Our opinion on the current state of LEWIS(LEW)Lewis (LEW) is a retailer of furniture and electrical appliances operating through 807 stores under the Lewis (483 stores), Beares (137 stores), Best Home (144 stores), and most recently, United Furniture Outlets (43 stores) brands. Of these, 126 are in neighbouring countries. The company does 65.7% of its business on credit and offers customers credit insurance and other financial products. The company is exposed by the impact of COVID-19 because of its substantial debtors’ book which may be difficult to collect.
The plan is to increase the number of UFO stores from 39 to 70 over the next few years. At current levels, the share is trading on a P:E of just 4.97 and the share price is well below its net asset value (NAV). The company's balance sheet remains debt-free, which is extraordinary among listed retailers in this post-COVID-19 period. The company is in the process of buying back 10% of its issued share capital. We have always said that this share represents a bargain. It will benefit directly from any increase in consumer spending.
It is an extremely tightly managed company that has no debt and a huge store footprint. It has been growing both organically and by acquisition. Obviously, as a retailer of furniture and white goods, it is vulnerable to any economic downturn, but we see it as cheap right now and expect its share to rise as the economy improves. Certainly, it is one of the few retail outlets in South Africa that is doing reasonably well in the circumstances. The company is engaged in a share buy-back program in which it has so far bought back 29.9 million shares at an average price of R34.20 per share.
In its results for the year to 31st March 2024, the company reported merchandise sales up 4.7% and headline earnings per share (HEPS) up 7.1%. The company said, "The strong credit sales growth trend continued, with credit sales increasing by 15.8% and cash sales declining by 11.8%. Credit sales have grown at a compound annual rate of 16.9% over the past three years and now account for 66.2% of total merchandise sales (2023: 59.9%). The group has maintained its prudent credit granting criteria in the constrained spending environment and the credit application decline rate increased to 35.1% (2023: 34.7%)."
The modest results show that consumers are under pressure from high interest rates, but the end of load shedding should be a benefit. This share remains one of the best-run businesses on the JSE at the moment. The company believes that it is under-valued on the JSE by 30% - and we think that is conservative. Technically, the share has broken up through its downward trendline and is in a new upward trend.