Dis-Chem results no tonic for investors

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Dis-Chem results no tonic for investors

Published Date: 2018-05-07 | Source: Stephen Gunnion | Author: Stephen Gunnion

Dis-Chem results no tonic for investors

Analysts say the discount pharmacy chain's full-year earnings don't justify its lofty market valuation

Dis-Chem's shares sank on Friday after reporting full-year earnings that fell short of expectations, raising a question over its expensive market valuation.

The discount pharmacy chain grew turnover 13.3% to R19.6 billion in the year to end February as it added 21 new stores. Adjusted operating profit increased by 5% to R1.11 billion, giving it a margin of 5.7%, down from 6.1%. Adjusted headline earnings per share (HEPS) were 13.7% higher at 78.7c due to a higher number of shares in issue. It's declared a 31.5c per share dividend. The consensus was for HEPS growth of more than 30%.

Dis-Chem said all core categories experienced strong volume growth as a result of maturing and increasing space. Its wholesale division, CJ Distribution, increased turnover by 19.6%. Its retail segment increased operating profit by 19.4% but its wholesale segment extended its operating losses to R169 million as it spent more on increasing its wholesale space by just over 20%.

The group says consumers to remain constrained despite improving sentiment. However, it says the markets it operates in remain resilient and it's well positioned to benefit from additional consumer disposable income. For the eight weeks to 26 April, it said group turnover increased by 11% from the prior year.

Its shares slumped 14% to R30.40 on Friday, giving it a historic price: earnings multiple of 36.2. They fell 5.6% on Thursday ahead of its results announcement.



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