Lewis (LEW) – Capped Prospects

We believe the SA credit life insurance caps will impact LEW’s revenue more negatively than management’s expectations and estimate a revenue loss of ZAR160m over a three-year period (31% of PBT in total).

We believe there could be some risk to LEW’s historically high margins, as the largest player JD Group has completed its restructuring and could up its marketing and compete to regain its customers.

How well the furniture market has held up is quite surprising to us, as we estimate the true size of the market should be at least 10% lower than the current ZAR40bn revenue.