LEW is a prominent furniture retailer with a significant presence throughout South Africa and in neighbouring SADC countries. LEW’s revenue over the last seven years grew 6.7% CAGR, higher than its closest competitors. By market share, it is the second biggest furniture retailer in South Africa, with a focus on being close to the communities it serves and building relationships with its customers.
LEW’s debtors’ book is, in our view, an asset for the group, in which it has invested a significant amount of capital. Compared to other retailers offering credit, LEW has a higher provision level but fewer bad debts, and its strong balance sheet and short-term facilities are more than sufficient to support further investment in the book. The health of the debtors’ book has only been strengthened by the addition of debit orders to improve collections, which is now maintained at around 80%.
The group has always strived to return value for its shareholders, and although we expect buybacks to be paused for a sustained period, the cash flow that will result from slowing the debtor’s book growth could flow into dividends for investors.
LEW will reposition its Bedzone stores into a Speciality segment, along with UFO and the newly acquired Real Beds brand. This new segment will focus on the base-set market. LEW will continue to roll out its base-set stores, targeting 30-40 stores a year. This focus is strategic given that base sets are the second biggest merchandise category for LEW, but it will face steep competition in this product category, given that its footprint is small and mainly concentrated in Gauteng.