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Investment case

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