Assuming a four-year refurbishment cycle, we expect DCP’s capex to remain at high levels over the next few years as a numerous store refurbishments become due from FY20 onwards. We believe that DCP’s trading densities could keep reducing as store openings become a defensive play against competitors and more smaller format stores are opened. Relative to CLS, DCP’s retail division trades at a significantly lower GP margin which we believe could be driven by a lower private label component in its front shop. A similar DCP private label contribution as CLS could lead to a 200bps improvement in its non-dispensary GP margin and increase its FY20 operating profits by 29%.
