Solid interim numbers from Bidvest

This time of the year it is difficult to get a complete handle and requires some serious extra reading (on top of the extra reading) to be on top of company results and trading updates. I am going to look at results of Bidvest this morning, they have released their interim numbers as folks continue to fight their way through traffic. Humans really need to become more innovative, and manage their time better. That will come in the era of the driverless motor vehicle. Perhaps Bidvest will even sell them.

Let us jump right into these interim numbers, normalised HEPS up 13.6 percent to 613.4 cents per share on revenue that was 15.1 percent higher at 67.3 billion Rand. Headline earnings per share up 37.5 percent to 742.3 cents per share, remember that these results include the realisation of a part sale (half) of the groups stake in the Mumbai airport. That sale yielded nearly 400 million Rand. Earnings per share, which included the impairment of the stake in Comair of 96.7 million ZAR, came in at 710,8 cents per share. I think for the purposes of valuing Bidvest, one should use the normalised HEPS number, there are always going to be trading related issues with a business this diversified.

Net debt increased to 5.6 billion ZAR. Their cash generation (which never lies) is good, operations managed to generate 9.7 percent more cash than at the same stage last year, to 4 billion ZAR before working capital. Bidvest have upgraded their Budget Rent-a-car fleet, that was an expensive exercise. There has been an ordinary dividend of 280 cents that has been declared, which is better by a very handsome 24.4 percent AND a 80 cent special dividend. Somewhere around 600 cents for the year I guess one can expect, if the second half div is hiked by as much as the first half. So, hardly a kings ransom at 172 ZAR a share, with a forward dividend yield of over three percent and an earnings multiple of less than 13 times. To June. Net profit margins are quite low though, but that is the nature of the beast.

More of the valuations metrics that the company finds important, because they are included in the highlights, trading margins were maintained at 4.8 percent. I quite like the opening line of the overview segment where Chief Executive Brian Joffe said that the pleasing performance came off a high base. Nice. I have copied and pasted a few important lines, which gives a divisional breakdown:

"Joffe noted that southern African trading conditions had improved but sectors like light manufacturing, construction and discretionary consumer spending remained weak. Asia Pacific continued to show solid results though Singapore's performance lagged. Trading in the Australian market remained tough but the business continues to perform well. Bidvest Europe's results reflected an improvement at 3663 Wholesale which was offset as Nowaco in Czech Republic and Deli XL Netherlands reported lower trading profit. Bidvest Namibia's growth trajectory continued."

Brian Joffe then goes on to say that the local construction industry should benefit from governments infrastructural spend, even though the local economic conditions whilst improving, growth is still sluggish. Discretionary consumer spend should improve which is good for both their motor and foodservices business. Let us have a look at a divisional breakdown, which businesses inside of their business is the most important slash profitable.

The geographical breakdown of the FoodServices division sees Europe as the bulk of revenues, 58 percent in total, but only 35 percent of total divisional profits. The bulk of the profits from their biggest division comes from Asia Pacific, which contributes 46 percent to overall divisional profits and 15 percent of the overall trading profit of the group. But yet it is 17.5 percent of overall revenues. So whilst it is more profitable than the other big foodservices business, it is not the most profitable in the group. Bidvest Financial services is a very profitable business, but surprisingly, one of their more successful businesses is Bidvest Namibia. Namibia crushes the other Southern Africa businesses, in terms of trading profits, I started to wonder how big Bidvest was in the context of the whole Namibian economy. Well, the half year revenues are around 1.2 percent of the entire Namibian GDP. They must be a serious business inside of a relatively small economy, around 2.5 percent. In fact, the annual revenues of the Bidvest group are much bigger than the entire Namibian GDP. Phew.

OK, but why would one want to own a business like Bidvest? There are many moving parts in different parts of the economy, a geographical spread which is quite difficult to grasp and a head office structure that keeps a handle on all of the businesses. There is also the successor issue, I suspect that there is more than enough quality internally. There are loads of quality people there. The margins are low, that has always been a concern here. But, this is a company that for the above reasons attracts many a passive investor. They have delivered year after year, and for the first time in a while look relatively cheap when measured against the rest of the market. They are off our main list, but on our secondary list. From a pure out and out diversification point of view, they are a quality company that would compliment any portfolio well.