A buying opportunity at Clicks

The company added 23 Clicks stores and 44 dispensaries in its 2010 financial year. It remains committed to expanding its retail base to 500 stores with pharmacies in the medium term.

This will boost turnover by attracting customers to the stores and promoting sales of the higher-margin front-shop products.

Good growth through expansion

Management feels the group is well positioned for growth based on the expansion of the Clicks store and pharmacy network, new revenue opportunities in its wholesaler, UPD, and organic growth from the health and beauty markets.

Management has a clear strategy, and so far this year events have been moving smoothly. Last week shareholders approved the company's share ownership deal, according to which 10% of the group's shares will be issued to employees, 70% of whom are black.

New CFO

Next week former Tiger Brands CFO Michael Fleming joins the group as CFO, replacing Keith Warburton, who will retire after a short handover period.

A trading statement released recently indicates that not all divisions have been doing equally well, however. The Clicks Group includes Musica and The Body Shop, and turnover declined in both.

But the group reflected good sales in the 18 weeks to 2 January 2011. In particular the core Clicks chain, which generates 88% of sales, increased sales by 16.8% compared with 15.7% last year - a good job, considering prices were virtually unchanged from 2010.

"Selling price inflation measured just 0.6% across the retail businesses for the period, compared with 8.9% in the prior year," says CEO David Kneale "In this context we are pleased with our results."

Positive outlook for credit retailers

Though there are signs that the retail cycle is beginning to favour credit retailers (and therefore their investors), Clicks still has a good growth story to tell. The p:e is 18.85 but the dividend yield is a healthy 2.66%, making the share attractive for long-term investors.

So what about the recent fall in the share price?

"I don't think the market was disappointed with the trading update," says BoE Private Clients equity analyst Shanay Narsi "All retail has been under selling pressure lately. It is mostly the foreign investors - they seem to have a more bullish view on US growth. And with one eye on the potential for rand depreciation, perhaps this the right time for them to take some profits off the table."

Indeed. Perhaps now is the time for local investors to take the opportunity to get into Clicks at cheaper levels.

Clicks is a quality company with a high return on equity, good operating margins and a healthy balance sheet. In addition, the group has positioned itself defensively with a resilient business model in trying economic times.

Source: Financial Mail