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Mid Cap Darlings- Dischem


Mid Cap Darlings- Dischem

Published Date: 2019-03-27 | Source: INCE|Community | Author: Sifiso Skenjana

Mid Cap Darlings- Dischem

Who better than Dischem to help us get through all the bitter pills we have had to swallow as a country. Dischem is a relatively new entrant on the JSE when it recorded the second largest listing on the JSE when it listed 27.5% of its issued share capital in November 2016, this despite the company having been in operation since 1978, founded by CEO Ivan Saltzman and Lynette Saltzman.

Business Model: Dischem is literally just short of selling cars and houses. Their portfolio is diversified with interests in a dispensary, personal care and beauty, healthcare and nutrition and baby care, each with market shares of 22.7%, 16.7% 45.6% and 9.8% as of the first half of 2019. Clicks is their primary competitor across all their segments, while Pick n Pay, Spar and Checkers Pharmacies are also trying to lay claim to the sector.

Macro Landscape: Dischem operates in a consumer-driven market. The 4th quarter of 2017 saw the longest streak of uninterrupted negative confidence since 1982, according to the FNB/BER Consumer Confidence Index. More recently the consumer confidence has edged up, by looming retrenchments and rising unemployment paint a lousy picture for the consumer in the medium term.

Results (Interim 2019): Dischem in the first of 2019 results reported a return on equity at 49% (ROE), a 9.4% increase in revenue, grew store footprint by 7 (136 in total), adding R155 million to revenues and gaining market share across all categories. It appears Dischem's consumers are all the way up from a confidence and spending point of view.

Growth Prospects: Dischem has been aggressively growing their store footprint over the years, now boasting roughly three times more stores in 2019 than they had in 2008. The CEO still sees room for growth despite a challenging economic climate, particularly for consumer shares. In the last reporting period, the biggest market share gainer was the healthcare and nutrition business, growing from 38% market share in the previous year to 43% in the current.

The sector in which Dischem operates, despite being vulnerable to consumer spending, is understood to be quite defensive; that the company is expected to remain quite resilient even in tough markets because the goods they sell tend to be more needs than they are wants.

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About The Analyst: The Mid Cap Darlings is brought to you by the Awkward Economist - Sifiso Skenjana. He has a breadth of experience in portfolio management, economic research and investment strategy and management consulting. He is founder and financial economist at AFRA Consultants. He is currently pursuing his PhD.

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