Driven by acquisitions
THIS OLD AND established business should be patting itself on the back for producing such solid interim results. But it’s not because Hudaco is close to its markets and conditions seem pretty grim. So is the outlook for the industries it serves – chiefly mining and manufacturing related to mining. Through no fault of its own, Hudaco is currently badly positioned. And it doesn’t look as if it will be getting better soon.
Hudaco’s business is importing selected branded industrial goods. It backs the distribution of its products with technical advice and installation if necessary. It’s a business model that works well when GDP growth is strong and its customers are expanding. That’s not happening now.
Its good financial results were driven by a successful acquisition spree. Hudaco made a string of acquisitions that seem to be paying handsomely. But that distorts what would otherwise be a good performance. For example, it says acquisitions added R48m to operating profit. Operating profit came in at R149m compared with R120m in the previous interim period. So stripping out the effect of acquisitions has operating profit going backwards.
Hudaco has a long track record of successful acquisitions and a war chest to make more in the second half of its financial year. However, results can’t be continually carried by acquisitions when clients aren’t buying enough. In its prospects Hudaco notes mining houses haven’t been able to take advantage of high commodity prices, constrained by insufficient electricity and rail capacity. It expects muted growth in the mining industry.
All that before any attention is paid to the plump Billy Bunting chap in the playground threatening to steal all the mines. All it can do – like everybody else – is urge Government to settle the debate about nationalisation before it becomes more of a deterrent to investment.
Its share price has been weak over the past six months, though it has gained 17% over the year. Hudaco has an army of solid institutional shareholders who will probably ride through the bad times. But retail investors can get out now and come back when prospects look brighter.