Demand for sports goods should keep on growing
Now that the Summer Olympics have ended, it is mostly only the gold medallists who the fans will remember for the next four years.
It’s a similar situation with Holdsport.
Though it has been a consistent performer since its listing in 2011, the share is often overlooked in favour of well-known competitors such as Mr Price Group.
Holdsport operates through a network of 39 Sportsmans Warehouse and 22 Outdoor Warehouse stores. It also has a strategic investment in Performance Brands, which is independently managed and supplies technical apparel to the sporting goods industry under the First Ascent and Capestorm brands.
At a current price of about R59, the share is basically a steal.
While the slowing SA economy, which has been forecast for zero growth this year, might make some wary of pouring funds into a mainly discretionary income company, forecasts for sport apparel and goods indicate potential for good growth.
“Athleisure” as a Euromonitor report coined it, remains a popular trend in SA as the number of people heading to the gym continues to rise.
The increasing number of fit and health-aware people is likely to have a positive effect on the sales of sporting goods and accessories.
The renewed focus by government on school sporting activities will also stimulate demand.
Results for the year to end-February show sales growth of 12.4% and an 18.8% rise in core headline earnings. Sales on a like-for-like store basis were up 9.4% and these were achieved locally, though the company does own a single Sportsmans in Namibia.
Compared to other retailers, Holdsport is the leader of the pack in growing same store sales despite the headwinds in the economy. Mr Price Group and TFG both achieved less than 6% growth while Truworths’ comparable store sales rose by 7.3%.
Unlike convenience retailers who are under pressure to open multiple stores, Holdsport’s brands are a destination.
What it holds in its 56 largeformat stores is more important to consumers than how quickly they can get to any one of them. Destination retailers attract affluent buyers who spend large amounts on their niche goods.
Barring unexpected cabinet reshuffles or inexplicable events in global financial markets, Holdsport, going into 2017, will benefit from the stronger rand because it imports about a third of its stock from China, priced in dollars.
Local inflation pressures are also beginning to ease, which will cut the company some slack in terms of operating expenses.
Holdsport currently pays a dividend yield of 5.33%. The official dividend policy is to have payouts covered by 1.5 times to two times by core headline earnings. It declared a final gross dividend of 200c, which brought its total dividend to 320c per share.
Its total return in the past year is 9.97%, outpacing the general retailers index which is down 0.50% in the same period. The returns are also higher than the all share as a whole, which has grown by 0.50%. Holdsport is expected to grow its earnings by about 8.4% in the next year.
The company is highly cash generative and its debt levels are low. The R62m it has set aside for capital expenditure will be used for store development and maintenance, including two new stores, and for other miscellaneous needs such as IT infrastructure and motor vehicles.
The only worry is that directors of the company have been selling off their shares since the company’s 2015 full-year results. But in the latest financials, the group said it had purchased its own shares at a cost of R51.8m.
Heading into its sixth year on the JSE, Holdsport’s management has proved it can consistently grow earnings regardless of the headwinds.
Investors Monthly recommends this share as a buy.