Dis-Chem

Despite the meaningful rerating in many domestic counters, we continue to see value in the wining businesses held in our equity and balanced portfolios, with Dis-Chem remaining a significant holding in our balanced and equity portfolios as of end September 2024.

The business operates in the resilient pharmacy sector that can do well even in a constrained South African economy. The overall defensive nature of healthcare spending results in healthy like for like sales growth in the industry.

In addition, there is still a significant opportunity for the formalisation of the pharmacy sector in South Africa. In many other developed markets, corporate pharmacies usually have the majority share of the industry. In South Africa, Clicks and Dis-Chem have a market share of around 50% of the sector, with the rest made up of small independent pharmacies. The combination of organic sales growth and market share gain opportunity supports long-term real revenue growth forecasts for Dis-Chem.

Since IPO, the Dis-Chem management team have invested heavily in their business. They have built new distribution capacity, invested in new retail and operating systems, rolled out new stores and more recently bought businesses in adjacent categories like baby and primary healthcare. These investments have dented short term earnings and margins (and has been one of the key reasons behind the de-rating in the share price post IPO). We believe that these investments have been for the long-term benefit of the business as they strengthen the operating efficiency and support the growth potential of the business.

^{Insights Disclaimer}