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Clicks Group (CLS) will be the stock in focus: (Price at time of writing: R101.57 as 6 April 2016)
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Background and overview of Clicks Group (CLS)
Clicks Group (CLS) is comprised of the following brands:
Clicks,Musica, The Body Shop, GNC and Claire’s are market-leading brands and have a combined footprint of 657 stores, including 34 in the neighbouring countries of Namibia, Botswana, Swaziland and Lesotho.
• Clicks is South Africa’s leading health and beauty retailer, offering value for money in convenient and appealing locations. Clicks has the largest retail pharmacy chain with 361 in-store pharmacies.
• The Body Shop sells natural, ethically-produced beauty products and has been operated under a franchise agreement with The Body Shop International since 2001.
• GNC is the largest global specialty health and wellness retailer, and has been operated under an exclusive franchise agreement for southern Africa since 2014.
• Claire’s is one of the world’s leading specialty retailers of fashionable jewellery and accessories for young women and girls, and the group concluded an exclusive franchise agreement in July 2015.
• Musica is the country’s leading entertainment retail brand and was acquired in 1992. UPD is South Africa’s leading full-range pharmaceutical wholesaler and the only one with a national presence.
Consumers will be hard pressed to say that they have visited a shopping center or mall without seeing a Clicks in one. The question for Clicks would be where Musica fits into the mix as it has not connection to the rest of their brands. Perhaps management should look at selling Musica to a more appropriate retailer and they use the proceeds to expand their core business.
Clicks,Musica, The Body Shop, GNC and Claire’s are market-leading brands and have a combined footprint of 657 stores, including 34 in the neighbouring countries of Namibia, Botswana, Swaziland and Lesotho.
• Clicks is South Africa’s leading health and beauty retailer, offering value for money in convenient and appealing locations. Clicks has the largest retail pharmacy chain with 361 in-store pharmacies.
• The Body Shop sells natural, ethically-produced beauty products and has been operated under a franchise agreement with The Body Shop International since 2001.
• GNC is the largest global specialty health and wellness retailer, and has been operated under an exclusive franchise agreement for southern Africa since 2014.
• Claire’s is one of the world’s leading specialty retailers of fashionable jewellery and accessories for young women and girls, and the group concluded an exclusive franchise agreement in July 2015.
• Musica is the country’s leading entertainment retail brand and was acquired in 1992. UPD is South Africa’s leading full-range pharmaceutical wholesaler and the only one with a national presence.
Consumers will be hard pressed to say that they have visited a shopping center or mall without seeing a Clicks in one. The question for Clicks would be where Musica fits into the mix as it has not connection to the rest of their brands. Perhaps management should look at selling Musica to a more appropriate retailer and they use the proceeds to expand their core business.
Scroll over or click on the funnel chart to get more details of CLSs latest financial results
Financial review:
Clicks Group achieved a net profit margin of 4.3% for the year end 31 August 2015. The margins are pretty low, but not uncommon for the retail industry. As we reported on with Pick 'n Pay (PIK) and Shoprite (SHP) their revenues are extremely strong yet margins very low.
Clicks is certainly not known as the sexiest retail share on the JSE. Its more seen as the weird cousin, as their brands do differ vastly from one another. General cosmetics and hygienic products, to pharmacies, to exclusive high end personal body care products and then a music/electronic gaming store.
Clicks is certainly not known as the sexiest retail share on the JSE. Its more seen as the weird cousin, as their brands do differ vastly from one another. General cosmetics and hygienic products, to pharmacies, to exclusive high end personal body care products and then a music/electronic gaming store.
The graphic below shows the contribution of some of CLSs operating divisions
From the pie charts above one can see that Clicks revenue and profits are dominated by their retail operations. And this seem to be more profitable than their distribution arm. Earnings per share came in at R3.83 a share and cash generated a share came in at R7.08 a share. Click's operations are mostly cash based and they will therefore not have the potential problem of credit owed to them not being paid back (as is the potential worry for more credit orientated retail such as The Foshini Group (TFG)).
Clicks' medium term profit margin targets for their divisions are as follows:
Group: 6.0-7.0
Retail:7.0 - 8.0
Distribution : 2.0-2.5
So they are aiming to improve overall margins slightly going to 2017. The one advantage of Clicks is the strong presence of the pharmacies in their shops. They entered the sector early and has made significant progress in becoming a full on pharmaceutical distributor. Other retailers have followed suite, but is far behind Clicks in terms of implementation and footprint into this market. The one concern we have about the brand is Musica. As we cannot see this brand survive or thrive in the future as more and more of their products and services can be bought online (games, music etc).
Body Shop is strong brand with quality products and loyal customers. Perhaps its time for Clicks to go shopping for a brand to compensate for Musica. We would like to see Clicks expanding by buying into another retailer in a similar space to theirs.
Clicks' medium term profit margin targets for their divisions are as follows:
Group: 6.0-7.0
Retail:7.0 - 8.0
Distribution : 2.0-2.5
So they are aiming to improve overall margins slightly going to 2017. The one advantage of Clicks is the strong presence of the pharmacies in their shops. They entered the sector early and has made significant progress in becoming a full on pharmaceutical distributor. Other retailers have followed suite, but is far behind Clicks in terms of implementation and footprint into this market. The one concern we have about the brand is Musica. As we cannot see this brand survive or thrive in the future as more and more of their products and services can be bought online (games, music etc).
Body Shop is strong brand with quality products and loyal customers. Perhaps its time for Clicks to go shopping for a brand to compensate for Musica. We would like to see Clicks expanding by buying into another retailer in a similar space to theirs.
Valuation:
Based on CLSs financial results, the markets they operate in and the economic environment they find themselves in, we value them at between R94.85 and R96 share. At the current price we do feel CLS is a little overpriced and would hold back on buying them until they closer to levels in the low R90's where they will offer good long term value.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
