Dis-Chem’s wholesale strategy is really working (JSE: DCP)

Retail sales aren’t shabby, either

Dis-Chem has released a trading update for the five months to January 2025. Group revenue growth came in at 7.2%, which is a highly respectable performance.

Digging deeper reveals that retail revenue managed growth of 5.6%. Like-for-like sales were up 2.9%. Now, that’s not bad, but it’s clearly not the main driver behind the group number. That honour goes to wholesale revenue, which jumped 11.1%. That’s properly impressive growth!

Sales to Dis-Chem’s own stores increased 9.6%. When viewing this against the retail sales growth of 5.6%, this means their wholesale penetration rate (the proportion of products in a Dis-Chem store that came through their own wholesaler) must’ve gone up.

The real highlight was growth in revenue from external customers, up a delightful 18.8%. Independent pharmacies increased 18.2% and The Local Choice franchises were up 19.5%.

On a Price/Earnings multiple of 27x before this release, Dis-Chem needed to post solid numbers to justify the share price. The group hasn’t escaped the pressure on the retail sector this year, with the share price down 6.4% year-to-date coming into this release. It dropped another 4.4%, so its now down over 10% in 2025. Sentiment in the sector has really depreciated recently and load shedding certainly won’t help.

Gold is the highlight at Sibanye-Stillwater (JSE: SSW)

They would also really like you to focus on adjusted EBITDA

Adjusted EBITDA is the favourite metric of tech companies, particularly in the US. It lets them reverse out all kinds of inconvenient truths, like stock-based compensation (shares issued to staff in lieu of cash). Although a scan of the reconciliation suggests that Sibanye-Stillwater doesn’t attempt nearly that level of nonsense, it’s still worth making sure that you know which metric you’re looking at when reading financials.

Sibanye has released earnings for the six months to December. One of the key selling points is that adjusted EBITDA is stable for the third sequential six-month period. The same certainly can’t be said for headline earnings. Although annual headline earnings came in slightly higher, the last three six-month periods were -R4.1bn, R0.3bn and R1.5bn respectively!

Consistent? Not quite, despite adjusted EBITDA being between R6.4bn and R6.65bn over those three interim periods.

If you dig into the segments, you’ll see even greater divergence. Sibanye-Stillwater is a diversified group, but the key exposure in recent years was PGMs. This has now changed. In this analysis, we can use adjusted EBITDA when looking at the segments, focusing on the direction of travel and relative size rather than the quantum.

If we look at full year 2023, the South African PGM operations made R17.6 billion in adjusted EBITDA and gold managed just R3.5 billion. In 2024, local PGMs suffered a collapse to just R7.4 billion, while gold grew strongly to R5.8 billion. The shape of the group has certainly changed, with other pieces like US PGMs and nickel neither here nor there. For context, group adjusted EBITDA was R13.1 billion, so everything else in the group other than SA PGMs and gold actually contributed negative adjusted EBITDA of R0.1 billion!

It’s therefore pretty clear that gold saved the day at Sibanye. This is the first time since 2017 that adjusted EBITDA from SA gold exceeded SA PGMs. Unless something drastic changes for either commodity, I don’t expect that situation to reverse anytime soon.

Notably, if you use profit before royalties, carbon tax and tax rather than adjusted EBITDA, local PGMs made more than SA gold. This was mainly due to large movements on financial instruments. The use of adjusted EBITDA does complicate things, but I think the key points stand: (1) gold has become the strongest part of the business and (2) much of the diversification at Sibanye is actually just noise.

Aside from cost cutting initiatives in the US PGM business to try and improve performance, there’s also some hope that there will be a change to US regulations regarding the Inflation Reduction Act. Alas, with the new sheriff in town in the US, counting on any previous regulatory direction to be continued isn’t wise. Sibanye has acknowledged this, hence they are pushing on with cost reductions.

The other focus area is of course the balance sheet, with net debt to EBITDA of 1.79x at the end of December 2024. After adjusting for a stream financing deal that is expected to close soon, it should drop to around 1.08x.

The share price is down 20% over 12 months. It’s down a pretty spectacular 77% over 3 years.

Nibbles:

• Reunert (JSE: RLO) announced that Mark Kathan has been appointed as the successor to outgoing CFO Nick Thomson. Kathan previously served as CFO of AECI from 2008 to 2022, so he has plenty of experience in these types of roles.

• I know that Altvest (JSE: ALV) is trying to consistently portray an image of being at the cutting edge of the ways in which financial markets could evolve, but I think they’ve misread the room here. The company announced that they’ve acquired a bitcoin (for around R1.8 million) as part of its treasury strategy. Altvest’s profitability is still far from proven, so should they really be adding a risk like this to the balance sheet? My view is that they need to keep things as simple as possible, particularly as there are so many other things about the group that are unusual.

• In sad news from the mining industry, Harmony Gold (JSE: HAR) reported a loss-of-life incident at Mponeng Mine near Carletonville. This was the result of a fall of ground following a seismic event. It’s a reminder that mining remains a dangerous industry for those who work hard to get the stuff out of the ground.

• African Dawn Capital (JSE: ADW) announced that after a “thorough risk assessment” by PKF Octagon Incorporated (or PKF as everyone just calls them), PFK has resigned as the auditor of the company. They will need to appoint new auditors.

• Europa Metals (JSE: EUZ) released an odd announcement in which directors tried to reassure the market that there’s no need for the share price on AIM (the London market) to be declining. This is due to the implied net asset value (NAV) of between 2.5p and 3p per share based on the Denarius Metals Corp exposure. Europa fell to 1.2p per share and then partially recovered to 1.55p after the announcement. The directors have perhaps not heard of companies trading at a discount to NAV when the market has lost interest.