Spar: revenue up 3.6% but EBITDA down 47.2% – margin compressed from 3.7% to 1.9%

On 27 March 2026, Spar released its results for the first half of fiscal 2026. Revenue rose 3.6% year on year, but EBITDA fell 47.2%, and the EBITDA margin narrowed from 3.7% to 1.9%. The net margin remained positive at 0.2% versus minus 6.5% a year earlier. At the current price, the shares look unattractive: the EV/EBITDA LTM multiple is 4.44, and the portal's model points to a 57% downside to fair value.

Key takeaways

— Revenue grew 3.6%, but EBITDA collapsed 47.2% – margin compressed from 3.7% to 1.9%

— Net margin remained positive at 0.2% versus minus 6.5% a year earlier

— Leverage: net debt/EBITDA LTM at 1.75 with net debt of ZAR 5,010.7 million

— Operating cash flow over the last twelve months was ZAR 4,300.0 million

— Return on equity at 5.5% – below the cost of capital

— Valuation: EV/EBITDA LTM at 4.44, portal model implies 57% downside

Attractiveness

Key figures, ZAR bn

Revenue grew 3.6%, but EBITDA collapsed 47.2% – margin compressed from 3.7% to 1.9%

Revenue for the first half of fiscal 2026 increased by 3.6% year on year. However, EBITDA fell by 47.2%, and the EBITDA margin narrowed to 1.9% from 3.7% a year earlier. This means that each additional rand of revenue not only failed to bring profit but was accompanied by a significant increase in costs.

Such a sharp drop in EBITDA with modest revenue growth points to outpacing cost growth. The facts provided do not include a breakdown of cost items, so it is impossible to say exactly which line caused this. However, the scale of the decline – almost halved – indicates that the pressure on margin was significant and likely not one-off.

For investors, this is a key negative signal: the company's operational efficiency has deteriorated sharply. If the margin does not recover in the next report, it could lead to further valuation downgrades.

Net margin remained positive at 0.2% versus minus 6.5% a year earlier

The net margin in the first half of fiscal 2026 was 0.2%, whereas a year earlier it was negative at minus 6.5%. The improvement is not due to higher operating profit but to reduced losses or one-off factors not disclosed in the provided data.

Nevertheless, a positive net margin is a step forward compared to last year's loss. However, with a profitability of 0.2%, the company earns very little, and any deterioration in the operating environment could lead to losses again.

It is important to understand that net profit could have been achieved through one-off items unrelated to core operations. Without a detailed report, it is impossible to assess the sustainability of this result.

Leverage: net debt/EBITDA LTM at 1.75 with net debt of ZAR 5,010.7 million

Net debt at the latest reporting date was ZAR 5,010.7 million. The ratio of net debt to EBITDA for the last twelve months is 1.75. This is a moderate level that does not cause immediate concern but requires monitoring.

The change in net debt compared to the previous reporting date is plus ZAR 0.4 billion, and over the last 12 months it is minus ZAR 0.3 billion. Thus, debt increased slightly over the half-year but decreased over the year. The direction of the leverage ratio change is not disclosed, so we refrain from conclusions about its dynamics.

At current EBITDA, debt servicing does not look critical, but if EBITDA continues to fall, the ratio could rise quickly. This is a key risk to financial stability.

Operating cash flow over the last twelve months was ZAR 4,300.0 million

Operating cash flow over the last twelve months was ZAR 4,300.0 million. This is a substantial amount that exceeds net profit, which may indicate good earnings quality or one-off inflows.

However, without data on capital expenditures, it is impossible to assess free cash flow. If capital expenditures are high, free cash flow could be significantly lower. The provided facts do not include information on capex, so we cannot conclude whether cash flow is sufficient to finance investments and dividends.

Nevertheless, positive operating cash flow is a positive factor that supports the company's liquidity.

Return on equity at 5.5% – below the cost of capital

Return on equity (ROE) is 5.5%. This is a low figure, likely below the company's cost of capital. At this level of ROE, the company is not creating value for shareholders but rather destroying it.

For comparison, the risk-free rate in South Africa is historically higher, and investors demand a risk premium. An ROE of 5.5% does not even cover the risk-free return, making the shares unattractive for long-term investors.

Low ROE combined with falling EBITDA points to fundamental problems in the business. To restore attractiveness, the company needs to significantly improve operational efficiency.

Valuation: EV/EBITDA LTM at 4.44, portal model implies 57% downside

The EV/EBITDA multiple for the last twelve months is 4.44. This is not a high level by historical standards, but it reflects current weak profitability. A comparison with its own 3-year history is not available in the facts, so we cannot say whether the current multiple is above or below its average.

Our valuation model, based on EBITDA growth and a target multiple, indicates a 57% downside to fair value. This is the portal's own estimate, not a market consensus. It suggests that the current price is significantly overvalued relative to fundamental value.

Market capitalisation is ZAR 7,674.5 million. At current metrics and prospects, the company appears overvalued. A change in valuation would require sustainable EBITDA growth and margin recovery.

Valuation on the latest reported figures

Bottom line

The main disappointment is the sharp 47.2% drop in EBITDA and margin compression to 1.9%, which overshadows modest revenue growth of 3.6%. The positive net margin of 0.2% versus a loss a year earlier is weak consolation, as it may be due to one-off factors. Leverage at 1.75 EBITDA LTM is moderate for now, but with falling profits it could rise quickly. Return on equity of 5.5% is below the cost of capital, and the portal model indicates 57% downside. The question for a holder now is whether the company can restore margin in the next report – without that, the shares remain unattractive.