Listed Securities Watch List

LEWIS GROUP LTD (LEW:JSE)

Business Profile

Lewis Group Ltd. engages in the retail of household furniture and electrical appliances through its trading brands: Lewis, Bears, and Best Home and Electric. It operates through the following segments: Lewis, Best Home and Electric, Bears, UFO, and Group. The Lewis segment sells a range of household furniture, electrical appliances, and home electronics. The Best Home and Electric segment retails electrical appliances, sound and vision equipment, and selected furniture lines. The Bears segment offers a range of furniture. The UFO segment refers to United Furniture Outlets, which is a luxury brand cash furniture retailer for the higher income market, selling mainly lounge, bedroom and dining room range. The company was founded by Meyer Lewis in 1934 and is headquartered in Cape Town, South Africa.

Technical

  • Trading above the long term 200 day moving average for the first time in three years.
  • Trading at a discounted price compared to the high dividend payout.
  • 30% potential upside to R50 per share within the medium term.

Fundamental

  • High dividend yield (9,53%) given 190 cent per share on their last dividend payment.
  • Higher cash sales compared to their historical average during their last earnings report.
  • Financial stability looks strong in terms of the company’s ability to service its debt.

Summary

The Lewis group has been experiencing a long run of negative growth as the past five years leading up to the COVID-19 pandemic have been quite harsh in terms of share price performance. However, they have experienced significant growth in recent sales as a lot of consumers did home improvements during the lockdown period. As most of these purchases have been done in cash, we have seen the share recover quite significantly and we believe that there is more growth potential to be unlocked.

DIS-CHEM PHARMACIES LTD

Business Profile

Dis-Chem Pharmacies Ltd. manufactures and retails pharmaceutical products. It operates through the Retail, and Wholesale segments. The Retail segment consists of Dis-Chem stores, retailers of pharmaceutical and a variety of health and beauty products, as well as pharma-logistic services and oncology and retailers of pharmaceutical products. The Wholesale segment refers to the CJ Wholesale and Dis-Chem Distribution businesses, wholesalers of pharmaceutical and a variety of health and beauty products. The company was founded by Ivan Leon Saltzman and Lynette Frances Saltzman in 1978 and is headquartered in Midrand, South Africa.

Technical

  • The company’s product lines are well suited to benefit growth opportunities as the South African population gets vaccinated as consumers move away from ‘single store’ shopping.
  • As we see ‘foot traffic’ normalizing post pandemic, smaller retail outlets such as Dis-Chem is well positioned across the country to benefit from consumers returning back to large malls and shopping centers.

Fundamental

  • Revenue has grown by 9,6% from Feb 2020.
  • Headline earnings have grown by 11,8%.
  • Dividend of 31.1 cents per share.

Summary

Although the company is well positioned in the retail space within larger malls, their continued expansion within the convenience sector, with more stores opening within neighborhood shopping centers should provide further growth opportunities for the group. Their planned acquisition of Medicare Health will give the group better access to the ‘local pharmacy’ space and help them to be better represented within that space as they have not really shown meaningful expansion within that sector in the past.

PEPKOR HOLDINGS LTD

Business Profile

Pepkor Holdings Ltd. engages in the operation of retail stores. It operates through the following segments: Clothing and General Merchandise; Furniture, Appliances and Electronics; Building Materials, and FinTech. The Clothing and General Merchandise segment offers all clothing, footwear and homeware retail brands. The Furniture, Appliances and Electronics segment provides JD Group brands which provide value-conscious mass-market customers in Southern Africa the opportunity and means to create a comfortable lifestyle. The Building Materials segment includes SteinBuild business which sources, distributes, wholesales & retails general and specialized building materials. The FinTech segment involves in the businesses which are unique and do not support any Pepkor retail brand’s performance. The company was founded on July 1, 2017 and is headquartered in Cape Town, South Africa. 

Technical

  • Trading well above its longer term 200 day moving average which coincides with the company’s stronger fundamentals.
  • The company has meaningfully increased its market share (3%) during the pandemic era compared to its closest competitors.
  • Expansion of their PEP and Ackermans stores should aid them in further market penetration

Fundamental

  • Well positioned in the ‘value retail’ market as affordability compared to spending has become the mainstream school of thought amongst struggling consumers during the pandemic era.
  • Revenue is up just over 8% in their most recent earnings report.
  • Significantly decreased their total debt by R8 bn.
  • Their products are suited to cater for the struggling consumer and value-seeking buyers.

Summary

The affordability of most of their brands has been the key driver behind their most recent performance and we believe that this trend should continue as consumer’s disposable income is still relatively low and with the slow progress of vaccinating the population, we don’t see the South African consumer to strengthen significantly until the country finds more traction with their vaccine rollout program. Until the pandemic is over, this company is well positioned to benefit from changes in consumer spending and below average distributable income.

Who are we?

Caveat Capital Management is a strategic advisory firm based in Cape Town. Caveat Capital Management specializes in structuring tailor-made investment portfolios that serve your needs now and grow with you as your needs change. Caveat works to maximize your gains and minimize the risk.

What we offer

Caveat Capital Management has a competitive fee structure that incentivizes the portfolio manager to perform and the renumeration is highly linked to the performance of the portfolio. Caveat Capital MGMT (Pty) Ltd is a CATII – Authorized Financial Services Provider (FSP no. 24777) registered at the South African Financial Services Conduct Authority (FSCA). Meaning that we have the required licensing to structure full-discretionary portfolios structured to your needs.

Disclaimer

This report does not guarantee the suitability or potential value of any information or particular investment source. The information provided is not intended to, nor does it constitute financial, tax, legal, investment or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified financial adviser. Nothing contained in this publication constitutes a solicitation, recommendation, endorsement or offer by Caveat Capital Management, but is merely an invitation to do business.

Contact Information

Main Office

Bakers Square Building M01, Unit 108, 18 de Beers Avenue, Paardevlei, Somerset West, 7130.

Phone

Office: +27 (0)21 830 5777

EMAIL

General enquiries: info@caveat.co.za

Website: www.caveat.co.za

Information and content

The information in and content of this publication are provided by Caveat Capital Management as general information about the company and its products and services. Caveat Capital Management does not guarantee the suitability or potential value of any information or particular investment source. The information provided is not intended to, nor does it constitute financial, tax, legal, investment or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified financial adviser. Nothing contained in this publication constitutes a solicitation, recommendation, endorsement or offer by Caveat Capital Management, but is merely an invitation to do business.

Caveat Capital Management has taken and will continue to take care that all information provided, in so far as this is under its control, is true and correct. However, Caveat Capital Management shall not be responsible for and therefore disclaims any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable, directly or indirectly, to the use of or reliance upon any information provided. Past performance is not an indication of future performance. Caveat Capital Management does not provide any guarantee regarding capital or performance.

Caveat Capital MGMT (Pty) Ltd is a CATII – Authorized Financial Services Provider (FSP no. 24777) registered at the South African Financial Services Conduct Authority (FSCA).