Time on sidelines has been good for retailer

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.