UPDATE 3-Pick 'n Pay profit rises, sees tough trading ahead

* Sees tough trading conditions in the next 6 months

* To spend about 1 bln rand in capex for full-year 2011

* Looking at opening a store in Zambia by mid-2010 (Adds more details, more CEO comments, updates share price)

By Phakamisa Ndzamela

JOHANNESBURG, Oct 21 (Reuters) - Africa's second-biggest grocer, Pick 'n Pay (PIKJ.J), plans to boost investment after posting an 11.1 percent rise in half-year headline earnings per share and an increase in turnover and market share.

Pick 'n Pay said headline EPS for the six months to end-August was 100.30 cents, in line with the company's own forecast. The group said it hoped recent rate cuts would kick-start consumer spending.

Profit before tax was 927.8 million rand ($127.1 million), an increase of 35.9 percent on the previous year, while turnover rose 12.3 percent to 26.6 billion rand.

The interim dividend for Pick 'n Pay Stores increased 11.2 percent to 39.75 cents.

Chief Executive Nick Badminton said he would be happy with a 11-13 percent rise in headline earnings for full-year results in February 2010, but expects trading conditions to be tough in the next 6 months.

"I will be happy if we can produce 11 percent. I will be even happier if we can produce 13 percent, but it's going to be very tough," Badminton said in a presentation.

Badminton, whose company plans to spend about 1 billion rand in capital expenditure for 2011, said U.S. based Wal-Mart (WMT.N) had visited Pick 'n Pay in February to find out about opportunities in South Africa.

However, he said the world's largest retailer would find the local market difficult.

Pick 'n Pay, which like other South African retailers has seen sales slowing in the wake of the global financial crisis, said it planned more investment in its operations.

"We have seen substantive ... investment in the business over the last three years and the period ahead will see even more," the company said in a statement.

Badminton said the group planned to open a store in Zambia by mid-March next year and was eyeing countries like Angola and Mozambique.

"We have got a person on the ground in Zambia and we have two sites and we have to open at least one or two of them next year and then there's some relationships we are developing in Angola and Mozambique, Badminton said.

"I think there's every possibility we could have a store on the ground by the end of next year in each of them, if not more."

Pick 'n Pay shares closed up 2.40 percent to 40.45 rand, outperforming the JSE Securities Exchange's blue chip Top-40 index and the General Retailer index .JGERE.

RMB Morgan Stanley analyst Danie Pretorius said the results held no surprises but did show that "margins are coming a little bit under pressure."

"Because they've had to be a little bit more competitive on pricing, the growth margins have been squeezed and because of electricity price increases, the investment they've made in centralised distribution in the short term carries additional costs for them."

Pick 'n Pay, which competes with Shoprite (SHPJ.J), Spar <SPPJ.J and Woolworths (WHLJ.J), said continuing operations gained 0.4 percent of market share in the first half.

South African retailers have experienced a tougher year, with retail sales dropping by a worse than expected 7.0 percent annually in August, raising hopes for an interest rate cut this Thursday.

Pick 'n Pay also announced that founder Raymond Ackerman, involved with the group for four decades, would retire as chairman in March 2010 and that his son Gareth would become nonexecutive chairman.

Pretorius saw no disruption for the group.

"This is going to be a start of a new era ... Gareth is the chairman of the Pick 'n Pay holding company and has been for many years," he said.

(Editing by David Cowell, Phil Berlowitz)