Ghost Bites (Dis-Chem | MTN | Pepkor)

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Dis-Chem is still growing into its share price

Earnings are much higher, yet the share price is flat over the past year

The trouble when something is priced for perfection is that the share price tends to go sideways in good times and downwards in bad times. No matter how good the underlying company is, an overpriced share turns it into a mediocre investment.

In the six months to August, Dis-Chem group revenue increased by 9.3%. Retail revenue grew by the same percentage, with comparable store growth of 3.6%. This modest rate was significantly impacted by Covid vaccines in the base period. The rest of the growth came from new pharmacies and the acquisition of 15 Baby Boom stores, extending Dis-Chem’s baby retail leadership position.

Wholesale revenue was up 10.6%. As much of this revenue is earned from Dis-Chem’s own stores, the more important growth measures are sales to independent pharmacies (15.8%) and TLC franchises (22.5%).

With a total income margin of 31.7%, the group has exceeded the 30% total income margin threshold eighteen months sooner than anticipated. Retail total income margin has increased to 30.2% and wholesale has increased to 8.3% if you exclude a once-off gain.

Excluding the Medicare and Baby Boom acquisitions, expenses grew by 15.5% overall and 14% in the retail business. Higher fuel prices led to increased delivery costs vs. the prior comparable period.

Net financing costs decreased by 8.3% from the prior comparable period, partially thanks to R125 million in capital repayments on the Absa loan. A new term loan facility from Standard Bank of R455 million was used to acquire warehouse properties.

Working capital initiatives reduced inventory days and increase creditor days, both of which help unlock cash in the business.

Capital expenditure was R690 million of which R576 million was to maintain the existing infrastructure and purchase warehouse properties, with R114 million used for new stores and IT enhancements.

An interim dividend of 28.11861 cents per share was declared, up 44.3% year-on-year and representing a consistent payout ratio as headline earnings per share (HEPS) grew by the same percentage.

The share price closed at R33.06, down just over 2% for the day.

Two more of MTN’s African subsidiaries have reported numbers

MTN Rwanda and MTN Uganda have added their voices to the MTN story this week (well, sort of)

After strong results from key subsidiaries MTN Nigeria and MTN Ghana, we now hear from two of the smaller businesses in the group.

Well, in theory at least. I wish I could give you an update on MTN Rwanda but sadly the quarterly reports page gives a lovely, yellow-themed 404 error message

Thankfully, the team at MTN Uganda appears to know how websites work. A cursory glance shows that although MTN Uganda is growing, we aren’t seeing the EBITDA margin expansion that is evident in the larger African subsidiaries.

In the nine months year-to-date, mobile subscribers increased by 9.2%, active data subscribers grew 28.8% and active fintech users increased by 19.4%. It therefore won’t surprise you that service revenue (still by far the largest component) was only up 11.5%, compared to 29.8% growth in data revenue and 23.2% growth in fintech revenue.

Something that may surprise you is that fintech revenue is larger than data revenue. This tells you so much about the role that smartphones play in Africa. They are effectively banks in the pockets of the people.

With EBITDA only 9.5% higher, EBITDA margin contracted by 100 basis points to 50.7%. That’s not good directionally of course, but is still a very high margin.

With capital expenditure up by 20% as the investment in Uganda continues, free cash flow was only 5.1% higher.

Pepkor guides solid HEPS growth

With results due on 22 November, the market has been given an early look

Pepkor announced in a trading statement that HEPS for the year ended September 2022 is expected to be between 18.6% and 28.6% higher.

This implies a range of between 160.5 cents and 174.1 cents, which puts the company on a Price/Earnings multiple of between 14.5x and 13.3x.

There is some noise in these numbers, like the recovery of exposure to certain loans going back to the Steinhoff debacle. This contributed around 12 cents per share to HEPS, which is significant.

Although Pepkor received insurance proceeds for damage to fixtures and fittings during the riots, this doesn’t impact HEPS as capital items are excluded. It does impact earnings per share (EPS), as the damage was in the base period and the recovery was in this period, driving a swing in earnings that isn’t reflective of the underlying business performance.

The group also announced the appointment of Sean Cardinaal as COO, having served as managing director of Ackermans from 2011 to 2016 before taking on the COO role for Pepco Group in Europe (a subsidiary of Steinhoff).

Little Bites:

• Director dealings:
  • The CFO of ADvTECH exercised share options and immediately sold the shares for R740k
  • Des de Beer has acquired a further R892k in shares in Lighthouse Properties, adding to his long list of recent purchases in the company

• Impala Platinum reminded the market that the Competition Tribunal process re: the offer to Royal Bafokeng Platinum shareholders is still underway. The company believes that the longstop date (by which time the approval must be obtained for the deal to continue) of 22 November is still achievable. Implats reserves the right to extend that date and it wouldn’t be the first extension in this process.

• ISA Holdings released a further trading statement that reflects expected growth in HEPS of between 30% and 50% for the six months ended August.

• Tradehold’s disposal of rental properties to Dulu Holdings did not meet the conditions precedent in time and hence the disposal has been terminated.

• The CFO of Etion Limited has resigned from the company and will serve a notice period until the end of January. With this group in the process of being unwound in a value unlock strategy, no mention is made in the announcement of a successor.

• If you are interested in climate reporting, you’ll be interested to see that Anglo American Platinum has released its first ever climate change report. You’ll find it here>>>

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