Bidvest ? Proudly Diversified and Ever Expanding

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Tuesday, 09 April 2013 - 20:00

The Bidvest Group Ltd is an international services, trading and distribution company proudly rooted in South Africa. Brian Joffe, renowned entrepreneur and current Chief Executive, launched the empire in 1988 with the acquisition of Chipkins Catering Supplies.

Whilst many of the JSE’s large conglomerates have been unbundling assets and concentrating on their core business activities, Bidvest has maintained a steady stream of acquisitions and has managed to create added value for their shareholders by bundling assets together.

The Group consists of four divisions, namely Corporate, South Africa, Foodservice and Namibia.

Bidvest Corporate houses the Group’s investments and provides strategic direction, risk management and corporate finance to the Group. Bidvest South Africa has 10 units, including Automotive (McCarthy and Burchmore’s), Financial Services (Bidvest Bank and Rennies Foreign Exchange), Industrial (Yamaha products in SA) and Office (Waltons). Bidvest Foodservice is spread across Europe, Asia Pacific and Southern Africa and includes Seafood Holdings in the UK, Deli Meals in Chile and Crown National in SA. The Namibia division houses Fishing and Commercial units, operating mainly in the marine industry.

The key to much of Bidvest’s success is their decentralised management strategy, which means that each underlying business is run individually. In most instances Bidvest owns 100% of its underlying companies, but the original management team or founding entrepreneur is encouraged to remain in charge of the purchased business. As a result, most companies in the Bidvest group have management teams that are experienced leaders in their field and can react quickly to changes in their industry.

Interim Results

Bidvest has recently released a set of decent interim results for the six months ended 31 December 2012. Revenue has increased by 11.9% to R75.4 billion, with trading profit up 8.3%. Normalised Headline Earnings Per Share has increased by an impressive 18.2%, and the interim dividend per share increased by 15.7% to 324 cents.

Bidvest South Africa has achieved a “pleasing result in a difficult trading environment”. The division has reported an 8% increase in revenue and a 12.8% increase in trading profit, with the trading margin running at 5.96%. Significant increases in operating profits were reported by the Automotive (+34.9%), Services (+28.5%) and Travel & Aviation (+27.1%) units, while the Office (-7.4%) and Paper (-5.8%) units reported notable decreases.

The Bidvest Foodservice unit reported a good quality result out of Australia, New Zealand and Greater China, with Singapore and Netherlands detracting from the results. The UK operation has regained some momentum and the South African results are encouraging to management. Revenue has increased by 16.6% for the entire unit, whilst trading profit has increased by 9.4%.

Bidvest Namibia has reported a 34% increase in revenue, but a 20.7% decrease in trading profit from an exceptionally high base. Much of the decline can be attributed to the Fishing unit, where a 25% reduction in quota allocation and entry of foreign competitors has hurt profitability.

Source: Bidvest.co.za

Prospects and acquisitions in progress

While the current economic environment remains challenging for Bidvest on all fronts, management remains focussed on delivering organic growth and seeking out opportunities to make additional acquisitions. With its strong cash-generative ability, the company remains poised to act quickly if needed without turning to debt financing.

Continued expansion into Africa is on management’s agenda, as well as a focus on improved customer service and ongoing cost control.

A very recent development making headlines is Bidvest’s intended purchase of 60% of Adcock Ingram, an offer which now tends to become hostile after various objections from the Adcock board on technical points. This development is in contrast to Bidvest’s long history of friendly acquisitions, and it could be difficult to retain Adcock’s management team if the offer eventually succeeds. It is said that the current offer of $675m is at a premium of 10% over Adcock’s closing price, but about 20% below Adcock’s intrinsic value as calculated by Thomson Reuters StarMine. Although Adcock has significantly underperformed local rivals over the past year, its management claims that investments in new infrastructure and global distribution partnerships have set it up for a major turnaround. As a result, the timing of the offer is perfect from Bidvest’s side but seen as extremely “opportunistic” by the Adcock board.

Source: Sharenet.co.za

Current Valuation

The Bidvest share price has climbed steadily over the past 12 months, increasing by 28% and reaching an all-time high of R 247.85 along the way. The share currently trades on a PE of about 16 times and a Dividend Yield of 2.9%, which is on par with the total market.

A complex conglomerate such as Bidvest is very difficult to value, and investors have to decide if adding the struggling Adcock to the Bidvest portfolio can unleash the pharmaceutical’s potential and add further value to the ever expanding Group.

Kind regards,

Cor van Deventer

Sources: www.bidvest.co.za
www.moneyweb.co.za
www.sharenet.co.za

www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966

Tue, 09 Apr 2013

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