Keep an eye on leverage and results
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.