Clicks vs Dis-Chem: Which stock is the better value option?

In a recent interview on CNBC Africa, Henry Biddlecombe, an Analyst at Anchor Capital, discussed the local market and offered insights into the performance of Dis-Chem and Clicks, two major players in the retail sector. Biddlecombe addressed the recent fluctuations in Dis-Chem's share price, attributing it to earnings expectations. While the market anticipated a growth rate of 10%, Dis-Chem reported 7%, leading to some disappointment among investors. However, Biddlecombe highlighted that the impact of a significant strike on the company's operations affected the earnings figures. With direct and indirect costs associated with the strike totaling 98 million rand, the normalized earnings growth was closer to 20%, a result that exceeded expectations. Despite the challenges, Biddlecombe expressed satisfaction as a shareholder, emphasizing the resilience and performance of Dis-Chem in the face of adversities. Regarding concerns about potential future labor unrest due to minimum wage demands, Biddlecombe remained optimistic about Dis-Chem's position. He noted that the company currently pays wages above the market rate and highlighted the limited representation of the union, indicating lower chances of further industrial action. Biddlecombe commended the management's stance on the issue and expressed confidence in the company's ability to navigate potential challenges effectively. Comparing Dis-Chem and Clicks in terms of valuation, Biddlecombe pointed out that Dis-Chem is trading at a discount of 15 to 20% compared to Clicks. He emphasized that Dis-Chem presents a more attractive growth outlook in the coming years and recommended backing the company for expected share price performance. However, he acknowledged the strong management and growth potential of both companies, stating that both Dis-Chem and Clicks offer value when assessed through a discounted cash flow valuation approach. In conclusion, Biddlecombe's analysis underscores the resilience and growth potential of Dis-Chem in the local market. While challenges such as earnings expectations and labor dynamics pose short-term concerns, the fundamental strength of the company and its competitive positioning bode well for its future performance. Investors looking for a value-driven investment with growth prospects may find Dis-Chem to be a compelling option in the evolving landscape of the retail sector in South Africa.