COMPANIES THAT PROVIDE outsourced services have been JSE favourites in recent years, but Excellerate, which has traded broadly between 90c and 60c since 2005, has not attracted as much attention as some of its peers. This may be because it isn’t represented in the hot staff placement area, compounded by big losses in its food trading business in financial 2005.
Excellerate is strongly decentralised. Divisions are run on an entrepreneurial but accountable basis and much emphasis is placed on cross-selling and inter-group synergies. There are six divisions: housewares (trading as Goldenmarc, Louis Smiedt, Hypertrade and Ferrengi); food (Alpine Importers and Fruti Flow); parking management, security and related businesses; cleaning and services rental (Sterikleen); consumer services (Levingers); and catering (Foodserv).
The group philosophy is to invest only in companies that reflect its core competencies in outsourced services, trading and distribution, with the emphasis on customer-centricity, specialised markets, decentralisation and a superior team.
Between 2002 and 2006 (the year-end is June 30) revenue rose from R249m to R509m. Operating profit, R17,8m in 2002, peaked at R29,4m in 2005. Over the same period, HEPS went from 6,3c to 8,7c, but in 2006 the food trading problems slashed these figures to R11,1m and 5,1c respectively.
However, the interim report to December 2006 shows a good recovery. Downsizing of the food trading division trimmed six-month revenue from R289m to R273m, but operating profit increased from R12,6m to R16,2m, the whole gain coming from trading & distribution. The improvement was carried through down the line, culminating in HEPS of 6,4c (4,2c). Excellerate pays no dividends, retaining all available funds to finance expansion and run down debt.
In December, shareholders approved a deal for BEE partner Akenton Services (Pty) Ltd to take a 25% stake in the operating subsidiaries.
In the interim report, Excellerate says restructuring along even more decentralised lines has been completed. A culture of strong growth and cash generation has set in.
There’s no forecast for the second half, but if the first half is merely repeated, annual HEPS of 12,8c would offer a forward p:e of 7,0 at the current 90c. NAV is 56c, more of an asset underpin than is the case with many service companies. It’s always possible that the decentralised approach could bring another disaster like that in food trading, but on balance Excellerate looks to offer excellent medium-term value.