Our opinion on the current state of LEWIS(LEW)
Lewis (LEW) is a retailer specializing in furniture and electrical appliances, operating through 840 stores under the Lewis, Beares, Best Home, Bedzone, and United Furniture Outlets (UFO) brands. Of these, 138 stores are located in neighboring countries. The company conducts 59.9% of its business on credit, offering customers credit insurance and other financial services. The plan is to expand the UFO brand from its current 39 stores to 70 stores over the next few years.
Despite the challenging economic conditions post-COVID-19, Lewis has maintained a debt-free balance sheet, which is remarkable among listed retailers. The stock is currently trading on a price-to-earnings (P:E) ratio of 7.95, and the share price remains significantly below its net asset value (NAV). The company has embarked on a share buy-back program, repurchasing 29.9 million shares at an average price of R34.20 per share, aiming to buy back 10% of its issued capital. This suggests that management believes the share is undervalued.
In its financial results for the year ending 31st March 2024, the company reported merchandise sales growth of 4.7% and an increase in headline earnings per share (HEPS) of 7.1%. The company highlighted strong credit sales growth, up 15.8%, while cash sales declined by 11.8%. Credit sales have grown at a compound annual rate of 16.9% over the past three years, now accounting for 66.2% of total merchandise sales (up from 59.9% in the previous year). The company has maintained strict credit criteria, with a credit application decline rate of 35.1%.
The results reflect the pressure on consumers due to high-interest rates; however, the anticipated end of loadshedding should provide some relief. In a trading update for the six months ending 30th September 2024, the company estimated that HEPS would increase by between 45% and 55%, driven by growth in other revenue streams and strong credit sales momentum.
Lewis has been one of the best-performing retailers on the JSE, demonstrating prudent management and growth strategies despite economic headwinds. Management believes the share is undervalued by at least 30%, a view we find conservative given its performance. We added Lewis to our Winning Shares List (WSL) on 1st December 2023 at a price of 4150c, and since then, the share price has increased by 77% to 7350c.
Technically, the share has broken through its long-term downward trendline and is now in a strong upward trend, suggesting further potential for appreciation as the economic environment stabilizes.
Despite the challenging economic conditions post-COVID-19, Lewis has maintained a debt-free balance sheet, which is remarkable among listed retailers. The stock is currently trading on a price-to-earnings (P:E) ratio of 7.95, and the share price remains significantly below its net asset value (NAV). The company has embarked on a share buy-back program, repurchasing 29.9 million shares at an average price of R34.20 per share, aiming to buy back 10% of its issued capital. This suggests that management believes the share is undervalued.
In its financial results for the year ending 31st March 2024, the company reported merchandise sales growth of 4.7% and an increase in headline earnings per share (HEPS) of 7.1%. The company highlighted strong credit sales growth, up 15.8%, while cash sales declined by 11.8%. Credit sales have grown at a compound annual rate of 16.9% over the past three years, now accounting for 66.2% of total merchandise sales (up from 59.9% in the previous year). The company has maintained strict credit criteria, with a credit application decline rate of 35.1%.
The results reflect the pressure on consumers due to high-interest rates; however, the anticipated end of loadshedding should provide some relief. In a trading update for the six months ending 30th September 2024, the company estimated that HEPS would increase by between 45% and 55%, driven by growth in other revenue streams and strong credit sales momentum.
Lewis has been one of the best-performing retailers on the JSE, demonstrating prudent management and growth strategies despite economic headwinds. Management believes the share is undervalued by at least 30%, a view we find conservative given its performance. We added Lewis to our Winning Shares List (WSL) on 1st December 2023 at a price of 4150c, and since then, the share price has increased by 77% to 7350c.
Technically, the share has broken through its long-term downward trendline and is now in a strong upward trend, suggesting further potential for appreciation as the economic environment stabilizes.
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