Ad­vanced tech­nol­ogy and high prof­itabil­ity

Financial Mail - Investors Monthly - - Analysis - Stafford Thomas

Men­tion lo­gis­tics ser­vices providers (LSP) and most in­vestors shy away, rat­tled by hor­rific re­sults be­ing turned in by in­dus­try play­ers such as Grindrod and Tren­cor. Re­gret­tably, in­ter­na­tional LSP Santo- va, one of the JSE’s small-cap gems, is be­ing tarred with the same brush.

San­tova has had to face chal­lenges which have led to in­vestor con­cerns. They in­clude SA’s em­bat­tled, nogrowth econ­omy, the Bri­tish pound’s sharp fall in the wake of the Brexit vote and the gen­er­ally weak state of the in­ten­sively com­pet­i­tive global lo­gis­tics in­dus­try.

“San­tova has more than ad­e­quately dealt with these con­cerns,” says Glen Ger­ber, the group’s CEO for the past 14 years. He has ev­ery rea­son to be pleased with San­tova’s re­silience. In its year to Fe­bru­ary it lifted profit be­fore tax by 31.9% to R88m. At the head­line EPS (HEPS) level a R51m share is­sue in late 2015 to fund the ac­qui­si­tion of UK firm Trade­way for £5.6m re­duced growth to a still solid 15.4%. In the pre­vi­ous five years HEPS grew at an an­nual av­er­age of 26%.

“We are well di­ver­si­fied,” says Ger­ber. “A bad year in one lo­ca­tion is coun­tered by a good year in oth­ers.”

From a ge­o­graphic per­spec­tive San­tova’s di­ver­si­fi­ca­tion spans five of­fices in SA, seven in the UK, two in each of Ger­many and the Nether­lands, and one in each of Aus­tralia, Mau­ri­tius and Hong Kong. The Hong Kong of­fice is also re­spon­si­ble for 19 rep­re­sen­ta­tive of­fices in main­land China. “I am look­ing at the US. It is quite pos­si­ble we will even­tu­ally grow to at least 200 of­fices,” says Ger­ber.

From a prof­itabil­ity per­spec­tive of­fices out­side SA are also far more at­trac­tive. “Re­turn on in­vest­ment off­shore is seven to eight times higher than in SA,” says Ger­ber. For­eign earn­ings are grow­ing apace, reach­ing 62% of to­tal taxed profit in San­tova’s lat­est fi­nan­cial year. This was up from 35% only four years ear­lier.

Client wise, San­tova is also well di­ver­si­fied. “We have 4,605 clients, with the largest ac­count­ing for only 3.3% of our rev­enue. There is also no con­cen­tra­tion in one in­dus­try.”

Ger­ber says a “huge dif­fer­en­tia­tor” for the com­pany is its abil­ity to man­age its clients’ en­tire sup­ply chain, from sup­pli­ers to end cus­tomers.

From a pre­ven­tion of dis­rup­tions per­spec­tive and as an­other dif­fer­en­tia­tor, San­tova has turned to pre­dic­tive an­a­lyt­ics. This en­ables it to warn a client that stock be­ing shipped to it will not be ar­riv­ing on time, for ex­am­ple. Find­ing staff with spe­cialised skills is not a prob­lem fac­ing the busi­ness ei­ther, says Ger­ber. “We em­ploy a lot of grad­u­ates in fields such as in­dus­trial en­gi­neer­ing. We are the pre­ferred em­ployer in our in­dus­try and have a low staff turnover.”

The high cal­i­bre of San­tova’s staff and its cut­ting-edge tech­nol­ogy are re­flected in a huge rise in pro­duc­tiv­ity. “We have the same num­ber of staff as we had in 2006 but are around 15 times big­ger,” says Ger­ber.

Suc­cess is also re­flected in San­tova’s high level of prof­itabil­ity. In its lat­est fi­nan­cial year it achieved an oper­at­ing profit mar­gin of 30.7%, up from 25.4% in the pre­vi­ous year and 12.7% in 2010. It is way ahead of its com­peti­tors.

“Most play­ers achieve an oper­at­ing mar­gin of 4%-8%; the best I have seen is 12%.”

Nev­er­the­less, San­tova has been ham­mered by the mar­ket, which over the past 12 months has wiped al­most 50% off its share price. It has left it sport­ing a less than flat­ter­ing 8.3 p:e.

The San­tova growth story is far from over. “We are do­ing well this year and grow­ing above our ex­pec­ta­tions,” says Ger­ber. “I am con­fi­dent we will keep grow­ing well. We op­er­ate in a vast mar­ket which is al­ways pre­sent­ing op­por­tu­ni­ties for us.” For in­vestors on the hunt for a bar­gain, this looks like a sit­ter.

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