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Investment case

 

Lewis Group offers investors exposure across southern Africa’s retail customer markets through its portfolio of well-established traditional brands operating in the low to middle income credit market and upper income cash customers through UFO.

The board believes the following factors motivate an investment case for Lewis Group and should support competitive long-term returns for shareholders despite the challenging macro-economic conditions in the country.

Leadership team
  • Highly experienced, stable executive team with an average of 19 years’ service with the Group
  • Good balance of company and industry experience
  • Current leadership team has led the business successfully through previous economic downturns
  • Executive incentive schemes closely aligned with shareholder interests
Business model resilient to weak trading conditions
  • Decentralised, store-based business model continues to prove resilient in the current constrained retail trading environment
  • Store-based collections process supported by enhanced debit order strategy resulted in improved collection rates
Favourable positioning in the current challenging retail environment
  • Brands are well positioned to gain market share across all market segments through the extensive retail footprint and merchandise offering
  • Credit offering and expertise is a strategic advantage, particularly in the current economic downturn
Extensive retail footprint
  • Deep penetration of retail market with 731 stores across urban and rural areas in South Africa
  • Expansion into the higher income segment in the past six years with the UFO chain which comprises 39 stores
  • Strong presence in neighbouring African markets, with 138 stores across Namibia, Botswana, Lesotho and eSwatini
  • Continued investment for growth with ongoing expansion of store base
  • Establishing the Bedzone brand as a specialist retailer of base sets
Brands diversified across income segments
  • Lewis, Best Home & Electric and Bedzone target lower to middle income credit and cash customers
  • Beares targets middle income credit and cash customers
  • Cash retailer, UFO, targets the higher income market segment
Exclusive merchandise supported by strong supplier relationships
  • Differentiated, exclusive and quality product ranges across all brands
  • Focus on selling higher margin furniture and appliance product categories
  • Products sourced locally and offshore that appeal to the needs of the specific income target markets serviced by the Group’s brands
  • Opportunity to expand offering into new specialist product categories, including the Bedzone brand
  • Strong supplier relationships and merchandise planning ensure optimal stock levels
Customer loyalty and engagement
  • Loyal customer base with a significant volume of sales generated from existing credit customers through repeat sales
  • High levels of brand awareness and trust with customers, supported by extensive social media following
  • Traditional retail stores conveniently located close to areas where target customers live, work and shop
  • UFO stores located in high footfall areas servicing higher end customers
Proven credit risk management
  • Credit offered across traditional retail brands to facilitate sales growth
  • Extensive experience in managing credit risk in the lower to middle income market
  • Centralised credit approval and granting ensures consistent credit risk management
Strong balance sheet and effective capital management strategy
  • Robust balance sheet with gearing levels maintained within board appetite
  • Average return to shareholders, in the form of share buy-backs and dividend payments, in excess of 110% of attributable profit over the past five years