Our opinion on the current state of DIS-CHEM(DCP)Dis-Chem Pharmacies (DCP) listed in November 2016 and competes directly with Clicks (CLS) in the pharmaceutical, medicine, and beauty products markets. It is a family business run by the Saltzman family, who had a controlling stake in the business through a private company, Ivlyn. On 24th August 2021, Ivlyn announced the sale of 7.5% of its shares in a bookbuild, 3.75% to selected management (with a 10-year lock-in) and 10.5% to a BEE consortium. This leaves the Saltzman family's interest at 31.4%. Ivan Saltzman was the CEO but has resigned and will be replaced by Rui Morais.
Dischem's objective on listing was to expand its store base from 108 stores, which it has now far surpassed. Theoretically, Dischem can have a store in every shopping mall where Clicks has a store. Clicks had about six hundred stores when Dischem was listed and has spoken of plans to expand its store base to as many as 1200. This means that Dischem has considerable "blue sky" potential - which accounts for its relatively high rating (P:E of around 21.67).
The company is buying Springbok Pharmacy and Quenets, which shows that it is growing rapidly. The company now has more than 254 pharmacies countrywide and is opening between 10 and 20 new stores a year. It may be possible for the company to expand into spaces left in malls as a result of COVID-19. These may be available for lower rentals. The company is benefiting from an increased awareness among customers of the need to boost their immunity and general health by buying more vitamins.
On 15th May 2020, Dischem announced that it had acquired 100% of Baby City for R430m in a conditional agreement. There are significant synergies between the two companies' product and service ranges. The company is expanding into healthcare insurance with the acquisition of 25% of Kaelo Holdings.
In its results for the year to 29th February 2024, the company reported revenue up 11.1% and headline earnings per share (HEPS) down 1.6%. The company said, "...the Group was impacted by the base effects of the prior year's performance, which were distinctly different across the two halves of the year with the first half of the prior year delivering a strong performance when compared to the second half of the prior year. Contributing to the stronger first half performance in the prior year, was the acquisitions of the warehouse properties resulting in a R72 million once-off gain from the release of the lease liability and right-of-use asset as well as the impact of COVID-19 vaccine administration and testing services which has ended and did not contribute in the current financial period."
In our view, this is a solid blue-chip company with a good future. Technically, the share moved sideways and downward since making a "double top" in April 2022. We advised waiting for a break up through a 200-day moving average before investigating further. That break appeared to be happening on 3rd November 2023 at a price of 2525c per share. Since then, the share has moved up to 3128c. We consider Dischem to be a solid defensive share with good long-term potential.