Poised for more growth

Finweek English Edition - - Companies & markets - MICHAEL COUL­SON

THIS IM­PORTER and dis­trib­u­tor of lead­ing in­ter­na­tional bear­ing, trans­mis­sion, power and se­cu­rity prod­ucts has one of the most con­sis­tent growth records on the JSE. Be­tween the late Nineties and its 2005 fi­nan­cial year, sales rose from R895m to R1,55bn, op­er­at­ing profit from R72m to R183m, HEPS from 123c to 415c and dis­tri­bu­tion from 47c to 144c. Not only has Hu­daco man­aged to in­crease trad­ing mar­gins mod­er­ately, but a strong bal­ance sheet and tight con­trol of over­heads have con­sid­er­ably lever­aged the gains lower down.

Hu­daco says an im­por­tant part of its suc­cess re­flects a de­cen­tralised man­age­ment struc­ture and small head of­fice. More­over, de­spite the growth of re­cent years it has re­mained vir­tu­ally ungeared through­out, with small but usu­ally pos­i­tive en­tries for net in­ter­est.

Pre­lim­i­nary fig­ures for the year to Novem­ber 2006 show an ex­ten­sion of th­ese trends. Sales are up 20%, at R1,84bn, but op­er­at­ing profit is up 29% at R235m (the 2005 fig­ure is re­stated at R181m) and HEPS are up 30% at 532c (409c re­stated). Dis­tri­bu­tion is up 32% and stands at 190c.

As sales were up only 14%, op­er­at­ing profit 21% and earn­ings and dis­tri­bu­tion 19% at half­time, this im­plies a con­sid­er­able ac­cel­er­a­tion in ac­tiv­ity in the sec­ond half.

Hu­daco says power and se­cu­rity prod­ucts were the main driv­ers of in­creased de­mand, and the changed prod­uct mix de­pressed gross mar­gins slightly. But in bear­ings and power trans­mis­sion there was a no­tice­able pick-up in quot­ing on project work from mines and man­u­fac­tur­ers to­wards yearend.

Hu­daco ex­pects the next few years to be re­ward­ing, as spend­ing on in­fra­struc­ture (es­pe­cially power gen­er­a­tion) and min­ing in­vest­ment picks up. It says de­mand should re­main strong at least un­til 2010 and the out­look for earn­ings growth is “very pos­i­tive”.

While the com­pany in prin­ci­ple is open to growth by ac­qui­si­tion, it says no at­trac­tive propo­si­tions came up last year. A few op­por­tu­ni­ties are still be­ing looked at but if none ma­te­ri­alise this year, Hu­daco will con­sider a cash dis­tri­bu­tion, prob­a­bly to­wards mid-year at the same time it hopes to an­nounce a BEE deal.

Af­ter trad­ing be­tween 4 500c and 5 000c from last July to mid-Novem­ber, the share price started to firm with in­creas­ing mo­men­tum. At the present 7 700c, the p:e ra­tio is 14,5 and yield 2,5%. Th­ese are de­mand­ing rat­ings, but not ex­ces­sively so in view of the record. Hu­daco may not be able to re­sist any broad short-term cor­rec­tion in the share mar­ket but should con­tinue to re­ward long-term hold­ers.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.