Clicks | Radiant share gains

Clicks Group's (CLS) defensive category mix is counteracting the weak demand environment. CLS continues to gain share in high margin health and beauty products, from independent pharmacies and traditional grocers. CLS's distribution business has scale with the inclusion of four new pharmaceutical distribution contracts over the last six months. CLS aims to roll out c.27 new stores pa until the Group's count rises from c.704 to c.900. CLS has 78 existing stores which can still incorporate a pharmacy. The Group intends to drop in c.30-35 new pharmacies pa. Store trading densities improve with the installation of a pharmacy. New store locations are chosen to limit cannibalisation. Thus, we forecast c.3% space growth contribution to top line over the next five years. Earnings growth will also have support from a maturing store base (c.15% of stores yet to reach optimal trading densities). The Group's omni-channel offering gives each convenience store location the same functionality as a destination store, which closes the gap to DCP's competing big-box offer. CLS's loyalty programme is the number one in the country per consumer ratings. The programme augments strong top-line growth as the company uses loyalty data to personalise its offering. Given the Group's solid execution-record and ongoing expansion, we believe CLS will continue to deliver a strong earnings growth pipeline. We forecast 14.8% y/y growth of diluted HEPS in FY '20 and 12.5% CAGR to c.1 076cps in FY '23. The Group is highly cash generative and has low incremental capital intensity in its expansion. Thus, Group ROIC is high and sustainable at c.53%. Considering its high-quality growth profile, we believe the counter can maintain a 31x 12m rolled forward PE multiple (3.0x PE relative). We set a 12m TP of 27 943cps, implying a total 12m return of 15.5%. Thus, we maintain a MARKET PERFORM rating.