Perspectives on Dis-Chem, Clicks and the agricultural sector

Clicks ‘a very settled company’ and Dis-Chem ‘still finding its feet’; and finding an entry point to the agri sector ‘quite hard’: Kruger International director Mia Kruger.

SIMON BROWN: I’m chatting now with Mia Kruger from Kruger International. She’s of course a director. Mia, I appreciate the early morning time. A Dis-Chem update came out yesterday for the six months ending August. Good numbers, Heps expected to be between 32.6% and 37.6%. Looking at Dis-Chem versus Clicks, do you have a preference between the two, either/neither, or sometimes a case of perhaps both?

MIA KRUGER: Good morning, Simon. Yes. I think when we saw Dis-Chem come to the market, there was a lot of excitement and exuberance around the company because everyone who is familiar with the sector has been such a fan of Clicks, and Clicks is probably one of the best-run companies on the JSE and has performed very well for investors. Over the years their returns have been very strong. They’ve been a solid company and a good investment, and I think everyone expected the same from Dis-Chem.

Dis-Chem came to the market, of course, not a company as established as Clicks, and [went] on the acquisition trail as we also see now. In the update we heard about all the acquisitions – even going now into insurance. All of that is making it a slightly different sort of beast than we’ve seen with Clicks.

Clicks is more stable in my view, and Dis-Chem slightly more I wouldn’t say unstable, but there are more prospects of change in the future and you don’t really know exactly where they [are] expanding to, if I can say it like that.

When you consider the valuations of both of these, when we look at Dis-Chem, it has had a strong run over the past year. We’ve seen the share price up I think over 70% over the past year, whereas Clicks has not shot the lights out like that. It’s less than 30% up, the share price, compared to many of the other strong runs. This year on the JSE we got used to big numbers and the valuations have actually just shown us that.

DisChem vs Clicks

Dis-Chem’s forward PE looks quite similar to that we’ve seen from Clicks at the moment; but still they are two different companies. One’s a very settled company and one is on the acquisition trail, still finding its feet.

SIMON BROWN: I like your point. We suddenly had to get used to big numbers, when 30% puts you in second place.

A quick question on agricultural stocks. I’ve had a lot of folks in the last day or three on Twitter and the like asking me about them. We don’t have a massive number on our local exchange – the biggie perhaps [being] Kaap Agri. Do you have a preference in agriculture, perhaps, even an offshore one which is preferred?

MIA KRUGER: Well, Simon, once again, most of the agricultural companies are not listed, as you say. So if you want to really look in the space and look for the agricultural sectors that you think are the strongest sectors for growth in South Africa, we know that nuts are particularly profitable, but there’s nothing listed that offers you any exposure there, and you really don’t want to get into farming if you’re not a very, very seasoned farmer. Even then it’s very risky, so hats off to the farmers. But yes, it’s a difficult one to invest in from the listed side. Also most of these companies are smaller. Zeder, being one of the ones, and [having] been a holding company in the agricultural space for years, has sold Pioneer [Foods], which is really a food company and not an agricultural company any longer. It has changed a lot.

We were excited about Zeder because it said it’s going to change track. It’s excited about what it’s going to do – but we don’t really know what it’s going to do yet. They haven’t told us exactly. The underlying businesses there have done well, and Kaap Agri, which you referred to, is one of their holdings also. But not a lot of options in this space.

As I say, agriculture is a very broad term. I’ll just touch on it. But anything from Illovo [or] Tongaat falls into it, into agriculture with sugar. We’ve got the poultry guys, which are really struggling businesses, businesses that are very, very difficult to make returns from. And then we’ve got the fishing side of the businesses with Oceana and those companies. And then all the way through to Kaap Agri, Zeder with slightly more fruit and Cape-orientated businesses in their portfolio.

So yeah, it’s a broad one. You need to know exactly where you want to go, and then finding something to give you the entry point is quite hard.

SIMON BROWN: Yeah. We now say ‘agri’. I’m thinking Kaap Agri and the like. But you are right, it’s all those others as well. And of course they are deeply cyclical.

We’ll leave it there. Mia Kruger, director at Kruger International, I always appreciate the early morning.

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