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Dis-Chem issues ‘good set of numbers’

Gary Booysen of Rand Swiss expresses concern as to whether the pharmacy retailer is going to need such a huge bricks-and-mortar footprint in a digital world.

SIMON BROWN: I’m chatting now with Gary Booysen, a portfolio manager at Rand Swiss. Gary, morning. I appreciate your time. A decent update from Dis-Chem yesterday. For the 22 weeks (five months) to February 2, 2021, revenue growth was up 12%, with wholesale doing especially strong. The convenience stores are doing a lot better than the big mall stores. All of that makes sense. But a good sort of numbers. Intuitively they would have been operating (during lockdown) as they work in the right space around health, and we’re in a pandemic. Nice to see the numbers coming through. Is this a stock? Do you think this justifies current levels or do you have concerns?

GARY BOOYSEN: Oh, that’s a good question. If you look at the current levels, it’s trading on a historic PE of around 31. Serious growth is still expected to come out of this because, if you look forward, you are still sitting on quite elevated levels on a forward PE of 25 which, if you compare that with something like Clicks, Dis-Chem may be a couple of points cheaper. But Clicks is expecting decent earnings growth to come out which, as we said, I think is largely because these companies can operate under a pandemic. 

As you said earlier, if you look at the mall trade versus the convenience trade, you could actually see malls starting to recover as well. That’s really the sector that was under pressure, (with) people preferring to go to those convenience centres. But that’s recovering well.

I think one of the key numbers that came out is just the ability to deliver online sales. So, if you look at what Dis-Chem is doing, they’ve got a Click-and-Collect programme. We saw revenue up 218%, which is slightly ahead of what Clicks did; but I’m not going to argue to say Clicks was up 173% on their online sales when they gave us the update to January 28. This programme has been running since 2013. But you’ve got the pandemic, I suppose, shifting consumers’ ability to shop online; it’s changing the way that we shop. And as long as Dis-Chem can do that, it will be okay going forward. 

I think my concern around Dis-Chem at the moment is that, ever since the Saltzman family listed this, it was all about an aggressive rollout of stores – just open new stores, bring in new revenue. And it’s also about acquisitive growth, which is riskier. It’s about buying things like Baby City.

So my concern around the company in a more online world – is that (is it) going to need this huge bricks-and-mortar footprint that it’s building?

That for me is the concern.

But good, good institutional backing. So let’s see how it works out.

SIMON BROWN: A quick last question, Intuitively you’d think in a pandemic healthcare would do great, but of course our hospitals have been under pressure – all of them. Aspen has done okay. Is this a sector locally that you’re looking at and where you are seeing some value, or are you waiting for the dust to settle?

GARY BOOYSEN: I think there’s definitely value here. It really comes down to which hospital group or which pharmaceutical company you’re going to pick. You know, if you compare them to the drug retailers, which are consumer-staple companies, [they’re] a lot cheaper. If you’re talking about PEs above 30, you suddenly start looking at the forwards in the healthcare sector, you’re talking sub-15 for a PE. So these stocks are a lot cheaper. They haven’t, I think, had the boom that the likes of the drug retailers have had over Covid, because no one wants to be seen as profiteers of Covid. 

You can see it in overseas pharmaceutical companies as well. Pfizer’s making a vaccine; the stock isn’t flying or shooting the lights out; or something like Moderna, which is coming out of nowhere. But the likes of Johnson & Johnson, Pfizer, these are low-margin products – the vaccine and the rollout is not going to assist them.

So hospital groups kind of sit in the same place. You don’t want to say, oh yes, we’ve got tons of patients in our hospital and we’re charging them a fortune and making us stronger. That definitely wouldn’t go down well. 

So I think there is room. Obviously, the hospital groups have been under pressure because elective surgeries have been cancelled. As we see the pandemic rolling through, I think you will see a big kick up as they return to normal.

So it could be an opportunity to get into the hospital sector – or I suppose the healthcare sector in general because it’s not expensive at the moment.

SIMON BROWN: Not expensive. Perhaps an opportunity there. We’ll park that there. Gary Boysen, portfolio manager at Rand Swiss, I appreciate your early morning time. 



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