De­mand for sports goods should keep on grow­ing

Financial Mail - Investors Monthly - - Analysis - Colleen Goko

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.

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