Bidcorp FY Numbers - Growth With Low Debt

Yesterday, Bidcorp released their full-year set of numbers. I made it to the results presentation at the Standard Bank head office, in Rosebank; we're now only a stone throw away. The walk was relaxing.

Bidcorp saw constant currency earnings grow by 7.7%. The company operates in thirty countries that span over five continents and now makes 92% of its earnings outside of South Africa, meaning that only 8% of its earnings are Rand-based. The company saw revenues increase by 9.8% to R129.2 billion and net profit increase by 16.1% to R4.1 billion.

These numbers came ahead of Vestact's expectations since we were pricing in a very tough operating environment in Europe, Australasia and Africa. The good print meant that the company could afford to reward shareholders with a final cash dividend of 333c, a 14.3% year-on-year increase. The total dividend is 640c for the year. Dividend Papi approves!

Bidcorp managed to produce these results in a relatively hard operating environment. Their cost base is increasing due to higher wages, and increased fuel and energy costs. It is difficult to pass those increased costs on because food inflation, in Bidcorp's core foodservice markets, remains pretty low. CEO Bernard Berson pointed out that the reason why acquisition costs were low is because the company is more focused on bedding down the various investments made in the past.

The acquisitions the company made during the year were: minority interest in D&D in Italy, the full buyout of Igartza in Spain and Punjab Kitchen in the UK which has been rebranded as Simply Food Solutions now.

The business fared well in Europe. Most of their businesses delivered higher revenues with Eastern Europe achieving record revenue of R43.7 billion up 12.7% and trading profits of R1.9 billion, up 15%. Australasia, its biggest market, continued to grow with revenues up 3.7% to R31.1 billion and trading profits up 9.4% to R2.1 billion. The higher margins reflect the strategic shift away from lower-margin business.

Notwithstanding the Brexit 'fears and fatigue', the UK performed very well with revenues increasing by 10.8% to R33 billion, and trading profits increasing 20.3% to R1.7 billion. The KFC contract that was lost on 14 February 2018 was won back this year in June as KFC preferred reliable service over price!

In Emerging Markets, we saw Mzansi enjoy a strong second half despite all the politics and subdued economic environment which helped the overall EM revenues up 13.1% to R21.1 billion with trading profits up marginally to R1 billion. The Greater China area performance lagged, but management said that they also saw a recovery towards the end of the financial year.

The company expects to continue with increasing earnings in the current financial year, but has cautioned us about Hong Kong and for us to adjust our expectations accordingly. The share price of Bidcorp is up 18% year-to-date and trades at a reasonable PE, still cheaper than its peers and with a low debt burden (a strong competitive advantage). Buy Bidcorp shares as it has been a great five star hotel for capital, in an investment environment full of landmines.