Share price: R70,96 JSE code: HDC
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.