Peet Serfontein & Jalpa Bhoolia.
Dis-Chem is one of the leading pharmaceutical and consumer wellness groups in South Africa. Dis-Chem takes a 'Pharmacy First' approach, with the main aim of serving the primary pharmaceutical needs of individuals. Other products on offer include personal and beauty products, health, nutrition, and baby care products, as well as confectionery, dry grocery, household and other ancillary goods. The group utilises its wholesale business to service third parties and Dis-Chem retail pharmacies through its CJ distribution business.
Dis-Chem is the market leader in dispensary, and we are positive on the growth prospects of this space.
Technically, a share that displays seasonal patterns makes for an interesting investment opportunity (see the insert).
These patterns, often rooted in historical data, can offer insights into future market movements. Additionally, this approach leverages recurring temporal shifts in market dynamics. Transitioning into autumn (current), historical data since November 2016 shows an encouraging average return of +0.9%. Moving into winter (indicated by number 1 on the bar chart), the trend continues upward with a positive return of +3.1%. Momentum peaks in spring (referenced by number 2 on the bar), with an impressive return of +8.1%. Summer (indicated by number 3), however, stands out as the only season demonstrating negative performance in this cycle.
The share is in a "markup" phase according to the market cycle analysis. A "markup" phase sees a share (or the market as a whole) enter a bullish trend, following a period of accumulation where early investors have started to buy into the share at low prices.
According to the RSI (Relative Strength Index), the stock will be overbought at ~R35.00, which is the same level as our profit target.
We suggest a low capital at-risk allocation to this trade. Increase exposure for a break above R31.50.
Share Information
| Share Code | DCP |
|---|---|
| Industry | Consumer Staples Distribution |
| Market Capital (ZAR) | 26.43 billion |
| One Year Total Return | 15.64% |
| Return Year-to-Date | 0.13% |
| Current Price (ZAR) | 30.73 |
| 52 Week High (ZAR) | 31.20 |
| 52 Week Low (ZAR) | 21.54 |
| Financial Year End | February |
| The share has made good progress over a one-year period, and technical indicators are supportive of further upside. The share price remains above its 200-day simple moving average of ~R26.15. Expect moderate volatility in the share price. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (ZAR) | 1.16 | 1.14 | 1.42 | 1.68 |
| Growth (%) | -2.32 | 24.91 | 18.32 | |
| Dividend Per Share (ZAR) | 0.47 | 0.45 | 0.58 | 0.69 |
| Growth (%) | -3.43 | 28.89 | 19.48 | |
| Forward PE (times) | 27.05 | 21.66 | 18.30 | |
| Forward Dividend Yield (%) | 1.46 | 1.89 | 2.26 | |
| Earnings are expected to have been under pressure in FY24 (ended February), but a rebound is anticipated over FY25 and FY26. | ||||
Buy/Sell Rationale
Technical Analysis:
Fundamental view:
| Share Name and position | WHL - Stop-loss (Close the position) |
MRP - BUY (Continue to hold) |
APN - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 68.03 | 157.50 | 182.66 |
| Current | 63.29 | 170.01 | 196.73 |
| Movement | -7% | 7.9% | 7.7% |
| A stop-loss was triggered, and we closed the position. Strong downside price momentum remains a concern. |
A price coinciding with a trough in the business cycle remains of interest. Fading upside momentum is concerning. Trading above its 200-day simple moving average.
Our take profit target remains at R213 with a trailing stop-loss level at R147.60. Exit the trade on 7 April 2025. |
A developing symmetrical triangle pattern remains of interest. Trades above its 200-day simple moving average. Downside momentum is concerning.
Our profit target is R222, with a trailing stop-loss at R172. Exit the trade on 27 December 2024. |
| Share Name and position | RDF - BUY (Continue to hold) |
SNT - BUY (Continue to hold) |
BTI - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 3.78 | 296.56 | 562.87 |
| Current | 3.99 | 304.33 | 574.75 |
| Movement | 5.6% | 2.6% | 0.6% |
|
A strategic investment opportunity. Continues to stay above its 200-day simple moving average. Fading upside momentum is concerning.
Our take profit target remains at R4.50 with a trailing stop-loss level at R3.75. Exit the trade on 4 March 2024. |
An incomplete cup and saucer pattern remains of interest. Upside price momentum is a highlight. Remains above its 200-day simple moving average.
Our take profit target remains at R337 with a trailing stop-loss level at R288. Exit the trade on 29 April 2024. |
A price that is testing the lower range of an inclining channel pattern remains of interest. Fading upside momentum is a concern. Trading below its 200-day simple moving average.
Our take profit target remains at R645 with a trailing stop-loss level at R542. Exit the trade on 22 April 2024. |
