HU­DACO

Share price: R70,96 JSE code: HDC

Financial Mail - Investors Monthly - - Opening Bell -

HOLD HU­DACO’S SET­TLE­MENT OF A LONG-run­ning tax dis­pute with the SA Rev­enue Ser­vices (SARS) was greeted en­thu­si­as­ti­cally by the mar­ket, and it sent its share price soar­ing 47% higher. Though the price has re­ceded some­what, it re­mains at a level at which its in­vest­ment mer­its re­quire re­con­sid­er­a­tion. ing.

Re­ac­tion to the R312m set­tle­ment was un­der­stand­able given its elim­i­na­tion of the crip­pling blow SARS’s R1,4bn claim would have dealt Hu­daco. But po­ten­tially it also re­duces the com­pany’s abil­ity to pur­sue ac­qui­si­tions, and th­ese have been its sav­ing grace, coun­ter­ing its flag­ging for­tunes as a sup­plier of con­sum­ables to the de­clin­ing min­ing and man­u­fac­tur­ing sec­tors. De­spite this, head­line HEPS growth has been pedes­trian, av­er­ag­ing 3%/year in the five years to Novem­ber 2014. A stronger rise is in store in the cur­rent year, in large part thanks to the ac­qui­si­tion of ve­hi­cle spares dis­trib­u­tor Partquip. The R550m deal will boost HEPS by 13%, says group CE Gra­ham Dun­ford.

Strikes in the min­ing and en­gi­neer­ing sec­tors will, hope­fully, also abate this year, po­si­tion­ing Hu­daco’s bear­ings di­vi­sion in par­tic­u­lar for a bet­ter year. It puts 20%-25% HEPS growth within reach, a pace that would re­duce its rat­ing from a cur­rent 12,5 PE to a 10-10,4 PE. But on its his­toric av­er­age 10,1 PE over the past five and 10 years it would still leave it at no more than fair value.

For ex­ist­ing share­hold­ers the com­pany ranks as a hold. Would-be in­vestors ap­pear to have time on their side.

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