Tuesday, 05 May 2015 - 20:00

 

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Seed Weekly - Clicks Group Ltd

The Clicks Group Ltd is a healthcare retail and supply group, listed on the JSE in the Food and Drug Retailers sector. The Clicks retail stores are known and loved by SA’s consumers and the Group enjoys around 18% of the retail pharmacy market share.

History

The first Clicks store was opened in Cape Town in 1968, with a listing on the JSE following in 1979 at a market capitalisation of R 10m. Legislation at the time prevented corporate ownership of pharmacies, so Clicks operated as a drugstore without drugs, selling only off-the-shelf medication.

By 1983 the group operated 44 stores, with turnover exceeding R 100m, and these numbers increased to 155 and R 500m by 1991. In 1992 Clicks acquired Musica, SA’s leading retail music brand at the time and launched the successful ClubCard loyalty programme in 1995.

In 1998 the Group expanded to Australia, purchasing the Priceline chain of stores and also acquiring House and Price Attack in the next few years. By 2003 the group had 191 franchise stores in Australia, but the whole of New Clicks Australia was sold to a consortium of private equity investors in 2004.

Legislation was passed in 2003 that enabled Clicks to finally open dispensaries inside existing Clicks stores, which the Group has done very successfully over the next 12 years.

Operations

The Group’s brands include the well-loved Clicks retail stores and pharmacies, The Body Shop and Musica. The Group also operates United Pharmaceutical Distributors (UPD), a wholesale distribution company supplying to Clicks pharmacies, hospitals and independent pharmacies.

The Group’s retail brands have a combined footprint of 632 stores, including 26 in Namibia, Botswana, Swaziland, and Lesotho. The Group has set a longer term target of 600 Clicks stores in SA alone, and aims to open 24 new stores and 20 new pharmacies in this financial year.

Latest Financial Results

Clicks recently released its interim results for the six months ended 28 February 2015. Group turnover increased by 14.1% to R10.7bn, with Clicks turnover up 10.5% and UPD turnover up 20.7%.

Operating margin remained stable compared to the previous period at 6.0%, with the margin for retail operations at 7.3% far exceeding the margin of 2.3% on distribution operations. Retail operations accounted for 83% of Group profits.

Diluted HEPS increased by 12.8% to 177.6 cents, while management also increased the interim dividend by 22.4% to 65.5 cents per share.

Retail operating expenses increased by 11.5% due to increased investment in stores, staff and advertising costs. Sales growth of 10.5% in Clicks stores was driven by innovative, value-driven promotions, with promotions comprising 29% of total sales.

The Body Shop managed to increase turnover by 12.2%, and has expanded to 47 standalone stores as well as outlets in 92 Clicks stores. Musica managed to increase sales by 2.4%, and increased market share in all product categories due to competitors closing down.

Turnover in the UPD distribution business increased by 20.7%, driven by volume growth of 24.3% and growth of 56.1% in turnover from channels other than Clicks, hospitals and independent pharmacies. UPD managed to increase its wholesale market share from 25.4% to 26.2%.

Outlook and Fundamentals

Clicks’ management acknowledges that the South African consumer remains under pressure, and this is expected to remain unchanged through the second half of the financial year. The Group’s value proposition and re-launched ClubCard incentive is expected to ensure continued growth. A record amount of R 379m is allocated for capital expenditure for this financial year.

At a PE of 24 and DY of 2.3%, Clicks does not look particularly attractive compared to the JSE’s numbers of 19.2 and 2.8% respectively. However, the share price is starting to show some strong momentum, with a 48% return over the past 12 months.

Clicks is not included in the Value or Momentum building blocks comprising the Seed Equity Fund at the moment, but if strong price and earnings momentum continues it may be included in the Momentum building block portfolio.

Kind regards,

Cor van Deventer

www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966

Tue, 05 May 2015

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