By Peet Serfontein, Zimele Mbanjwa
Dis-Chem is one of the leading pharmaceutical and consumer wellness groups in South Africa. Dis-Chem takes a 'Pharmacy First' approach, with the main aim of serving the primary pharmaceutical needs of individuals. The group utilises its wholesale business to service third parties and Dis-Chem retail pharmacies through its CJ distribution business.
Dis-Chem is the market leader in dispensary, and we are positive on the growth prospects of this space.
Technically, the share price is developing a symmetrical triangle pattern, which makes for a compelling investment opportunity (see the black converging trendline on the main chart). An incomplete symmetrical triangle pattern typically suggests a period of consolidation in a share's price. The closer the price gets to the apex of the triangle (where the trendlines converge), the more imminent a breakout becomes. If the triangle forms during an uptrend, it is often interpreted as a continuation pattern, suggesting that the previous upward trend will resume once the pattern completes.
The share is in a "markup" phase according to the market cycle analysis, which supports the bullish bias. A "markup" phase represents a key stage where the price begins to rise more consistently after a period of accumulation.
The share remains above its 200-day and 200-week simple moving averages.
According to the RSI (Relative Strength Index), the stock will be overbought at ~R38. This classifies our profit target of R37 as realistic.
We suggest a low capital at-risk allocation to this trade.
Share Information
| Share Code | DCP |
|---|---|
| Industry | Consumer Staples Distribution |
| Market Capital (ZAR) | 27.97 billion |
| One Year Total Return | 24.12% |
| Return Year-to-Date | 5.96% |
| Current Price (ZAR) | 32.52 |
| 52 Week High (ZAR) | 34.13 |
| 52 Week Low (ZAR) | 21.54 |
| Financial Year End | February |
| The share has made good progress over a one-year period, and technical indicators are suppor tive of fur ther upside. Expect moderate volatility in the share price. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (ZAR) | 1.16 | 1.14 | 1.41 | 1.67 |
| Growth (%) | -2.24 | 23.66 | 18.63 | |
| Dividend Per Share (ZAR) | 0.47 | 0.46 | 0.56 | 0.67 |
| Growth (%) | -2.15 | 23.25 | 19.57 | |
| Forward PE (times) | 28.60 | 23.13 | 19.50 | |
| Forward Dividend Yield (%) | 1.40 | 1.73 | 2.07 | |
| Earnings are expected to be weaker in FY24 (ended February), but a rebound is anticipated over FY25 and FY26. | ||||
Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | NPN - Take Profit (Close the Position) | SNT - BUY (Continue to hold) | MRP - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 3 095.26 | 296.56 | 157.50 |
| Current | 3 675.60 | 300.73 | 168.97 |
| Movement | 24.6% | 1.4% | 7.3% |
| The share price reached and surpassed our profit target of 17.4%. |
Note the exit date of 29 April 2024.
An incomplete cup and saucer pattern remains of interest. The start of upside price momentum is a positive. The share price is above 200-day simple moving average. Our take profit target remains at R337 with a trailing stop-loss level at R284. |
A price coinciding with a trough in the business cycle remains of interest. Fading downside price momentum supports the trade strategy. The price remains just above its 200-day simple moving average.
Our take profit target remains at R213 with a trailing stop-loss level at R136. Exit the trade on 7 April 2025. |
| Share Name and position | SLM - Buy (Continue to hold) | MNP - Buy (Continue to hold) |
|---|---|---|
| Entry | 64.61 | 332.67 |
| Current | 67.20 | 353.73 |
| Movement | 4.0% | 6.3% |
|
A price action that remains above key support remains of interest. Fading downside price momentum supports the trade strategy. The price remains just below its 200-day simple moving average.
Our take profit target remains at R74 with a trailing stop-loss level at R63. Exit the trade on 10 June 2024. |
A share trading in a well-defined price range remains of interest. Upside price momentum is supportive. The price remains above its 200-day simple moving average.
Our take profit target remains at R379 with a trailing stop-loss level at R335. Exit the trade on 17 June 2024. |
