{"id":857659,"date":"2026-05-07T15:30:00","date_gmt":"2026-05-07T13:30:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=857659"},"modified":"2026-05-07T15:28:13","modified_gmt":"2026-05-07T13:28:13","slug":"allan-gray-has-a-lot-to-say-about-dis-chem-in-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/857659\/allan-gray-has-a-lot-to-say-about-dis-chem-in-south-africa\/","title":{"rendered":"Allan Gray has a lot to say about Dis-Chem in South Africa"},"content":{"rendered":"\n

Allan Gray is investing in Dis-Chem, with the retailer set to benefit from its growing store numbers and new rewards programme. <\/p>\n\n\n\n

Jonty Fish from Allan Gray said that Dis-Chem meets the definition of a great business at a fair price, with a long runway for growth. <\/p>\n\n\n\n

Fish said that since the liberalisation of the South African pharmacy market in 2003, corporate pharmacies have rapidly increased their market share. <\/p>\n\n\n\n

Dis-Chem and Clicks now account for more than half of the dispensary market, translating into strong, consistent revenue growth for both businesses. <\/p>\n\n\n\n

While Dis-Chem started from a smaller base of pharmacies than Clicks, it has achieved average annual revenue growth of 11% over the last decade, compared with Clicks’ 8%. <\/p>\n\n\n\n

“There is reason to believe that this consolidation theme will continue well into the future, as it is incredibly hard for independent pharmacies to compete with large groups,” said Fish. <\/p>\n\n\n\n

“Lack of scale to reinvest in price, low front-shop percentages where higher-margin products are sold, no loyalty programmes, and no succession planning are just a few reasons why the consolidation theme should continue to play out.” <\/p>\n\n\n\n

Dis-Chem has a large roll-out plan, shifting its strategy in 2023 from 20-25 new stores per year to 40-50. While execution has been slow, Fish said that there are still opportunities to increase the store count. <\/p>\n\n\n\n

He added that pharmacy sales are generally resilient through economic cycles. Moreover, the front shop at Dis-Chem includes personal care, hygiene, and cleaning products, which enhances defensiveness. <\/p>\n\n\n\n

Dis-Chem’s product mix makes its earnings more stable than those of many other retail formats. <\/p>\n\n\n\n

Return on capital should catch up<\/h2>\n\n\n
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Dis-Chem’s return on capital has declined over the last decade. While some investors may be concerned, Fish said the decline is due to fixable issues rather than a business in decline. <\/p>\n\n\n\n

“Investing is inherently forward-looking. Markets often anchor to recent history, but value is created by anticipating what a business can earn in the future, not what it earned in the past,” said Fish.<\/p>\n\n\n\n

“The current return profile does not fully reflect the earnings power of a more efficient, better optimised Dis-Chem and return on capital should return to levels well above the company\u2019s cost of capital.” <\/p>\n\n\n\n

Several factors support Allan Gray’s view that Dis-Chem’s return on capital should start to reach the company’s cost of capital:<\/p>\n\n\n\n