A nicely charged technology plan
year as inventories begin to be replenished, shipments to factories will increase, and this ratio will fall. This ratio is normally counter cyclical so can be a useful guide. One generally increases one’s holding of shipping and logistics companies when this ratio is high.
Some recovery is likely in second half as restrictions are eased. The share price has fallen more than 30% year to date and is now at a hefty discount to its 1,175c a share net asset value. There is value at current levels, which may merely be delayed by Covid-19.
halved from the R20 levels seen in mid-2018.
The key statistics from the weak interim results to enddecember showed the value of new business at R50.9m, recurring embedded value earnings of R282m and an embedded value of R18.94 a share.
It’s not been easy for Clientèle with increased pressure on its clients’ disposable income, which hampers their ability to pay insurance premiums.
Worryingly, directors — in their interim commentary — admitted that a major contributor to the results was the “adverse withdrawal experience and ongoing occurrence of widespread debit order disputes” that have affected most market insurers in SA. “Withdrawals and disputes have been worse than management’s expectations and this has affected insurance premium revenue, the value of new business and recurring embedded value earnings.”
The negative withdrawal and unpaid premium experience variance for the interim period topped R74m.
Operationally, new business production volumes — though a little higher than the corresponding interim period the previous year — were again below expectations for the traditional telesales and independent field advertisers channels. This was partially offset by increased production from the newer agency and mass-market broker distribution channels.
The annualised investment return for the period of 5.5% (2018: 1 %) from the group’s investment portfolios was better — but below the actuarial assumption.
On the bright side, Clientèle’s loyalty programme, Clientèle Rewards, was well subscribed. Rewards contracts have now been taken up by about 15% of the client base.
It is also encouraging to see Clientèle launching another differentiating offering, Clientèle Mobile, which offers airtime and data — giving further discounts to Rewards members.
These innovations will hopefully improve the persistency and the quality of new business written.
IM can’t really see Clientèle enjoying a bustling second half. But the group is efficiently managed and it has enough innovations to win market share when the economy shows some signs of stabilising.
The share does appear undervalued on an embedded value basis.
One potential curve ball — with some upside potential — is the possibility of Clientèle making an offer to its (relatively) small pool of minority shareholders. A buyout offer carrying a decent premium price of R12 a share would set back the majority shareholders not much more than R500m.
the full effects of the lockdown and slow reopening of the economy and consumer spending patterns still need to be established.
No doubt sales have improved in level 3 of the lockdown — but two months of weakness is embedded into the pending interim results.
On a relative valuation basis, Dis-chem is trading at a discount to Clicks on an earnings multiple of 29 times relative to Clicks’ 32 times. Both are on staggering valuations in a severely derated retail sector.
The longer term might hold some intrigue for aggressive Dis-chem. It has grown fast by expanding its store network and offering a wider range on nontraditional pharmacy goods to tempt consumers to offset the fixed margins from dispensing prescriptions.
Newer, smaller formats are in the works to augment the big stores that most consumers associate with Dis-chem. The company has also entered the R28bn baby market with the R430m acquisition of Baby City in early May.
Clicks and Dis-chem will keep chipping away at independent pharmacies. But they seem to be at odds with the much lower valuations of the rest of the JSE’S retail sector. Dis-chem looks a highly promising business for the longer term, but at this juncture IM is more inclined to recommend a SELL on the shares.