Holdsport results are good!

11-OCT-12

Earlier in the week we had half year results from a retail company called Holdsport. They own Sportsmans Warehouse (34 outlets), Outdoor Warehouse (18 outlets) and two performance brands, namely First Ascent and Capestorm which they wholesale across the country.


The company has only been listed since July last year after being offloaded by a private equity group. Since then the share price, like most retailers over that period, has performed well. After opening at R31 on the 18th of July 2011 the stock peaked at R50.50 in September this year before pulling back with the rest of the retailers now trading at 43.20. That is growth of 42% since listing.


Overall sales grew 9.9%. 10.3% growth from Sportsmans Warehouse, 6% from Outdoor Warehouse and 25.7% from the performance brands. Operating profit only increased 1.2% however because of some big currency adjustments and the influence of the Rugby and Soccer World Cups in the last reporting period.


Headline earnings per share came in at 143c for the 6 months but remember that the next period which includes the festive season is much bigger. In fact last year it was 50% bigger. Let's assume they manage to grow earnings by 5% considering that the rugby world cup at the end of last year raised the bar. That would mean earnings of 372c. The analyst community expects much more, around 440c. Trading at R43 the stock looks very cheap for an exciting retailer. PE's varying between 9.7 and 11.5.


Big sporting events come and go which may make earnings volatile. One thing for sure though is that they will always consistently happen. That is not where I see the growth coming from. The two performance brands are making big headway in South Africa. They are good quality value for money products. Internationally we have seen Nike, lululemon athletica and Under Armour take off, especially in the developing markets. It is a fast growing industry.


I also like the big concept retailer brands of Outdoor Warehouse and Sportsmans. It is a theme I really believe in. People want to be healthy and active. Heart disease is a huge killer and more and more awareness to be active and healthy is being created. It's a government priority while companies like Discovery also promote it. South Africa has a fantastic climate with many mountain ranges, forests, rivers and nature reserves. Not to mention our sports mad culture. We have a growing middle class where more and more people are entering the earnings bracket where spending on activities almost becomes a priority.



Risks include a weak currency (one of the reasons the share price has been taking strain), a weak SA economy and strong competition from the likes of Mr Price, Massmart and Foschini. Considering all these factors I would be adding at these levels.