Interim numbers, special dividend

03-OCT-14

Holdsport, one of the worst performing (share price wise) of the Vestact retail stocks reported their interim numbers this morning. Sales were up modestly (7.3 percent) to 677.1 million Rands, marginal gains across all their segments except for the performance brands. Mind you, performance brands account for only 28.6 million of that total (it was down 7.3 percent relative to the prior reporting period), which is around 4.22 percent of total sales.


The biggest segment by far and away is still the Sportsman Warehouse brand (35 stores) which accounts for 73.7 percent of all sales, up 8.9 percent and outperforming the Outdoor Warehouse smartly. That outdoor segment recorded the balance of the sales (22 percent of group), growing only 5.3 percent. Over the last five years the group has grown their store compliment from 49 to 55, not exactly breakneck speed.


It has been tough out there for Joe Consumer. The company expects subdued trading conditions through to Christmas, traditionally the second half of the year is much better than the first. Discretionary spend has not been as high as in years gone by, the rate at which consumers are borrowing has tapered off significantly over the last 18 months. You do not buy a new bicycle or a new set of running shoes, those are big ticket purchases for many middle income people. Especially a bicycle. Of course you have to use them too, you know the old saying, "all the gear and no idea".


Earnings, "core" headline earnings (which excludes FX fluctuations) grew to 75.6 million Rand, on a per share basis it was marginally higher to 175.4 cents a share. This is of course for the first half of the year, the full year last year saw earnings per share (core) at 424 cents. The interim dividend was hiked to 85 cents from 75 cents, after the government has taken their 15 percent for dividend tax the net amount is 72.25 cents. That amounts to an expected payout of somewhere in the region of 235-245 cents for the full year (2 Rand post tax). That is presuming that earnings increase modestly too and that the 1.9 times dividend cover policy (last year) remains in place. Dividend cover for the interim dividend has been reduced from 2.2 to 2 times, this is significant, it normally stays put.

A very generous bunch, admittedly the folks running the business are big shareholders in their own personal capacity, from my review of the annual report -> Annual report review. Hold, be a sport


a strong bunch of institutional shareholders (Coronation - 21.3%, Stanlib - 7.5%, Investec AM - 13.9%, GEPF - 4.7%, Allan Gray - 5.2%) which adds up to 52.6 percent of the shares in issue. Add to that the strong management teams shareholding, Kevin Hodgson the CEO (11.6%), Toni Haarburger (she used to be at Woolies and Holdsport and is a founder of this business) (7.4%), as well as other directors (3.4%) own 22.4 percent. Stick those two together (management and institutional) and you have three quarters of the company in safe hands.


So why does the companies share price trade on a historical yield of 4.67 percent AFTER tax and on an earnings multiple, historical, of 9.23 times. That is when the share price was at 40 ZAR a share last evening, the obviously few people who watch the stock (trades only around 1.4 million Rand a day) is up 4.85 percent.


There is the prospect of a special dividend, the company sold half of a warehousing facility that they co-owned with Redefine back to their partner for 42.5 million Rand. Redefine properties will now own all of it (it being a distribution centre in Philippi, an industrial area just to the West of Mitchells Plain), Holdsport will still lease the distribution centre. Expect another 99 cents, pre tax of course, around 84.15 cents.


That does not answer the question, why so cheap? The company is in a segment that we like really well, as more emphasis is placed on healthy living, sports apparel retailers will see their sales increase at a faster pace than the rest of the fashion sector. Equally, sportswear is interchangeable with fashion nowadays. We just need to see the consumer come out of their funk. Unchanged view, from my point of view when they released their annual report, there is a great dividend underpin. If you own it, hold on and be patient.