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.