Spar, Mr Price, Medi-Clinic
VAN ZYL ACKNOWLEDGES the attractiveness of Shoprite. However, he prefers Spar – simply because of its valuation relative to Whitey Basson’s more fully priced operation. Spar is on a multiple of 13,5 times versus 16 for Shoprite. BoE forecasts solid growth of 16,5% HEPS for Spar in 2009 and a dividend of 315,8c. That would place the stock on a forward multiple of 11 and a dividend yield of 6%.
Clothing retailer Mr Price has only a fraction of its customers using credit: sales to the 2008 half-year grew a buoyant 18,6% and bad debts on its tightly managed debtors book fell. Nearly two-thirds of applicants are denied credit. The group trades on a forward multiple of nine times, based on earnings growth of 20% and a forward dividend yield of 5,7%.
Healthcare is also widely regarded as defensive. However, numerous regulatory challenges in the SA environment and pressure on margins make Medi-Clinic a surprising choice. Van Zyl likes the group’s rand hedge component through its ownership of Swiss hospital group Hirslanden. He argues that despite initial concerns about the levels of debt taken on to fund the Swiss acquisition, Medi-Clinic hasn’t experienced difficulty funding it.
Its SA operations showed 12% growth in its most recent reporting period and maintained its margins. It trades on a forward earnings multiple of 13,3 times and a dividend yield of 4%. “That’s not bad for a low-risk business,” says Van Zyl.
Investments head, BoE Private Clients Johann van Zyl