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Investment case

Lewis Group offers equity investors exposure to the full spectrum of South Africa’s retail customer market through its well-established traditional brands operating in the low to middle income credit market and upper income cash customers through UFO.

While trading conditions and performance may be impacted in the short-term by COVID-19, the board believes that the business model has the resilience to absorb the short-term volatility.

The following factors motivate an investment case for Lewis Group and should support long-term returns for shareholders.

Favourable positioning even in challenging retail environment
  • Focus across all brands is on the retailing of furniture, home appliances, electronic goods and homewares
  • Decentralised store-based business model is resilient to current economic downturn
  • Brands are positioned to gain market share in the changing competitive landscape with widespread store closures across the industry
  • Traditional retail brands operate in a growth segment of the South African population
Strong balance sheet and eff ective capital management strategy
  • Gearing ratio of -5.6% (12% post IFRS 16)
  • Active capital management strategy enhancing returns to shareholders through dividend payouts and share buy-back programme
  • Strong cash position enabled the group to withstand the trading restrictions during lockdown without having to utilise external funding
Exposure across income segments
  • Lewis and Best Home and Electric target low to middle income credit and cash customers
  • Beares targets middle income credit and cash customers
  • Cash retailer UFO targets the higher income market segment
Extensive retail presence
  • National coverage with 669 stores across urban and rural areas in South Africa
  • Expansion in past two years into the higher income segment with UFO chain comprising 41 stores
  • Exposure to other African markets with 125 stores in Namibia, Botswana, Lesotho and Eswatini
Customer loyalty and engagement
  • Loyal customer base with a significant volume of sales generated from existing customers
  • High levels of brand awareness and trust with customers
  • Traditional retail stores conveniently located close to places where target customers live and work
  • UFO stores located in high footfall areas where higher end customers shop
Differentiated and exclusive merchandise
  • Differentiated, exclusive and quality product ranges across all brands
  • Focus on selling higher margin furniture and appliance product categories
  • Products sourced locally and offshore that appeal to the needs of specific income target markets serviced by the group’s brands
Proven credit risk management
  • Credit offered across traditional retail brands to facilitate sales growth
  • Extensive experience in managing credit risk in the lower to middle income market
  • Centralised credit approval and granting ensures consistent credit risk management
  • Decentralised cash collections process at stores benefits collection rates