Bidvest half year numbers

This morning we have half year numbers to December 2012 from Bidvest, the listed company that we are closest to. And by that I mean if I lean a whole lot forward in my desk and look right, I can see their stairwell. Byron has a slightly better view of the back entrance to Bidvest. That is what I mean, closest to. Have we seen Brian Joffe? Yes, a few times. In fact, even outside on the street, admiring a motor vehicle, he has a weakness for that, but we all have our vices. Chocolate, food and the like. Brian Joffe has been called the Warren Buffett of South Africa, I suppose because of his style. I have heard this said before, but the suggestion is that 10 Brian Joffes could create over 1 million jobs with this entrepreneurial approach. Huh? Well, since founding Bid Corporation in 1988, listing the business in 1989. Those were dark days for South Africa back then, those were really dark days. But, the man recognized that people need services and according to the Bidvest website the first two acquisitions were Chipkins and then Sea World. And how time flies. 25 years later, the whole business is worth 78.7 billion Rands. Around 8.65 billion Dollars market capitalisation.


But, as they say in the classics, that is history, and whilst history might be a wonderful subject and might have had one of my favourite two teachers at school (the other was my physics teacher), it tells me very little about the future. There is no way in 1939 you could have predicted a united Europe 60 years later. No ways, you would have overwhelmingly gone with more wars, less economic integration. Or a mobile handset revolution in 1980. 30 years ago a digital answering machine was cool, nowadays, that doesn't really exist anymore. All I am saying is that some industries evolve really fast, technology is a good example, other businesses not so much, food changes, but essentially we eat all the time. And I am guessing that is not going to change soon.

And the kind of businesses that Bidvest own, those are businesses with earnings clarity and better visibility. Apart from arguably the fish business, turns out that there are not plenty of fish in the sea. Group revenue increased 11.9 percent to 75.3 billion ZAR, profits after tax were 1.1 percent higher at 2.377 billion Rand. The reason for the slightly disappointing at face value profit number is that in the prior results there was a windfall from a part sale in the Mumbai airport of 399 million ZAR. Excluding that sale, normalised headline earnings were 19.3 percent higher. Basic earnings per share increased 1.9 percent to 724.4 cents per share, the normal dividend for the first half was 324 cents.


Whilst Bidvest might have "many moving parts", the group is broken down into Bidvest South Africa and then their Bidvest Foodservices business. The Foodservices business of course includes Southern Africa, which is a relatively small contributor relative to the other two geographical divisions, Asia Pacific and Europe. Bidvest South Africa contributes "only" 44.25 percent of revenues. And if you drill into the divisional numbers, Freight at nearly 15 and a half percent of group revenues and Automotive with nearly 13 and two thirds of a percent are the most important revenue wise. The Europe Foodservice business is their single biggest division, with 30 and two thirds of a percent of the overall group revenue, the Asia Pacific business second with nearly 18 and a half percent of revenues. Collectively, those four divisions add up to nearly 80 percent of revenues.


Quite clearly it is cars (Automotive) that South Africans get excited about, that division performed well, but Burchmores was disappointing, so clearly that fellow with his bugle wasn't on song. Owning a motor dealership is a tough business at the best of times, I can't imagine managing 110 plus, as is the case with this division. The Freight division is always a good performer, obviously the better the economy, the more freight is being handled. I guess expertise in that bulk business does translate to the foodservice business. Frozen and chilled food makes the world go around, the consumer today expects all the foods to be in stock all the time. Our grandparents just accepted that when grapes were not in stock they were not there, the seasons yielded different fruits and you ate those. Nowadays if your favourite foods are grapes and bananas, you can eat those all year around. Someone of course has to transport those fruits and vegetables around. Equally restaurants, canteens, hospitals and general caterers are reliant on businesses like Bidvest. Simple businesses that are very well run yield very good results.

Revenue is one thing, but more important to the shareholders are profits, you can have all the revenue in the world but have lower profits than a green grocer. I speak without authority on this matter, because I have no idea what the margins are at green grocers. And even if such things still exist on the small scale that they used to exist. And this is where it gets more interesting. Their Financial Services business (Bidvest Bank, Master currency and Rennies foreign exchange) has the best trading margins across the group, contributing only a little over a percent to group revenues, but almost nine and a half percent in trading profits. Bidvest Namibia, (Windhoek is around 1180 kilometres West North West from here, 1255.9 km on roads) is a little over two percent in group revenues, but contributes 7 percent overall to group trading profits. The three biggest divisions however are Foodservice Asia Pacific (15.74 percent), Foodservice Europe (11.8 percent) and Freight South Africa at 12.69 percent. So, ironically, at a trading profit level the group is a whole lot more diversified and less reliant on one specific division. I guess that is part of the genius of having pieced together the group over the years.


So where to from here? The prospects column refers to a volatile and challenging environment, I guess everyone will concur with that outlook. Across all regions when the right acquisition presents itself the group will no doubt pounce. The prospects refers to the Bidvest culture. A keep calm and carry on culture, I recall a sign in the lobby that said "we refuse to participate in the recession" or some other such thing, I must check and see if it is down. If it is down then I suspect that the mood has improved in recent years. Is a forward multiple of 15 and a half times expensive for the company? The yield forward is a little less than three percent. Earnings are expected to grow at around 12 percent for the next three years. There is nothing wrong with that. We continue to add as a defensive investment as much as expecting an unlock of value in due course, with perhaps a geographical split of the group. Not cheap, not expensive, quality is everything as an investor however.