Picture: FREDDY MAVUNDA
Picture: FREDDY MAVUNDA

Dis-Chem Pharmacies’ ailing shares regained colour after the healthcare retailer issued a rosier profit prescription for the second half of its financial year to end-February 2019.

In a trading update issued on Thursday, Dis-Chem pencilled in full-year earnings of 92.3c-98.7c per share, representing an increase of 16%-24% over the past financial year.

Dis-Chem’s shares, which are well off their R39 high in late January, rebounded more than 7.07% to close at R27.73.

Although Dis-Chem predicted half-year earnings to end-August would only range 8%-13% higher at 50.6c a share to 52.9c a share, CEO Ivan Saltzman maintained earnings growth would improve in the second half of the financial year.

He said bottom line for the full year would benefit from the higher single exit price granted in March 2017.

The single exit price is prescribed by the Department of Health and affects roughly a third of Dis-Chem’s retail sales.

Saltzman also expected Dischem’s wholesale division to break even on an ebitda (earnings before interest, tax, depreciation and amortisation) basis.

“This will be driven by additional scale on … internal and independent pharmacy sales growth as we access new markets as a result of our newly invested warehouse space.”

He added that cost efficiency remained a focus as Dis-Chem now had wholesale operations more geographically aligned with its retail store base and the independent pharmacy market.

Dis-Chem said sales in the four-month trading period from March 1 to end-June increased 11% to about R7bn.

Lentus Asset Management chief investment officer Nic Norman-Smith said that while the trading update reflected a subdued retail environment, Dis-Chem’s continued investment in growth was driving top line sales.

“The market certainly seems more upbeat about Dis-Chem’s future based on their current valuation compared with other retail-focused businesses such as Woolworths.”

During the 2018 financial year Dis-Chem added 21 new stores, which contributed about R435m in revenue in the first four months of the new financial year, Saltzman said.

Six new stores had already been opened in the new financial year, which added R79m to turnover, he said.

“With at least 14 store openings planned through to February 2019, we reiterate our guidance to end the full year with a minimum of 149 stores.”

hasenfussm@fm.co.za

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