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- Dis-Chem reported double-digit group and retail income increases.
- The group is continuing its expansion drive, particularly in the baby category.
- Its interim dividend increased by more than half.
- For more financial news, go to the News24 Business front page.
Dis-Chem has reported double-digit group and retail income increases, beating its own margin targets as the threat of the pandemic receded with customers not spending as much on less-profitable Covid-19 related items.
At the same the group, which delivered dividend growth of just under a half for the six months ended 31 August, is continuing its major expansion drive, particularly in the lucrative baby category, with the JSE-listed pharmaceutical retailer reporting that in addition to opening three retail baby stores, 15 Baby Boom stores were acquired, effective from 1 March. The group opened five retail pharmacies.
It said this extended its "baby retail leadership position", adding that it had 251 retail pharmacy stores and 53 retail baby stores on its books as of 31 August.
It said total income grew by 22.8% to R5.2 billion for the six months ended 31 August, with its total income margin coming in at 31.7% compared to 28.2% in the prior comparative period. It said that it had beaten its targeted 30% total income margin 18 months sooner than anticipated. This in turn had led to boosts to both its earnings before interest, tax, deprecation and amortisation and operating margins.
The group’s total retail income grew by 19.1% with the retail margin increasing from 27.7% to 30.2% compared with the same period last year.
"The group continued to see increases in transactional gross margin of core categories due to the normalisation of gross margins with fewer lower-margin Covid-19-related lines as we continued improvement in back-end trading terms and service income through increasing scale and focus on return on invested capital," said Dis-Chem in its results statement.
READ | Dis-Chem jumps as receding Covid-19 trading patterns boosts margins
The company’s group revenue grew 9.3% to R16.3 billion, with retail revenue increasing at a similar level to R14.4 billion. Wholesale revenue grew 10.6% to R12.1 billion. Dis-Chem declared a gross interim dividend of 28.11861c, an increase of 44.3% on the same period last year. Headline earnings per share increased 44.3% to 70.3c per share.
Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said most of the growth was coming from "rolling out more stores", adding there was a danger of the market becoming oversaturated.
"I maintain although there are still pockets of growth left in this [pharmacy retail] sector it is becoming more mature. It is not only Clicks that’s also aggressively expanding; Shoprite has also upped their game recently and I'd be very worried to try and compete against their [Shoprite's] price leadership model."
Another worry for Treurnicht was that consumers were coming under increasing pressure over the short-term as interest rates "start to bite and savings are decimated by inflationary forces".
"We are seeing dangerous things happening to the consumer where they are borrowing more at higher rates even though there is almost no growth."
He said that given these headwinds, Dis-Chem's share price of R33.74 was too expensive.
"Paying roughly 30 times earnings for pharma is not the most prudent approach to investing in this environment."
Dis-Chem's share price was 2.1%, to R34.45 in early trade on Wednesday.
