Bat­tle of phar­macy gi­ants

With Dis-chem’s list­ing in 2016, in­vestors have a tough call to make be­tween the ri­vals in the health and beauty sec­tor

Financial Mail - - MONEY&INVESTING - Stafford Thomas

Re­li­ably con­sis­tent growth in good and bad times, high re­turns and strong cash flow are usu­ally the three es­sen­tial at­tributes sought by long-term in­vestors.

Clicks Group has been de­liv­er­ing them to its share­hold­ers for over a decade.

“Clicks just keeps on pow­er­ing ahead,” says Nadim Mo­hamed of First Av­enue In­vest­ment Man­age­ment.

“Its man­age­ment have done a su­perb job.” Clicks, which cel­e­brates its 50th an­niver­sary this year, kept up the pace in its half-year to Fe­bru­ary, turn­ing in a 12.2% rise in op­er­at­ing profit to R942m, a 14.8% rise in head­line EPS (HEPS) and a 16.5% rise in its in­terim div­i­dend. Adding to the solid show­ing was an im­pres­sive 39.3% re­turn on eq­uity and cash flow af­ter tax of R890m.

We are aim­ing to have 900 Clicks stores, all with phar­ma­cies, within the next seven to 10 years David Kneale

As al­ways, health and beauty prod­ucts were the big driv­ers of Clicks’s growth in its past half-year. Here Clicks ex­celled, lift­ing sales by 14.3% to an es­ti­mated R9.5bn.

“We achieved the health and beauty sales growth de­spite in­ter­nal in­fla­tion of only 2.6%,” says David Kneale, Clicks CEO since 2006. “On a same-store ba­sis sales we’re up 8% and we gained mar­ket share in all cat­e­gories.”

Growth was heav­ily driven by pro­mo­tions, which reg­is­tered a 23.5% in­crease in sales and ac­counted for 37.6% of sales. “Con­sumers are look­ing for value,” says Kneale.

Clicks’s sales per­for­mance left it and its close ri­val, Dis-chem, run­ning neck and neck. In its half-year to Au­gust, the then 118 pri­mar­ily large­for­mat store Dis-chem achieved a 15% rise in re­tail sales to R8.78bn and an 8.6% rise in same-store sales.

From a re­tail op­er­at­ing profit per­spec­tive, in their lat­est half-year Clicks’s R793m put it

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