Announcements Corporate Rating Alerts

GCR places Lewis’ rating of A(ZA) on Positive Outlook following strong earnings performance

Rating Action

Johannesburg, 24 August 2021 – GCR Ratings (“GCR”) has affirmed Lewis Group Limited’s (“Lewis” or “the group”) long term and short term national scale issuer ratings of A(ZA) and A1(ZA) respectively. The Outlook has been revised to Positive, from Stable previously.

Rated Entity Rating class Rating scale Rating Outlook / Watch
Lewis Group Limited (“Lewis”) Long Term Issuer National A(ZA) Positive Outlook
Short Term Issuer National A1(ZA)

Rating Rationale

The Positive Outlook on Lewis’ ratings factor in a healthier debtors book and improved operational efficiencies which should continue to enhance profitability margins. Furthermore, the group remains conservatively leveraged and has strong liquidity coverage.

Lewis reported growth in revenues of 4.2% in FY21, despite losing R360m in sales and R250m in collections due to COVID-19 related disruptions in the first quarter of their financial year. Revenue growth was underpinned by a strong recovery in merchandise sales in the second half of the year driven by an increase in cash sales of 25.9%, supported by the extension of social relief grants and relatively higher levels of disposable income in the group’s target market. Operating costs have continued to be well managed and recorded a 2.9% reduction for the year. The adoption of enhanced collection procedures had a positive impact on the debtors book which saw the proportion of satisfactory paid customers increase to 74.4% (FY20: 70.5%), surpassing previously communicated targets. The improved performance led to a R110m release from the impairment provision and an overall reduction in debtor costs as a percentage of gross debtors to 14.3% (FY20: 17.6%). Resultantly, the revenue based operating margin made a strong come-back to 10.3% from 3.9% in the prior year, recording the highest level since FY16. GCR expects the margin to continue trending in the 10%-15% target range over the medium term, barring any additional shocks to the economy.

Despite the improved performance, in GCR’s view, the group’s relatively narrow product diversification and concentration of sales by brand remain rating constraints. The group also has limited geographic diversification, with c.85% of revenue generated in South Africa. Nonetheless, the group’s growing footprint, with 807 stores at FY21 and at least 15 additional openings planned in FY22, enhances their reach to ensure accessibility to their respective target markets. Some stores were impacted by the civil unrest and looting that broke out during the June-July 2021 period, but any damage suffered is expected to be fully recovered from insurance proceeds.

Lewis’ strong leverage profile is underpinned by the absence of any interest-bearing debt on its balance sheet since FY19, notwithstanding the temporary draw down at FY20 to shore up liquidity as a counter measure to the effects of the pandemic. Future debt draw downs on available facilities are expected to be largely managed in line with working capital demands during peak trading periods. As such, the group is anticipated to continue to report a net ungeared balance sheet, excluding lease liabilities. Available cash flows will be applied to pay out dividends, fund the ongoing share buy-back programme and minimal expansionary capex. This is backed by the unutilised available funding lines from multiple banks and Lewis’ strong cash flow generation capability. Thus, GCR’s uses versus sources liquidity coverage ratio is projected in excess of 2x over the upcoming 12 months.

Outlook Statement

The Positive Outlook reflects GCR’s expectation that positive sales growth coupled with the strong performance of the debtors book will be sustained, and will translate into enhanced margins. Lewis is also expected to maintain a net ungeared balance sheet and robust liquidity coverage.

Rating Triggers

Upward rating migration could result from continued positive earnings performance with the operating margin sustained above 10%, or improved product diversification, while maintaining financial discipline. The outlook may be revised to stable if the debtors book performance deteriorates, or there is an unexpected increase in leverage.

Analytical Contacts

Primary analyst Tinashe Mujuru Credit Analyst: Corporate Ratings
Johannesburg, ZA TinasheM@GCRratings.com +27 11 784 1771
Committee chair Sheri Morgan Senior Analyst: Corporate Ratings
Johannesburg, ZA Morgan@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Corporate Entities, May 2019
GCR Rating Scales Symbols and Definitions, May 2019
GCR’s Country Risk Score report, published August 2021
GCR’s SA Corporate Sector Risk Score report, published April 2021

Ratings History

Lewis Group Limited

Rating scale Review Rating class Rating Outlook/Watch Date
Long Term Issuer Initial National A(ZA) Stable Outlook Sept 2013
Short Term Issuer National A1(ZA)
Long Term Issuer Last National A(ZA) Stable Outlook Nov 2020
Short Term Issuer National A1(ZA)

Risk Score Summary

Rating components & factors Risk scores
Operating environment 11.50
Country risk 7.00
Sector risk 4.50
Business profile (1.00)
Competitive position (1.00)
Management & governance 0.00
Financial profile 3.25
Earnings profile (0.50)
Leverage and cash flow 1.75
Liquidity 2.00
Comparative profile 0.00
Government support 0.00
Peer analysis 0.00
Group support 0.00
Total Risk Score 13.75

Glossary

Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the ratings process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to Lewis Group Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Lewis Group Limited participated in the rating process via management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered to be adequate and has been independently verified where possible. The information received from Lewis Group Limited and other reliable third parties to accord the credit ratings included:

  • The audited financial results at March 2021 (plus four years of comparative, audited financials)
  • Covenant compliance certificates at March 2021
  • The March 2021 integrated report
  • Capex budgets
  • Funding profile at June 2021
  • FY21 results presentation


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.