While the sun shines…


IM­PE­RIAL HOLD­INGS an­nounced two ac­qui­si­tions last week, but with­out much fan­fare. Nei­ther of the two ma­jor­ity stakes the lo­gis­tics gi­ant has bought were size­able enough to reg­is­ter on the com­pany’s Sens feed. But both are a tes­ta­ment to the strate­gic growth in­tent of man­age­ment, sup­ported by a strong bal­ance sheet – which cur­rently makes Im­pe­rial a very at­trac­tive in­vest­ment op­por­tu­nity.

Im­pe­rial’s chief com­peti­tor in the sec­tor is Su­per Group – for­merly dis­graced but re­cently rein­car­nated as an en­cour­ag­ing growth story – which is still de­bat­ing the start of its ac­qui­si­tion strat­egy ver­sus Im­pe­rial’s 10 buys in the 15 months to De­cem­ber 2010. Im­pe­rial’s earn­ings mul­ti­ple of 9,58 against the in­dus­try av­er­age of 7,36 re­veals good value, while its div­i­dend yield of 3,36% against the group’s 2,41% is a no-brainer by the fact the com­pany of­fers bang for your buck on a pay­out ba­sis.

In terms of the ac­qui­si­tions in ques­tion, one was a 60% stake in 777 Lo­gis­tics, a bulk petro­chem­i­cal trans­porter con­tracted to Sa­sol, which will ex­pand Im­pe­rial’s reach into the sec­tor; and a 75% stake in a cor­po­rate sports tourism busi­ness called Edu­travel, which sup­ports Im­pe­rial’s tourism am­bi­tions.

The other side of the coin is Im­pe­rial’s earn­ings growth may have reached a peak and the su­per­star mar­gins sup­ported by its East Asian ve­hi­cle dis­trib­u­tor­ship divi­sion – Associated Mo­tor Hold­ings (AMH) – will start to thin out. That’s the view of Clive Stout­jes­dyk, equity an­a­lyst at In­vestec, who is the sole an­a­lyst out of a group of 11 on Bloomberg who rates Im­pe­rial as a “sell”. “We’re at the bot­tom of the in­ter­est rate cy­cle and that means new ve­hi­cle sales will be­gin to lose mo­men­tum,” says Stout­jes­dyk. “The earn­ings growth – es­pe­cially in AMH – will be­come more dif­fi­cult to main­tain.”

It’s a likely sce­nario but prob­a­bly not this year, if pro­jec­tions from South Africa’s big­gest ve­hi­cle fi­nancier Wes­Bank are any­thing to go by. Wes­Bank sees new ve­hi­cle sales growth at 15,2%, in­ter­est rate hikes in the fi­nal quar­ter 2010 not with­stand­ing. Which means Im­pe­rial’s strat­egy to bulk up lo­gis­tics and tourism while the sun shines on AMH is the right strat­egy.

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