Chantal Marx, Pritu Makan, Sithembile Bopela, Zimele Mbanjwa, Motheo Tlhagale and Khumbulani Kunene
Clicks (CLS)
Clicks Group is a health and beauty focused retail and supply group. Through market-leading retail brands, Clicks, Sorbet, Claires and The Body Shop, the group has hundreds of stores across southern Africa. United Pharmaceutical Distributors (UPD) provides distribution capability for the group's healthcare strategy and has close to a third of market share in private pharmaceutical wholesale in South Africa.
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Recent results for the half-year period ended 28 February 2025 showed strong operational momentum, with headline earnings per share (HEPS) climbing 13.2% y/y to 603.9 cents while revenue grew 6.2% to R23.2 billion.
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Against a soft consumer backdrop, the performance highlighted the resilience and defensiveness of the group's business model. The continued margin expansion, operational recovery, and planned plugin of additional pharmacies across more portfolio stores, are key elements of growth.
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Within the retail arm, the biggest division, increased adoption of private label has continued to contribute meaningfully to margin expansion, which is underpinned by prevailing economic pressures on consumer spending behaviour, perceived product quality, and affordability.
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The distribution business has also shown meaningful recovery following its large-scale systems implementation which was carried out across distribution centres over the past two years.
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The growth in the interim dividend (+13% y/y) was also a highlight and further reflects management's confidence in the group's cash generation and positive trajectory into the 2H25.
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While the macro environment remains challenging, the business is positioned to benefit from medium-term tailwinds— easier economic conditions and improving consumer discretionary spend, with continued investment in new stores and pharmacies providing longer-term visibility and supporting the growth narrative.
We continue to view Clicks as a high-quality, defensive business with strong brand equity and execution capabilities. It remains a standout operator in the health and beauty retail and pharmaceutical distribution segments.
On a forward PE multiple of 26.4 times, the stock appears fairly valued relative to its own history but continues to demand a premium relative to its peers— although the gap has narrowed overtime. Still, we view the richer rating as justified given the group's robust operational delivery, healthy financial metrics, and continued market expansion opportunities. Moreso, amid prevailing risks to the macro-outlook, we favour Clicks' balance sheet strength which should help the company weather any unexpected events.
Mr Price Group (MRP)
The Mr Price Group and its subsidiaries operate over 2 500 stores across southern Africa. The group consists of four retail chains, focusing on clothing, footwear, accessories, and homeware. These chains are divided into two operational divisions namely, Apparel (Mr Price, Mr Price Sport and Miladys) and Home (Mr Price Home and Sheet Street). The company recently acquired deep value retailer Power Fashion, high-end homeware specialist Yuppiechef, and branded discount business Studio 88.
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The group's 1Q25 results were encouraging, despite top-line growth coming in slightly behind bullish expectations. The group's Apparel, Homeware, and Telecoms segments recorded accelerated growth and continued market share gains across several categories. More so, double-digit retail sales for the first three weeks of 2Q25 highlights continued operational momentum with more full-priced items and fewer markdowns supporting stronger retail selling price inflation and unit sales, which bodes well for further gross margin expansion.
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Cash sales have outpaced credit sales, likely driven by excess liquidity from the two-pot retirement savings withdrawals. While this specific tailwind could subside over the short term, a more accommodative interest rate environment may still support consumer spending.
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Value retail is always in vogue, and we are not convinced that Mr Price has a true competitor in SA - especially in fast fashion. While H&M and Cotton On have had an impact, the price points are much higher. Mr Price operates in an attractive space from a price point/quality perspective - coming in slightly above Pepkor brands, but below the other major SA clothing retailers.
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The group's strong merchandise execution, which offers its customers differentiated fashion-value, and its pricing model makes it well positioned to continue its profitable market share gains. MRP's diverse range of products and services, coupled with its focus on efficient cost management, makes it adaptable to changing consumer preferences and economic fluctuations, which underpins the group's defensive profile.
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While exposure to the economic cycle intermittently yields volatility in earnings, leadership has historically delivered on efficient capital allocation, maintaining its return on invested capital (ROIC) above its weighted average cost of capital (WACC) over time.
Post VAT-gate, i.e. the recently scrapped +2% proposed tax increase, coupled with a sequential decline in CPI, SA discretionary spend is likely to be better supported. Slower-than-expected rate cuts and recent downward revisions to SA's growth outlook highlights prevailing macroeconomic risks to consumption capacity. However, MRP boasts a solid balance sheet and is cash rich with low debt levels and is well poised to benefit from any improvement in spending activity over the medium term.
The stock is trading on a forward PE of 15.3 times, which is around its long-term fair value level, but with higher-than-normal medium-term growth to come.
Richemont (CFR)
Richemont is Swiss luxury goods holding company that owns several of the world's leading brands in the field of luxury goods such as jewellery, luxury watches and writing instruments, with a view of long-term development of successful international brands. Brands include Cartier, Alfred Dunhill, Montblanc, Lancel, and Van Cleef & Arpels. Additionally, its unique and diverse portfolio also includes leading online distributors that are focused on expert curation and technological innovation to deliver the highest standards of service.
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Richemont has strong exposure to high-growth markets, particularly in China as well as emerging markets like the Middle East and India.
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The luxury goods space from a thematic perspective remains attractive when considering an improvement in spending power of emerging market consumers longer term.
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The group offers a unique and strong portfolio of brands, which is well-diversified from a product and geographic perspective.
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Richemont also boasts a solid balance sheet and profitability measures, supported by low gearing levels, high cash generation, strong ROA as well as robust ROE.
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Richemont delivered an impressive 3Q25 update to 31 December 2024. Year-to-date revenue growth was tracking well ahead of full-year expectations at the time despite a tough comparable period. Holiday season trade was evidently quite strong as consumers indulged in jewellery purchases. Regionally, growth was very impressive, except for Asia-Pacific which was dragged lower by soft demand in China. Nevertheless, all distribution channels recorded a positive performance.
Jewellery has indeed been a standout performer within the broader luxury goods space. Richemont is over indexed to this category and is expected to outperform peers near term. The group is also likely to benefit from continued high levels of international travel (excluding the US) and an eventual improvement in the Chinese economy.
Richemont is trading on a forward PE of 24 times, in line with its long-term average and peers. We think that risks to current consensus revenue and earnings are to the upside and that the company should demand a premium rating relative to peers due to the strength of its jewellery maisons and overexposure to the category generally.
Bidvest (BVT)
The Bidvest Group is a service, trading and distribution company focused mainly on South Africa. The company specialises in services including cleaning, security, landscaping, indoor plants and flowers, and travel; Private sector freight management; Commercial, which involves the manufacturing and distribution of electrical products, office stationery, office furniture, packaging closures and catering equipment; and Automotive retail, among others.
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Bidvest is a well-run business with a committed and highly-regarded management team that encourages a performance-driven, decentralised business model which continually seeks scale and growth.
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The company is well-diversified across a variety of sectors - both cyclical and non-cyclical with no one segment contributing more than 25% to profit. The group's growing offshore exposure has also provided further diversification benefits.
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The business is also not asset intensive, a key benefit in the current trading environment, given its predominately service-driven offerings. The group also boast a strong track record of efficient capital allocation.
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For the half-year period ended December 2024, the group delivered a decent performance with revenue growth, at the time, tracking ahead of full-year expectations despite the expected headwinds in bulk commodity movements and renewable energy product sales, as well as a weak Adcock Ingram performance.
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Most of the group's businesses generated substantial and consistent profits in 1H25, with four of the six divisions reporting trading profit growth. This was driven by continued demand for everyday essential products and services supplied by the group across most sectors of the economy.
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New business growth, additional tank capacity and bolt-on acquisitions helped to mitigate the impact of price sensitive customers and weaker-than-anticipated discretionary consumer spend.
Bidvest has maintained a robust balance sheet with cash generation being strong despite turbulent global markets. This has also helped to keep gearing at sustainable levels with the net debt/EBITDA ratio being held steady at the half-year mark, even though the group continued to execute on its growth strategy, concluding six bolt-on acquisitions.
Management remains confident in the group's clearly defined strategy and that the diverse portfolio of businesses, as a collective, can successfully navigate through the ongoing changes in the global trading environment. Bidvest is trading on a forward PE of 11.3 times, below its long-term average rating. We retain our favourable long-term view of this counter.
Pick n Pay Stores (PIK)
The Pick n Pay Group is one of Africa's largest retailers. The group operates in South Africa, Namibia, Botswana, Zambia, Mozambique, Mauritius, Eswatini and Lesotho. Additionally, Pick n Pay owns a 49% share of a Zimbabwean supermarket business, TM Supermarkets, and a 65.6% stake in JSE-listed discount grocer, Boxer. Pick n Pay focuses on groceries, clothing, and general merchandise, but also includes additional value-added services. The group operates across multiple store formats, both franchised and owned.
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Pick n Pay has been plagued by operational inefficiencies which are being addressed, with the major recent recapitalisation providing some much-needed stability to the balance sheet.
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The strategic response to Pick n Pay stores severe underperformance included a leadership shake up, the continued simplifying of the operational structure, the reintroduction of regional leaders with the aim to "drive rapid decision making, improve in-store execution and excellent customer service", a Boxer IPO and a rights offer whose funds were used for balance sheet optimisation.
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The gross profit margin has room for recovery as product mix is optimised, and efficiency gains exceed price reinvestment.
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Pick n Pay's majority stake in Boxer allows it to maintain exposure to the high-growth discount segment of the market and strong expected growth in Boxer medium term (Boxer reported a compounded annual growth rate [CAGR] for turnover of 18.6% [like-for-like: 7.4%], with adjusted EBITDA CAGR of 23.4% in the three years through FY24). Trading profit CAGR over the same period was 23.3% at an average margin of 5.5%.
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The online shopping platform, Pick n Pay ASAP, has also been gaining ground and we think there is still more room for growth in this space - particularly as a focus on efficiency and profitability in this space begins realising results.
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Pick n Pay Clothing is a well-established segment within the group that could see further expansion as operations are refined.
The 45-weeks trading update released in February showed a steady improvement in like-for-like sales growth from the 1H25 mark, suggesting that festive season trade was healthy. The group continues to execute on its ambitious plan to streamline operations and has closed 32 stores through the period as a result. It was also very comforting to see that company-owned supermarkets are improving, which was a concerning area in the past - and is also a key focus area and priority for the group. Growth across clothing and the delivery platforms remained robust.
Pick n Pay is still expected to record a loss for the year ending 28 February 2025, albeit showing a meaningful improvement from FY24, whereafter a strong return to growth is expected on the top line and lower finance costs are expected to drive a return to profitability. We do not expect a miracle turnaround in the business as the benefits of management's turnaround plan may take some time to materialise, but we are becoming more optimistic of the company's self-help thesis delivering meaningful returns longer term.
