage remains low, supporting dividend payments, though their yield is below the key rate. The shares trade at a discount to their own history, and the portal's model shows moderate upside of +11%. Verdict: 'rather attractive' — the stock is interesting for long-term investors but requires monitoring of margins and cash flow.