More than just a barom­e­ter

Bid­vest’s bid to out­per­form the eco­nomic cy­cle and not just re­flect SA’S state of health

Financial Mail - - MONEY&INVESTING - Stafford Thomas Lind­say Ralphs

re­trench­ments un­nec­es­sary.

He says the only thing Sibanye un­der­es­ti­mated at Rustenburg was com­mu­nity is­sues.

Robert van Niek­erk, the ex­ec­u­tive vice-pres­i­dent of the South­ern Africa re­gion, doesn’t be­lieve Sibanye’s es­ti­mates of sav­ings at Rustenburg were too con­ser­va­tive. “The team did well,” he says.

Over­heads were cut to suit the pro­duc­tion pro­file. All shafts were al­ready pro­duc­ing at max­i­mum ca­pac­ity, though vol­umes at Bathopele shaft were in­creased by 3%-5%.

Van Niek­erk says that at cur­rent pal­la­dium prices there is an op­por­tu­nity to in­crease the devel­op­ment of UG2, a PGM reef that con­tains more pal­la­dium than the Meren­sky Reef.

Ester­huizen says the Rustenburg deal was very clev­erly struc­tured, with pay­ments over sev­eral years and An­glo Plat­inum as­sum­ing some of the downside risk. But for it to work, it needs PGM prices to in­crease, and any gains in the prices are now be­ing off­set by the strong rand. De­spite the cost sav­ings, th­ese mines are not gen­er­at­ing much free cash flow at present.

Sibanye-still­wa­ter shares, at R20.92, have added about 24% in the past month but still re­main below the pre­rights of­fer price of about R28.

Putting on an up­beat show for in­vestors at the pre­sen­ta­tion of Bid­vest’s an­nual re­sults to June, CEO Lind­say Ralphs as­sured at­ten­dees: “We do think gen­er­ally speak­ing that we have the abil­ity to out­per­form the [eco­nomic] cy­cle.”

Bid­vest will have to if its per­for­mance is not to con­tinue to be very much a barom­e­ter of the coun­try’s state of health.

The re­sults were the first for a full year since Bid­vest spun off its in­ter­na­tional food dis­tri­bu­tion busi­ness, Bid­corp, on May 30 last year.

The move left the R71bn an­nual rev­enue Bid­vest with its seven ser­vices, dis­tri­bu­tion and trad­ing di­vi­sions giv­ing it link­ages to vir­tu­ally ev­ery sec­tor in the SA econ­omy.

They in­clude clean­ing ser­vices, fa­cil­i­ties man­age­ment, travel, elec­tri­cal equip­ment, freight, automotive re­tail, power tools, home ap­pli­ances, fi­nan­cial ser­vices and of­fice equip­ment and sta­tionery. If Bid­vest does have the abil­ity to out­per­form the eco­nomic cy­cle there was lit­tle ev­i­dence of it in its re­sults to June. Rev­enue came in 4% higher, trad­ing profit 4.6% higher at R6bn and head­line EPS (HEPS) 5.1% higher. Trad­ing profit of core SA busi­nesses was up 6.4%, noted Ralphs. Ex­cluded in the core num­ber is Bid­vest’s in­ter­est in the strug­gling Bid­vest Namibia.

The key com­par­a­tive in­di­ca­tor is nom­i­nal GDP growth, es­sen­tially GDP growth in­clud­ing in­fla­tion. If not un­der­per­form­ing in its past fi­nan­cial year, Bid­vest did not out­per­form.

The lat­est re­sults are re­flec­tive of the state of play in SA’S econ­omy. Ac­cord­ing to the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion & Devel­op­ment (OECD) SA’S nom­i­nal GDP growth ran at just on 7% in 2016 and is around 6.5% this year.

It was a dis­ap­point­ing show­ing from Bid­vest. At its in­terim stage the con­sen­sus an­a­lysts’ fore­cast looked to full-year HEPS ris­ing by about 9%.

For Bid­vest in its present form to out­per­form nom­i­nal GDP growth in SA is a big ask. Ralphs spelt out the rea­son clearly.

“We don’t want to be ar­ro­gant but we like to be dom­i­nant in the busi­nesses we op­er­ate in,” he stressed. “We do not want to be a small fish in a big pond.”

By and large Bid­vest’s dom­i­nant po­si­tion in its mar­kets has left it tweak­ing its as­set base with moves in its past fi­nan­cial year in­clud­ing the sale of what it termed “lazy as­sets” (Cul­li­nan Hold­ings and Cargo Car­ri­ers). Its strat­egy also in­cludes on­go­ing bolt-on ac­qui­si­tions, gen­er­ally within a tar­geted range of R100m-r200m, rather in­signif­i­cant in a com­pany with to­tal as­sets of R51.4bn.

The only bolt-on deal of any sig­nif­i­cance in the past year was in­dus­trial tools dis­trib­u­tor Brand­corp, ac­quired in Oc­to­ber 2016 for R2bn. In its first nine months in the Bid­vest sta­ble it pro­vided a use­ful kicker to Bid­vest’s com­mer­cial prod­ucts divi­sion which lifted trad­ing profit 48.5% to R689m.

Ex­clud­ing Brand­corp, the divi­sion’s trad­ing profit was up 4%. Over­all, Brand­corp lifted group HEPS growth by one per­cent­age point.

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