Trading update great from Bidvest

Yesterday we had another trading update from a big recommended stock, Bidvest. And it sure was a nice surprise. But, like the Massmart one, there were lots of moving parts. You see, last year they sold a stake in Mumbai International Airport which resulted in an abnormal profit of R399 million. That means that the last comparative period has an abnormally high base.


The statement says that if you exclude the abnormal profit (which is perfectly normal as it is a once off) headline earnings per share are expected to be between 17% and 19% higher for the 6 month period ending December 31 2012. This is compared to the 6 months in December 2011 where the company made 613c.


If you add 18% middle of the range to 613c we should be expecting R7.23. Expectations for the full year are for around 1527c of earnings. This makes sense, the second half normally outperforms the first. Trading at R232.50 the stock trades at 15 times this year's earnings. But that is not the only reason we hold them. We feel there is a lot of value to be unlocked and the sum of the parts is worth more than what the market affords the stock.


As far as growth in earnings is concerned, 18% is very commendable for a company who boasts revenues of over R139bn. They are a great proxy for growing economies around the world and then of course you are buying the M&A skills of the legendary Brian Joffe who I am told is one of the most talented negotiators in the country and clearly has a great eye for a good deal.


Bidvest made two deals at the end of last year which looked very compelling, targeting the growth of the South African consumer. That is how conglomerates work. They use their size and scale to take a small business and grow it faster than if it were operating independently. It makes perfect sense, access to capital, lots of potential synergies and of course the intellectual talent the company has built over the years.


We are optimistic about global GDP growth and even more optimistic that Bidvest can outperform that. The stock price has had a good run of late, coming from R180 midway through last year to R232 today. When the full set of numbers come out we will look at the actual business in more detail but as far as the trading update is concerned, we are happy to add to the stock even after the share price has rallied.