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Lewis’s A rating defies a bad sector – Business Report

October 7, 2013

Johannesburg – Furniture retailer Lewis Group was awarded a good credit rating on Friday by Global Credit Ratings for its consistent performance.

Lewis received the first-time rating of A for outperforming the ailing local furniture industry, which has been hit by bad debt and slow demand.

The “A” rating is a high score for a long-term issuer rating defined by the emerging markets ratings agency as: “High credit quality. Protection factors are good.

“However, risk factors are more variable and greater in periods of economic stress.”

The company sought out the ratings agency as it is considering refinancing its debt and venturing into the bond market.

Statistics SA retail sales data confirm that the local furniture industry is largely in decline as consumers spend less on large ticket items such as furniture and appliances.

Lewis said for the three months to June revenue rose 4.7 percent year on year and its chief executive, Johan Enslin, blamed rising unemployment and uncertainly in the labour market for the slow spending.

The company reported that bad debt had increased by 3 percent to R417.9 million from R405.4m in the year to March.

Eyal Shevel, the head of the corporate sector at the Johannesburg-based ratings agency, said Lewis had a good track record in continued earnings and had consistently outperformed sector peers such as JD Group and Ellerines.

“Lewis has a steady growth track record; 5 percent to 6 percent growth over the last two years is good.”

Shevel said although Lewis was affected by the same factors that hit Ellerines and JD Group, it had a different model with less exposure to pure unsecured lending. “Lewis doesn’t offer pure unsecured lending. It offers credit for consumers who are buying assets at its stores. It does not fund pure consumption.”

He said an average of 6 percent growth was good.

“Lewis won’t shoot the lights out with double-digits growth but we expect them to do well.”

Gryphon Asset Management analyst Reuben Beelders said Lewis had been operating in a low interest rate environment and that an interest rate increase would not be good for its growth.

In September, the Reserve Bank opted to keep the repo rate at 5 percent.

“Bad debts are still bad but they are just increasing at a slower rate. If interest rates rise the situation could deteriorate quite rapidly,” Beelders said.