BROKERS’ NOTES: Buy Lewis, sell Growthpoint

Peter Armitage, CEO of Anchor Capital

Buy: Lewis

Lewis Group offers an attractive investment opportunity for those seeking stability and growth in the retail sector. With a diverse brand portfolio that includes Lewis, Best Home & Electric and UFO, the company effectively targets various income segments, enhancing its market reach. Its strategic emphasis on exclusive, high-margin products positions Lewis favourably against competitors, while its extensive store network ensures broad accessibility. Despite a challenging operating environment, it is expanding its store footprint more rapidly than its competitors. The introduction of the government of national unity, the two-pot system and lower interest rates can stimulate consumer spending, further benefiting Lewis, positioning it to capitalise on pent-up demand. Recent results show a 7% increase in headline earnings to 925c a share for financial 2024, driven by improved gross profit margins. With a forward multiple of 5.7 and a 9.8% dividend yield, Lewis Group remains an appealing choice, offering long-term value in a dynamic retail landscape.

Sell: Growthpoint

Growthpoint is one of the two bellwether South African property shares, the other being Redefine. The share has recovered from below R10 in October to more than R14 today, which we think is fair to full value given its growth profile. Its earnings were down more than 10% in the latest results and the company is projecting a further decline of low single digits in the current year. This is partly due to the effect of high interest rates belatedly flowing through in Australia, where Growthpoint had fixed very low rates into next year. The forward dividend yield is now 8.3% and for the next 12 months we believe there are better opportunities. There is light on the horizon, and as rates decline and the South African environment improves, the company should return to a growth path in 2026 and beyond. The star performer is the V&A Waterfront in Cape Town.