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Can Puregold Turn Philippine Grocery Retail Into Pure Gold?


  • Aggressive expansion to lay foundation for massive growth
  • Resilient business model in low penetrated industry
  • Industry consolidation could enhance gross margin

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Puregold Price Club’s revenue breakdown 2020

Price turned bearish

  • In 2021, PGOLD’s share price ended almost at the same amount as it started the year
    • Most recently, the share price slightly declined, and the 50 DMA has fallen below the 200 DMA
  • However, Volume RSI moved above the 50%-line which could provide some support to turnaround the bearish trend

Aggressive expansion to lay foundation for massive growth

  • Between 2011 and 2020, PGOLD increased the number of stores from 102 to 469, which is more than 4x
  • Over the same horizon, the revenue also saw a 4x increase
    • The proportional increase suggests that PGOLD’s revenue is mainly quantity driven
    • Hence, to drive growth, PGOLD needs to expand aggressively

Strong commitment to growth could lead to positive surprises

  • The company had opened 50 stores in 2018, but only 30 in 2019 and 41 in 2021
  • For 2022, management targets opening 37 stores (25 Puregold stores and 12 S&R stores) in low penetrated areas
  • Given its strong cash position, this could surprise on the upside

How I incorporated the story into my forecast

  • PGOLD’s main revenue driver is the number stores it can add to its portfolio
  • I forecast that the company can add on average 40 stores annually over the next 3 years, which is slightly higher than management forecast of 37 stores

Resilient business model in low penetrated industry

  • Puregold branded stores cater to low-to-middle income consumers
    • It follows a low-cost leadership strategy
  • Modern-retail penetration is about 30% in the Philippines
    • In Malaysia and Thailand, it is around 50%
    • In Singapore, roughly 70%
  • Given the low penetration, the market should not be a constraint to grow

How I incorporated the story into my forecast

  • During the pandemic, PGOLD recorded lower foot traffic, but a higher avg. ticket value as consumers bought more items per visit
  • I believe this trend will reverse as things come back to normal, meaning higher foot traffic, but lower avg. ticket value

Industry consolidation could enhance gross margin

  • The Philippine grocery retail market is still fragmented, but starting to consolidate
  • The biggest competitors engage in material M&A activities to operate more stores under their own brand
  • PGOLD responded with several acquisitions:
    • 2012: S&R
    • 2015: Budgetlane
    • 2017: B&W stores

Scaling effects start to show off with store expansion

  • PGOLD’s close competitor, Robinsons Retail, has maintained a gross margin 5ppts above PGOLD’s 15%
    • Robinsons has 4x more stores, which drives down supply chain costs
  • As stores increase, PGOLD could be able to improve its margin by 3-5 ppts
  • Philippine retailers do well compared to Thai peer, Siam Makro’s 11% gross margin

How I incorporated the story into my forecast

FVMR Scorecard – Puregold Price Club

  • A stock’s attractiveness relative to stocks in that country or region
  • Attractiveness is based on four elements
    • Fundamentals, Valuation, Momentum, and Risk (FVMR)
  • Scale from 1 (Best) to 10 (Worst)

Consensus is strongly bullish

  • Most analysts have a BUY recommendation, as the company continues to deliver on its expansion plans
  • Consensus is rewarding management’s efforts by forecasting high growth from 22E onward
    • Also, analysts assume a slightly higher margin compared to the past

Get financial statements and assumptions in the full report

P&L – Puregold Price Club

  • While revenue stayed flat in 21E, it should continue to see high growth from 22E onward
    • New stores open and foot traffic should normalize

Balance sheet – Puregold Price Club

  • Defensive balance sheet with ¼ of its assets in cash helps when it’s time to play offense
  • Net fixed assets grow in line with its annual target for store openings
  • I don’t expect the company to accumulate more debt over time as it has a high cash generation ability to fund growth internally

Ratios – Pureclub Price Club

  • Like most retailers PGOLD has strong asset turnover of 130-150, which means sales grow faster than assets
  • This measure should start to recover as revenue recovers
  • Scale effects should show up in the gross margin over time
    • I expect PGOLD to raise its margin to the same levels as its competitor Robinsons Retail (17-20%)

Stock Picking Checklist: Can this company be a ten bagger?

Free cash flow – Puregold Price Club

  • Since 2017, PGOLD delivers consistent positive FCFF and should continue to do so over the next few years

Value estimate – Puregold Price Club

  • I expect faster revenue growth than consensus as PGOLD’s balance sheet allows for fast-than-expected store expansion
  • Also, I am more optimistic with regards to the margin
    • I don’t see any constraint why PGOLD could not close the margin gap to its competitor over time

World Class Benchmarking Scorecard – Puregold Price Club

  • Identifies a company’s competitive position relative to global peers
  • Combined, composite rank of profitability and growth, called “Profitable Growth”
  • Scale from 1 (Best) to 10 (Worst)

Key risk is lower-than-expected growth

  • Failure to execute its growth strategy
  • Industry consolidation could intensify competition
  • Limited ability to pass on higher costs as PGOLD targets low-income segment


  • Expansion could progress faster than the market expects
  • If PGOLD can increase its gross margin to its competitor’s level, it would provide a solid upside
  • Valuation is surprisingly cheap as it trades at a 55% discount on PE

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