Driven by ac­qui­si­tions

Finweek English Edition - - COMPANIES & MARKETS - SHAUN HAR­RIS

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.

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