A prescription for profitability is the trending theme for the local pharmaceutical giant, Clicks Group (JSE: CLS), which prescribed a healthy dose of profitability in its most recent interim financial results, firmly cementing its place in the FTSE/JSE Top 40 Index (J200) as South Africa’s leading health, beauty, wellness, and retail pharmacy chain.
Clicks’ Performance Relative to the FTSE/JSE Top 40 Index:
Regarding the price chart below, Clicks Group has comfortably outperformed the J200 index over the most recent ten-year period, boasting an impressive cumulative return of around 360% (green line), significantly greater than that of the J200 index (orange line), whose cumulative return is just north of 100% over the same ten-year period.
However, in the most recent five-year period, Clicks has underperformed the J200 index, yielding a cumulative return of around 26% (green line), significantly lower than that of the J200 index (orange line).
When honing in on the last twelve-month period, Clicks has delivered a negative return to shareholders and investors alike (green line). In contrast, the J200 index has done quite the opposite, boasting a near 15% return over the last year (orange line).
Fundamental Analysis:
Looking at Clicks’ latest interim financial results for the six months that ended 28 February 2023, the pharmaceutical giant posted a slight uptick in earnings, reporting a 1.1% year-over-year increase in diluted headline earnings per share (HEPS), which came in at 472.2 cents for the six months that ended 28 February 2023, up from 466.9 cents a year prior. The local pharmacy chain also forecasts diluted headline earnings to rise by approximately 3% for the whole year, which could bode well for general market sentiment.
Given the perverse economic and business consequences associated with the civil unrest in Kwa-Zulu Natal in 2021 and related insurance recoveries, the group added that “excluding insurance proceeds in the prior period, adjusted diluted HEPS rose by 10.2%,” with the giant pharmacy chain forecasting annual growth of 13% in adjusted diluted HEPS.
Despite excessive loadshedding and persistent power cuts, Clicks Group managed a 2.3% year-over-year increase in turnover, coming in at R20 billion for the six-month period that ended 28 February 2023, up from R19.6 billion a year prior. Excluding COVID-19 vaccinations, the group’s turnover reflects a 6.8% year-over-year increase from the prior period, reflecting a significant decline in COVID-19 vaccinations.
CEO of Clicks Group, Bertina Engelbrecht, summarized the group’s interim results by stating that the “growth in Clicks was driven by the sustained post-COVID recovery in the beauty and personal care categories, supported by the Clicks ClubCard loyalty programme, which passed the 10 million active member milestone.”
Technical Analysis:
Looking at the 1D price chart of Clicks Group (JSE: CLS), the price action has been decreasing since the highs seen in late October and November of last year. The pharmaceutical giant has seen its share price decline toward the R250.00 support level (red line), despite breaching the significant resistance level at R309.75 (green line) a few months back.
For the bull case, a long-term investment opportunity could exist if the price action pushes above R270.00 (black dotted line), which could be the first resistance point in the price for the bulls. Suppose the price breaches the resistance level at R270.00 per share. In that case, the share price may reach R280.00 (black dotted line), a share level toward higher resistance levels at R291.50, R300.00 and R309.75 (green line).
For the bear case, the price action could continue its recent downtrend and reach the primary support level of R250.00 (red line). If the R250.00 support level is tested, the possibility exists for either a retracement to higher levels or, if the support level fails to hold, a decline toward lower levels.
Summary:
Depending on how well the market reacts to Clicks’ most recent interim results and whether the pharmaceutical giant continues to see growth in its bottom line, the possibility could exist for a long above R270.00 to higher levels. The potential also exists for the price action to continue its recent downtrend and test the support level at R250.00, which could spark a retracement toward higher levels or, if the bears take control, a further decline.
Sources: Reuters, Clicks Group, Trading View
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