Dis-Chem is one of South Africa's leading healthcare retailers, offering a wide range of pharmaceutical products and over-the-counter medications. Other offerings include personal and cosmetic products, household goods, health foods, baby care products as well as a selection of vitamins and nutritional supplements. The group also holds a strong presence in the wholesale market (via its CJ Distribution business), servicing both third party stores as well as its own retail pharmacies.
Dis-Chem's retail growth over FY23, although strong (+6.5%), was slightly lower compared to that of the half-year point (+9.3%) as high inflation and rising interest rates weighed further on customer wallets. Wholesale growth stood firm (+10.4%) and the group's headline earnings per share grew by an impressive 17.4%.
Technically, Dis-Chem's share price is displaying early signs of bullish divergence, making it attractive as an investment opportunity. Bullish divergence (as indicated by the arrows on the main chart) occurs when there is a discrepancy between the share price and the Relative Strength Index (RSI). This suggests a potential shift in market sentiment and the possibility of an impending price reversal to the upside.
Dis-Chem is currently trading between R23 and R25 (well below its 200-day simple moving average of R28.65) and should attract strong buying interest at this level.
Fading downside momentum as per the moving average convergence divergence (MACD) indicator, as well as sidewards movement of the on-balance volume (OBV) indicator further supports a bullish bias.
Share Information
| Share code | DCP SJ |
|---|---|
| Industry | Consumer Staples Distribution |
| Market Capital (ZAR) | 20.55 billion |
| One year total return | -25.77% |
| Return year-to-date | -16.25% |
| Current price (ZAR) | 23.89 |
| 52 weeek high (ZAR) | 36.71 |
| 52 week low (ZAR) | 21.54 |
| Financial year end | February |
| Closing paragraph | The share has derated to a forward PE valuation of 18.9 times (compared to its 5-year average of 24.2) which looks attractive. |
Consensus expectations
(Bloomberg)
| FY22 | FY23E | FY24E | FY25E | |
|---|---|---|---|---|
| Headline Earnings per Share (ZAR) | 1.16 | 1.20 | 1.38 | 1.61 |
| Growth (%) | - | 3.10 | 14.76 | 17.08 |
| Dividend Per Share (ZAR) | 0.47 | 0.48 | 0.57 | 0.68 |
| Growth (%) | - | 2.79 | 19.21 | 18.74 |
| Forward PE (times) | - | 19.92 | 17.36 | 14.83 |
| Forward Dividend Yield (%) | - | 2.01 | 2.39 | 2.84 |
| Closing paragraph | The market expects growth to remain subdued near term amid persistent operational and consumer-related headwinds. The group, however, remains well-positioned to benefit from an improvement in business conditions from FY25 onwards | |||
Buy/Sell Rationale
Technical Analysis:
Long-term fundamental view:
Update on previous Trade Ideas
| Share Name and position |
BVT - Profit Take (Close the position) |
TFG - BUY (Continue to hold) |
LHC - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 245.36 | 83.54 | 19.30 |
| Current | 271.34 | 94.33 | 20.90 |
| Movement | 10.6% | 12.9% | 8.3% |
| Summary text | We suggest taking profit early to reduce overall portfolio exposure |
The stock continues to trade below its 200-day simple moving average and sustained upside momentum remains supportive of a bullish bias.
Our profit target is R132, with a trailing stop-loss of R74.90. Exit the trade around 8 July 2024. |
Recent price action displays signs of a possible upward trend. The stock continues to test its 200-day simple moving average. Upside momentum supports the bullish trend.
Our profit target is at R22.20, with a trailing stop-loss of R19.65. Close the position around 26 June 2023. |
Update on previous Trade Ideas
| Share Name and position |
BAW - BUY (Continue to hold) |
MTN - BUY (Continue to hold) |
INL - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 85.56 | 132.49 | 105.00 |
| Current | 92.25 | 141.73 | 110.48 |
| Movement | 7.8% | 7.0% | 5.2% |
| Summary text |
The stock continues to test its 200-day simple moving average. Upside momentum supports the bullish trend.
Our profit target remains at R104, with a trailing stop-loss at R84.50. Close the position around 3 July 2023. |
The price may be entering stage 3 of the Elliot Wave pattern. The stock recently crossed above its 200-day simple moving average. Upside momentum supports the bullish bias.
Our profit target is R190, with a trailing stop-loss at R118. Exit the trade around 6 November 2023 |
The price has progressed to the “leading” quadrant out of the RRG analysis and remains of interest. The share remains above its 200-day simple moving average. Emerging upside momentum supports the bullish trend.
Our profit target is R121, with a trailing stop-loss at R104. Exit the trade around 7 August 2023. |
