The absence of household necessities from store shelves witnessed in recent months due to the COVID-19 pandemic, illustrate that regardless of any economic conditions, people still need to buy groceries, consumer staples, food, cleaners, and other household essentials. The reality is that even throughout such uncertain times, consumers still need to make necessity purchases.
This solidifies our view that companies supplying these products usually have stable, if not growing demand, even throughout such turbulent periods. Companies with such unique and defensive business models have the ability to maintain a healthy and stable level of revenue, cash flow and profit even during such extraordinary times.
Such argument may be strengthened through The Convenience Shop Holdings p.l.c., which is engaged in the operation of a chain of mini market stores under ‘The Convenience Shop’ brand in Malta with a current shop count of 31 owned shops and 34 franchised shops (as at 31st December 19).
In Q1 2019, the Group issued a €5m bond (5% unsecured callable bond 2026-2029) which was subscribed in full and admitted to the Prospects MTF. Such funds were utilised for the acquisition of going concern businesses, to repay balances due to shareholders and to finance new shop openings.
It is worth highlighting that due to the recent stockpiling of household goods, regular grocery shopping, and other necessity purchases predominantly driven by the coronavirus outbreak in Malta, the Group benefitted from the increased consumption and stocking up witnessed throughout the first half of the current financial year.
As a response towards such crisis, the Group introduced an online portal, which in line to feedback provided by management, has assisted the Group to generate additional streams of revenue during such turbulent times.
However, it is fundamental to note that the Group is still expected to face several pandemic related challenges. Management explained that throughout Q2 2020, more specifically during May, the Group started to experience a slight decline in revenue from stores located in tourist areas (which is reflective of the fact that the airport re-opened its doors on 1st July 2020).
Moreover, in line with the reality that the pandemic outbreak has changed how society views close contact, management further explained that the Group’s business model is gradually starting to change. Post COVID-19 outbreak in Malta, the Group started noticing a decline in the number of transactions which was countered by an increase in revenue per transaction.
In accordance to feedback provided by management, such adjustment in consumer spending behaviour, might effectively result in a decline in revenue for FY20 in comparison to previous projections.
Nonetheless, during such challenging period, the Group saw further opportunities for growing their retail segment. During Q1 2020, the Group opened two new outlets in Rabat and Bugibba. Management further discussed that the Group is envisaged to continue investing with the opening of four new strategic outlets in St Paul’s Bay, Gzira, Sliema and another outlet in the northern part of the island.
More importantly, we deem the Group to have enough internal capability to weather the storm brought about by the pandemic outbreak. As previously explained, we also deem the consumer staples industry as being more resilient to the current economic environment.
Based on the above important considerations, coupled with management’s confirmation, although the economic environment remains relatively uncertain, we believe that the Group has sufficient internal capability to weather the storm. As a result, we are of the opinion that the Group is well positioned for the year ahead and beyond.
Yesterday, Convenience issued its yearly Financial Sustainability Forecast for FY20 and FY21, confirming our underlying stance that the Group is expected to achieve strong results for the current financial year even throughout such crisis. In fact, management is anticipating revenue to increase by 11.3% while maintaining the same margins, translating into a profit before tax growth of 58.3%.
The Calamatta Cuschieri Traders Blog is available daily on CC WebTrader. Other market coverage including coverage of the International Bond Markets is also available.
The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Similarly any views or opinions expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the particular circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Calamatta Cuschieri & Co. Ltd. (CC) has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. CC does not accept liability for losses suffered by persons as a result of information, views or opinions appearing on this website.
This website is owned and operated by Calamatta Cuschieri & Co. Ltd (Co. Reg. No. C13729) of 5th Floor, Valletta Buildings, South Street, Valletta VLT 1103, Malta. CC is licensed to conduct Investment Services in Malta by the Malta Financial Services Authority.