Health and beauty retailer Clicks was a “fantastic operator” which had managed to keep its head above water despite a tough environment, analysts have said.
The Public Investment Corporation and Coronation Fund Managers recently increased their stakes in the company, the latter by almost double.
In the six months to February, headline earnings were up 10 percent to R366 million and analysts said similar growth was expected for the company’s full-year earnings despite the consumer spending slowdown. Its shares have gained almost 35 percent over the past two years, compared with about 45 percent on the JSE all share index over the same period.
A market analyst said the environment was still bad for Clicks as there was a low level of inflation but that the company was operationally efficient in this market.
“The company has been good executors in their core businesses which are health and beauty, but they are getting no support from the environment,” he said, adding that Clicks had a clear and identifiable strategy.
He said Clicks management had spotted the downward trend of DVD and CD sales at Musica and had thus moved more into gaming.
“They continue to evolve and diversify their product offering in that space,” he said, adding that Musica was a small contributor to the company’s overall revenue.
Absa Investment analyst Chris Gilmour said he was not positive about the music and gaming shop Musica, and added that conditions would worsen once broadband becomes cheaper. He said Telkom’s offering of uncapped broadband would remedy the “horrendous speed” of internet.
Although South Africa had the 80th lowest average internet connection speeds globally, it had a 16 percent year-on-year speed increase, according to the first quarter 2013 Akamai Technologies report on the State of the Internet.
The retailer’s loyalty programme, the ClicksClub card, was important to sales and customer loyalty, Gilmour said. “They don’t make a big song and dance about their loyalty programme but it’s still a big part of bringing those customers back.” The 15-year-old loyalty programme has attracted about 4 million customers and in the six months to February accounted for 77 percent of all the firm’s sales.
Funeka Beja, an equity analyst at Argon Asset Management, said Clicks had a strong management team and a strong brand. “Clicks are pursuing a strategy of growing their private label brands, which is assisting in earnings defensiveness since consumers tend to trade down to cheaper brands or private label products in tougher times,” she said.
Beja said she expected full-year growth to be within the 5 percent to 10 percent range, as the environment was not conducive to further growth.
Clicks’ pharmaceutical and distribution business, UPD, grew its share of the private pharmaceutical market and lifted turnover in the six months to February.
Gilmour said UPD was an incredible operation and was likely to see more gains as it garnered contracts in the distribution division.
The company’s shares shed 0.15 percent to R54.90 yesterday.