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Investment case

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

While trading conditions continue to be impacted by Covid-19, the directors believe that the business model has the resilience to absorb this short-term volatility, as evidenced in the height of the pandemic.

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

  • Favourable positioning in a challenging retail environment
  • Strong balance sheet and effective capital management strategy
  • Diversification across income segments
  • Extensive retail footprint
  • Customer loyalty and engagement
  • Differentiated and exclusive merchandise
  • Proven credit risk management

Favourable positioning even in challenging retail environment
  • All traditional brands are focused on the retailing of furniture, home appliances, electronic goods and homewares
  • Decentralised store-based business model is resilient to current economic downturn and impact of Covid-19
  • Brands are well positioned to gain market share across all market segments through the extensive footprint and merchandise offering
  • Traditional retail brands operate in a growth segment of the South African population
Strong balance sheet and effective capital management strategy
  • Robust balance sheet with low gearing and no borrowings
  • 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 access external funding
Diversification 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 footprint
  • National coverage with 681 stores across urban and rural areas in South Africa
  • Expansion in the past three years into the higher income segment with UFO chain comprising 43 stores
  • Exposure to other African markets with 126 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 the 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