KGI Research Singapore

Singapore's leading broker offering Futures, FX, Equities and Wealth Management.

28 September 2023: Wealth Product Ideas

Trade Idea: Dollar General

  1. Operates over 18,000 discount retail stores focused on low-income consumers in rural areas. Struggling currently with shoplifting, pricing power, and weak consumer spending.
  2. However, brand has pricing power and lean operating model that has delivered consistent mid-single digit revenue growth and high returns historically.
  3. Stock trading at deep discount (34% below fair value estimate) despite reasonable long-term growth assumptions of 2.5% same-store sales growth and 4% new store openings annually.
  4. Operating margins expected to gradually recover back to historical average of 9% by 2032. Recent weakness reflects temporary issues that patient investors can ride out.
  5. Downside protected by wide moat business with recession-resistant demand. Strong free cash flow generation and balance sheet.

Note: Pricing provided is indicative only. For updated pricing, please contact us directly.

Payout Scenarios:

Investors receive corresponding interest payments every month and;

  • KO Early Redemption: Principal + KO returns (KO event occurs only when the closing price of all underlying securities is higher than the knock-out price)
  • Maturity Redemption: If no KO event occurs, the payout will be:
    • If the final price of all underlying is higher than or equal to the strike price, investors will receive a 100% cash return on their principal, along with the final interest.
    • If the final price of one or more underlying is lower than the strike price, investors will receive 100% of their principal in the form of shares of the worst-performing stock and will also receive the final interest.

(Source: Bloomberg)

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