Taking Stock

Edgars benefits from good credit facilities

Barbican Asset Management

EDGARS is a counter in the retail sector, trading such items as clothing, footwear, blankets, ba

gs and textiles among other things.


Founded in 1948, the company went on to list on the local bourse in 1974.

Sales at Edgars are both in cash and on credit while Express Stores, a subsidiary of Edgars, only transacts on cash basis. The group also owns a manufacturing wing, a development viewed as value addition.


Shareholding


The shareholding of Edgars lies mainly in the hands of corporate and pension funds. More than 95% of the total shareholding is in the hands of corporates and pension funds. This explains why the share is tightly held. It is also an indication of confidence that the market has in this company.


Financial performance


Turnover went up 192% to $12,4 billion up from $4,3 billion in the previous year. This was far above inflation, which stood at 135% by then. Profit after tax went up to $2,6 billion from $694 million in the previous year, a 279% increase.


It is interesting to note that sales growth trails profit growth, which could be an indication of cost minimisation on the part of the group. Shareholders also have all the reasons to smile as return on equity also rose 17% from 55% to 72%. Return on assets put on 4% to 28%. Earnings per share put a staggering 326% to close at 1 284 cents. Cash flows improved significantly from a negative 49 cents per share to 848, which indicates a healthy position for the group.


Challenges


The declining macroeconomic fundamentals mainly characterised by run-away inflation remain a stumbling block for the success of any business entity in Zimbabwe. Edgars is like-wise not spared by these.


The inflationary environment has eroded the disposable incomes of consumers and this has adversely affected sales volumes, cash sales in particular. Credit sales have however covered for the decline in cash sales as these have been on the upside. Credit appraisal has to be stepped up to avoid increases in bad debts.


Strengths


Credit facilities are increasing sales for the group. Customers are comfortable with credit facilities. Lump sum cash payments are proving difficult for customers under these inflationary conditions. Edgars is also a reputable group well known for delivering products of high value, fairly priced and an excellent service. The group also benefits from its pricing power – none of its products is price controlled.


Valuation


The counter is currently trading at an average price of $65 implying a historic PE of 5,3.


Based on the Barbican earnings model, the counter is trading at a forward PE of 1,62x against a market PE relative of 3,3. This is a clear indication of a counter that is yet to firm in terms of share price.


Conclusion


Based on the above valuation, a buy is recommended.

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