Holdsport interim results.

28-SEP-11

About two weeks ago Holdsport came out with a trading update that indicated a 20% increase in earnings against the last comparable period. Yesterday the company that owns Sportsmans Warehouse, Outdoor Warehouse and First Ascent came out with consolidated results for the half year ending 31 August 2011. Core headline earnings came in at R61 million or 159c per share from revenues of R546.9 million which was up 7.2% from last year. There were a few once-off costs and the amortisation of trademarks which brought headline earnings to 141c per share. An interim dividend of 47c was announced. The company is in growth mode so I would definitely expect this cover to increase going forward.

In terms of the divisions Sportsmans Warehouse is the big revenue driver with 72% from its 33 stores while Outdoor Warehouse brings in 24%. First Ascent brings in just 4% but is growing very quickly, 28% from last year. Like I mentioned in my note when the update came out, the company looks cheap in comparison to its retailer peers. I think a conservative prediction of full year earnings would be around 300c per share. The stock trades at R31 giving it a forward PE of 10.3.

I say this is conservative because in the prospects they remain optimistic regarding trading conditions in the second half. This is because the period includes Christmas which as you can imagine is vital for the company. I would also imagine that sales now, and throughout the beginning of summer would be increasing because people are more active when the weather is good. In terms of new stores, the company added one Sportsmans and one Outdoor Warehouse for the period while a further 2 new stores will be opened within the financial year. It doesn't sound like a lot but the company only had 49 stores in the previous reporting period. 4 new stores represents an 8% increase.

Usually I prefer the bigger companies but I feel this company offers a lot of value and potential. That is because I think their brands are fantastic. Agreed, the industry is extremely competitive with Mr Price Sports and potentially Walmart offering the lower end stuff while stores like TotalSports and brand retailers offer the higher end products and services. Still when you think sports retailer in SA you think Sportsmans Warehouse. They offer that shopping experience you just cannot find anywhere else. In a country with good weather, active citizens and a growing middle class, they fall in a good space.