Our opinion on the current state of DIS-CHEM(DCP)
Dis-Chem Pharmacies (DCP), which listed in November 2016, is a prominent competitor to Clicks (CLS) in the pharmaceutical, medicine, and beauty products markets. The business is led by the Saltzman family, with a significant stake held through a private company, Ivlyn. In August 2021, Ivlyn announced a reduction in its stake by selling 7.5% of its shares via a bookbuild, distributing 3.75% to selected management (with a 10-year lock-in) and 10.5% to a BEE consortium. This adjustment left the Saltzman family's interest at 31.4%. Ivan Saltzman recently stepped down as CEO, and Rui Morais has taken over the role.
Upon listing, Dis-Chem aimed to expand its footprint beyond its initial 108 stores to potentially match Clicks' ambition to reach up to 1200 stores nationwide. This expansive "blue sky" growth potential has contributed to Dis-Chem's high valuation, with a P/E ratio of 21.67. The company has since grown to over 254 pharmacies across the country, opening 10 to 20 new stores per year. The aftermath of COVID-19 has also opened opportunities for lower rental spaces in malls, further supporting its expansion.
The company has diversified through acquisitions, including Springbok Pharmacy, Quenets, and Baby City (acquired in 2020 for R430 million), and expanded into healthcare insurance by acquiring 25% of Kaelo Holdings. With increasing health-conscious consumer behavior, the company has benefited from higher sales of vitamins and immunity-boosting products.
For the six months ending 31st August 2024, Dis-Chem reported:
- Revenue up 9.6%
- Headline earnings per share (HEPS) up 16.3%
The company attributed its earnings growth primarily to Group payroll cost containment through its staffing framework 1.0, which contributed to a 17.5% growth in operating profit. This effective cost management has bolstered Dis-Chem’s performance, affirming its position as a solid blue-chip investment.
Technically, the share had been moving sideways and downward since forming a double top in April 2022. A break through the 200-day moving average on 3rd November 2023 at 2525c per share signaled a positive trend. The share has since increased to 3600c, suggesting momentum that aligns with Dis-Chem’s long-term growth potential.
Upon listing, Dis-Chem aimed to expand its footprint beyond its initial 108 stores to potentially match Clicks' ambition to reach up to 1200 stores nationwide. This expansive "blue sky" growth potential has contributed to Dis-Chem's high valuation, with a P/E ratio of 21.67. The company has since grown to over 254 pharmacies across the country, opening 10 to 20 new stores per year. The aftermath of COVID-19 has also opened opportunities for lower rental spaces in malls, further supporting its expansion.
The company has diversified through acquisitions, including Springbok Pharmacy, Quenets, and Baby City (acquired in 2020 for R430 million), and expanded into healthcare insurance by acquiring 25% of Kaelo Holdings. With increasing health-conscious consumer behavior, the company has benefited from higher sales of vitamins and immunity-boosting products.
For the six months ending 31st August 2024, Dis-Chem reported:
- Revenue up 9.6%
- Headline earnings per share (HEPS) up 16.3%
The company attributed its earnings growth primarily to Group payroll cost containment through its staffing framework 1.0, which contributed to a 17.5% growth in operating profit. This effective cost management has bolstered Dis-Chem’s performance, affirming its position as a solid blue-chip investment.
Technically, the share had been moving sideways and downward since forming a double top in April 2022. A break through the 200-day moving average on 3rd November 2023 at 2525c per share signaled a positive trend. The share has since increased to 3600c, suggesting momentum that aligns with Dis-Chem’s long-term growth potential.
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