Dis-Chem Pharmacies Limited. JSE: DCP

DisChem shares

Background of Dis-Chem

  • Since 1978, Dis-Chem has been among South Africa’s first choice in pharmacies, with its linked dispensaries, family clinics, comprehensive self-medication centres and so much more.

  • Dis-Chem is a leading specialist in beauty, health food, sport supplements, health and well-being. Dis-Chem also offers the widest range in the above-mentioned categories, along with expert advice. Dis-Chem puts its competitive advantage largely on its famously competitive prices, and its benefits programme, which not only rewards customers but also gives back to the community through the Dis-Chem Foundation.

  • Beauty salons in virtually all stores offer the latest treatments, and Dis-Chem’s latest introduction of Hair Salons (in selected stores), ensures that it lives up to its promise.

  • Dis-Chem is a leading pharmacy group in South Africa. It’s “Pharmacy First”approach, means that Dis-Chem’s customers can always depend on there being a pharmacist to serve their pharmaceutical needs whenever they enter a Dis-Chem store.

  • In addition to pharmaceutical products and services, Dis-Chem’s retail pharmacies also sell personal care and beauty, health care and nutrition and baby care products as well as confectionary, dry grocery, household and other ancillary products. As at 2016, it had 101 stores in South Africa and two partner stores in Namibia.

  • Dis-Chem is also in the wholesale business, serving third party and Dis-Chem retail pharmacies through CJ Distribution.

  • Dis-Chem has been rated as South Africa’s favourite pharmacy brand and number 1 health and wellness brand by PMR.Africa

Dis-Chem Shares Growth Driver

  • Dis-Chem’s vision is to be the leading retail pharmacy in South Africa.

  • Dis-Chem aims to continue growing its market share across its product offering by focusing on its customers and building on Dis-Chem’s brand positioning, thus driving strong buy sentiments from customers. Dis-Chem strives to maintain its category leadership by always being responsive to consumer preferences and trends, such as food and sport supplements trends, beauty salon products and treatments, thus ensuring good performance.

  • Dis-Chem intends to achieve this through four pillars of growth:

     Increasing Dis-Chem’s store footprint

     Driving secondary retail opportunities through innovation

     Driving margins by leveraging Dis-Chem’s existing head office cost base

     Expanding CJ Distribution

  • Given the continuing trend towards consolidation, Dis-Chem states in its pre-listing statement that it has identified more than 100 opportunities for new stores from market research.

  • Between August and end-February 2017, it will open eight stores (after opening three in the first-half of its financial year), which will no doubt drive the Dis-Chem share price and Dis-Chem’s shares higher on the live online data charts. This rate will accelerate, with “at least 18 stores” expected to be opened during its 2018 financial year (March 2017 to February 2018). It “intends to open 15 to 20 stores per year in the medium term” and has a stated “goal of doubling its store footprint over the next five to eight years”.

  • By comparison, Clicks aims to open between 20 and 25 new stores in the next 12 months (extending its footprint by around 4%), with a target of 30 to 35 new pharmacies (including conversions of existing stores).

  • Dis-Chem believes that “further market share gains lie in the years ahead, driven by maturation of existing stores (1/3 are not yet mature) as well as a robust new-store pipeline portfolio”.

  • The company intends using the bulk (R3.575 billion) of the net capital proceeds from the offer to repurchase shares from existing shareholders to enable a free float. It will also use R700 million to pay down some existing debt. As at August 31, the group had a bank overdraft of R2.29 billion. In the past 30 months, the overdraft has increased by 3600%, from just R61 million as at February 28 2014.

  • Saltzman, Dis-Chem’s CEO said Dis-Chem continued to expand and planned to add another 21 stores in the 2018 financial year. “This new space, together with maturing space within the existing store footprint, is expected to drive strong retail and comparable store growth in the years ahead, both of which are supported by the resilient health and beauty markets that we operate in.”

Dis-Chem Investor Tip

  • It is important to note, however, that the listing of Dis-Chem on the JSE is not an offer to the public. It is placing shares with “selected institutional investors” in South Africa, “qualified institutional buyers” in the United States and selected institutions in other territories, according to Dis-Chem’s CEO.

  • This means that any retail investor will only be able to buy shares on the morning of listing on the Johannesburg Stock Exchange. Generally, if demand is high, this will mean the price will trade at a premium to the “offer price” at which institutions will have subscribed to the offer. This price, is anticipated to be between R16.25 and R20.25 per share. So, for example, Dis-Chem could open on the market at R20 per share, even if the offer price (which institutions bought at) was only ±R18.

  • Shares in recently listed healthcare retailer Dis-Chem fell 3.7% on Friday after the release of a trading update for the 22 weeks to end January.

  • The trading update was largely upbeat, but investor enthusiasm for the JSE’s retail sector has been tempered in recent months after evidence of trading strain in certain mainstay companies.

  • Still, shares in Woolworths, Clicks and Massmart all finished higher on Friday’s forecast, driving purchase sentiments from the market. Market watchers did point out that Dis-Chem had been trading close to an all-time R24.99 high recorded earlier in February.

  • Dis-Chem reported retail turnover up 14.3% to R6.7bn, while group turnover was up 13% to R7.3bn.

  • The professional view however questions the manner in which Dis-Chem and Dis-Chem’s majority shareholders have run their affairs. The position is that even though Dis-Chem has done exceptionally well from inception to today, piling on debt to pay for Dis-Chem’s elevated dividend levels, money beyond the amount of R1.8 billion. Is not a “normal thing” over 12 months, although it is a great position for Dis-Chem shareholders this could bring Dis-Chem shares and the Dis-Chem share price down in the end.

  • Question remains will this be a once of thing in company’s history or will this be the group’s modus operandi, continuing into the current day?

Dis-Chem Major Shareholders

  • Sector

    Consumer staples

  • Industry

    Food and staples retailing

How to buy Dis-Chem Holdings Shares

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