Keep an eye on lever­age and re­sults

Finweek English Edition - - Martketplace -

Clicks re­sults for the year to end-Au­gust again show that it is by far the best op­er­at­ing com­pany on the JSE, with turnover up 9.1%; HEPS up by 15.1%; and the div­i­dend up by 18%. This is text­book op­er­a­tional lever­age from a top man­age­ment team. David Kneale, who’s been CEO since 2005, leaves at the end of the year. He is to be re­placed by chief op­er­at­ing of­fi­cer Vikesh Ram­sun­der, who was in charge of Clicks’ phar­ma­ceu­ti­cal di­vi­sion, UDP, when it im­ple­mented its dis­tri­bu­tion strat­egy. By all ac­counts he is an ex­cel­lent re­place­ment. But the de­par­ture of an ex­cel­lent CEO al­ways raises ques­tions about whether the suc­cess was due to them, or rather the team they built around them. Clicks share­hold­ers are hop­ing it is the lat­ter, es­pe­cially see­ing as the share still trades on a lofty P/E of 28 times, down from the heady high-30s of April this year. The cur­rent mar­ket is not for­giv­ing, and any earn­ings miss would be very nasty for the share price. How­ever, for those hold­ing: Don’t panic, but do keep an eye on that lever­age and the re­sults.

The stock now trades on both a P/E and div­i­dend yield of around seven and is of­fer­ing great value.

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