By Peet Serfontein & Jalpa Bhoolia
Dis-Chem is one of the leading pharmaceutical and consumer wellness groups in South Africa. The group 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 also the market leader in dispensary, and we are positive on the growth prospects of this space.
Technically, a share price that reflects higher highs and higher lows makes for a compelling investment opportunity (see the insert on the main chart).
Higher lows indicate increased buying at progressively higher price points, thus preventing the price from falling to a previous low. Higher highs signify that investors are willing to pay more, in turn pushing the price to new peaks. This is supportive of a bullish case for the share.
The share is in a “markup” phase of the Wyckoff market cycle analysis. This phase is characterised by higher highs and higher lows, often accompanied by rising volume, confirming the bullish sentiment around the share.
The share remains above its 200-day and 200-week simple moving averages.
According to the RSI (Relative Strength Index), the stock will be overbought at ~R39, which is the same level at which we have pegged our profit target.
We suggest a medium capital at-risk allocation to this trade.
Share Information
| Share Code | DCP |
|---|---|
| Industry | Consumer Staples Distribution |
| Market Capital (ZAR) | 30.02 billion |
| One Year Total Return | 51.31% |
| Return Year-to-Date | 14.45% |
| Current Price (ZAR) | 34.90 |
| 52 Week High (ZAR) | 35.50 |
| 52 Week Low (ZAR) | 22.30 |
| Financial Year End | February |
| The share has made good progress year-to-date, and technical indicators are supportive of further upside. Expect moderate volatility in the share price. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (ZAR) | 1.15 | 1.34 | 1.61 | 1.91 |
| Growth (%) | 16.75 | 20.18 | 18.72 | |
| Dividend Per Share (ZAR) | 0.46 | 0.54 | 0.65 | 0.81 |
| Growth (%) | 18.60 | 20.48 | 24.35 | |
| Forward PE (times) | 26.08 | 21.70 | 18.28 | |
| Forward Dividend Yield (%) | 1.55 | 1.87 | 2.33 | |
| Attractive double-digit earnings growth is expected over the forecast horizon. | ||||
Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | VOD - Stop Loss (Close the Position) |
ANH - BUY (Continue to hold) |
OMU - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 97.51 | 1088.49 | 11.99 |
| Current | 91.19 | 1105.47 | 11.98 |
| Movement | -6.5% | 1.6% | -0.1% |
| The share hit our stop-loss level, leading us to close the position. Additionally, the share crossed below its 200-day simple moving average, signalling a concerning trend. | A price that is forming a developing ascending triangle pattern remains of interest. Fading downside price momentum is supportive. Remains just below its 200-day simple moving average. Our take profit target remains at R1235 with a trailing stop-loss level at R1047. Exit the trade on 28 October 2024. | A price that is building a base remains of interest. Upside price momentum has halted which presents some concern. Remains just above its 200-day simple moving average. Our profit target is at R14 with a trailing stop-loss at R11.15. Exit the trade on 16 September 2024. |
| Share Name and position | NRP - BUY (Continue to hold) |
EXX - BUY (Continue to hold) |
|---|---|---|
| Entry | 131.00 | 194.83 |
| Current | 130.52 | 191.45 |
| Movement | -0.4% | -1.7% |
| An inclining channel pattern remains of interest. Downside price momentum is a concern. Remains above its 200-day simple moving average. Our take profit target remains at R146 with a trailing stop-loss level at R125. Exit the trade on 9 September 2024. | A price that is forming a developing symmetrical triangle pattern remains of interest. Remains above its 200-day simple moving average. Our profit target is at R215 with a trailing stop-loss at R183. Exit the trade on 4 November 2024. |
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