LEWIS GROUP LTD (LEW:JSE)
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.
- 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.
- 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.
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
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.
- 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.
- Revenue has grown by 9,6% from Feb 2020.
- Headline earnings have grown by 11,8%.
- Dividend of 31.1 cents per share.
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
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.
- 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
- 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.
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.
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