Time on side­lines has been good for re­tailer

Financial Mail - Investors Monthly - - Analysis - Marc Hasen­fuss

Hold­sport, a re­tailer of sports and out­door para­pher­na­lia, has never en­joyed the heady rat­ings be­stowed on some of the fash­ion and di­ver­si­fied re­tail­ers on the JSE.

The com­pany’s track record has been ex­em­plary (rather than ex­hil­a­rat­ing), and direc­tors make a con­certed ef­fort via in­vest­ment pre­sen­ta­tions to com­mu­ni­cate with the mar­ket. Per­haps there re­mains scep­ti­cism hark­ing back to the com­pany’s for­mer guise as More­s­port, which was delisted from the JSE in the late 1990s by then-owner Ves­ta­cor af­ter some shoddy per­for­mances.

Time on the side­lines did Hold­sport a world of good. The com­pany is very dif­fer­ent from the More­s­port that scut­tled off the mar­ket with its tail be­tween its legs, even if the op­er­a­tional as­sets are largely the same in that Sports­mans Ware­house re­mains the core op­er­at­ing as­set.

The R1.7bn/year busi­ness is now a more com­pet­i­tive spe­cial­ist re­tail player, and man­age­ment

looks de­ter­mined to keep a lean cor­po­rate shape.

Hold­sport’s year to end Fe­bru­ary num­bers make good read­ing, es­pe­cially for pun­ters who picked up stock at un­der R48 ear­lier this year.

Re­tail sales growth eas­ily beat in­fla­tion and the op­er­at­ing mar­gin stretched to 17.9% (last year: 17.3%). Op­er­at­ing cash flows and net cash flows were re­as­sur­ing — re­spec­tively 745c/share and 238c/share.

What makes Hold­sport dif­fer­ent from other fash­ion re­tail­ers (some of which also sell sports equip­ment and sports­wear) is that Sports­mans Ware­house is in­creas­ingly the “go-to” des­ti­na­tion for a sports-mad SA.

The per­for­mance from Sports­mans Ware­house re­mains com­pelling. Sales in­creased 13% (and by 11% on a like-for-like ba­sis), while op­er­at­ing profit was up by more than 20%. The smaller Out­door Ware­house saw an 11% hike in sales, which trans­lated into a 5.3% in­crease on a like-for-like ba­sis.

It’s clear Hold­sport is still back­ing the megas­ports store con­cept with some vigour. The fi­nan­cial year saw three new stores and one store ex­panded com­pared with one clo­sure.

Sports­mans Ware­house’s ex­pan­sion plan for the fi­nan­cial year ahead pen­cils in two new stores in vi­brant re­tail precincts — one in the Mall of Africa and one in Men­lyn at the end of the year. Two Sports­mans Ware­house stores will be ex­panded and one Out­door Ware­house store re­lo­cated, mean­ing Hold­sport’s weighted trad­ing space will in­crease by about 3.5% in the year to end Fe­bru­ary 2017.

Hold­sport plans to open three new stores in the year to end Fe­bru­ary 2018.

Though typ­i­cal ware­house stores are far larger than tra­di­tional fash­ion or fur­ni­ture out­lets, Hold­sport man­aged — rather pru­dently — to fund the re­quired cap­i­tal ex­pen­di­ture from op­er­a­tional cash flows.

Hold­sport’s re­li­able cash flows are crit­i­cal in as­sess­ing the com­pany’s div­i­dend at­tributes.

The com­pany paid a gross div­i­dend of 320c/share, re­sult­ing in a hand­some his­tor­i­cal of around 4.6% (gen­er­ously cov­ered around 1.7 times by earn­ings).

The of­fi­cial div­i­dend pol­icy is to have pay­outs cov­ered by 1.5 times to two times by core head­line earn­ings.

With gear­ing neg­li­gi­ble, and ac­qui­si­tions most un­likely (at this junc­ture), there should be no rea­son to tam­per with the div­i­dend pol­icy. The score­board seems to sug­gest that Hold­sport of­fers good value for pun­ters de­mand­ing steady im­prove­ments in growth and yield. Hold­sport’s direc­tors seemed to un­der­line the at­trac­tive­ness of the value equa­tion by re­pur­chas­ing al­most a mil­lion shares (at a cost of about R52m) on the open mar­ket dur­ing the past fi­nan­cial year.

There may be room for spec­u­la­tion around whether there’s enough value at Hold­sport for a preda­tor to swoop. But cash-flush in­vest­ment com­pa­nies want­ing to ex­pand into a vi­brant re­tail niche (re­mem­ber­ing that the African mar­ket could of­fer a few gaps) might re­gard Hold­sport as a well-priced op­por­tu­nity.

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