Clicks Group (CLCGY, Financial) is a South African retailer that has been growing year after year. It owns the rights to GNC, Body Shop, Claire’s and several other retailers and pharmaceutical businesses in southern Africa.
The stock was mentioned in a GuruFocus article discussing the holdings of Wasatch International Growth (Trades, Portfolio). It is barely mentioned in American press.
There are 246 million shares, and the company trades at a market cap of 29.8 billion South African rand ($211 million). It takes 14.1 rand to buy $1. According to Bloomberg, the stock trades at a price-earnings (P/E) ratio of 28.17 and dividend yield of 2.03%.
No doubt Clicks is a growth company. Revenues grew from 14.1 billion rand in 2011 to 15.4 billion rand in 2012, 17.5 billion rand in 2013, 19.1 billion rand in 2014 and 22 billion rand in 2015. Shares outstanding actually shrank from 131 million to 120 million over that time frame. Gross margins are 6.3% and return on equity is a whopping 53.33%.
The company has 671 stores across southern Africa under the names of Clicks, GNC, Body Shop, Claire’s and Musica. Clicks has 384 in-store pharmacies. United Pharmaceutical Distributors (UPD) is its wholesale pharmaceutical distributor.
As of the latest half-year report, cash was 228 million rand and accounts payable 2.3 billion rand. This is to 5.7 billion rand in accounts payable and 200 million in debt. That’s an extremely strong balance sheet. Free cash flow was a healthy 1.122 billion rand, and the free cash flow yield is 3.7%.
Other than Wasatch International, there are no notable shareholders to speak of. A pension fund in South Africa owns 15.2%.
This video from CNBC Africa is a good watch (from August 2015). The analysts talk about how retailing is expanding in southern Africa and discusses Click’s pharmaceutical business. The analysts like its UPD division and noted that it delivers to nursing homes.
I was concerned about the Musica division competing with music downloads, but the analysts pointed out that broadband is mediocre in southern Africa. The analysts are also concerned that many of Clicks' products like GNC or makeup can be sold at grocery stores.
South Africa always seems to have some sort of problems with graft and discontent. The finance minister, Pravin Gordham, is being charged with bribery. A family with major economic interests in South Africa (the Gupta family) is being linked with buying favor with Prime Minister Jacob Zuma.
Clicks is an interesting company. It’s a growth story no doubt: almost no debt, high profit margins, exploding sales and earnings, good free cash flow. Like most growth stocks, it trades at high multiples. What I like most about retailers like Clicks is that it is expanding stores. You can’t ever buy a retailer when it's stopped building. Organic growth will never do it. Clicks is an interesting stock to follow.
Disclosure: We own none of the securities listed.
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