Im­pe­rial Hold­ings could be eye­ing the fast lane

Finweek English Edition - - INSIDE - Killer Trade

Fol low­ing a sharp sl ide i n 2 0 0 7- 2 0 0 8 , I mp er i a l Hold in g s ma na g e d to quadru­ple its gains, peak­ing at 23 345c/share in 2012. Since then it has been con­sol­i­dat­ing within a large sym­met­ri­cal tri­an­gle.

For­tu­nately, at t he t i me of it s down­turn, Im­pe­rial was in the process of re­fo­cus­ing its busi­ness by stream­lin­ing its as­sets. The group ac­tively shed a num­ber of non-core busi­nesses, par­tic­u­larly those that were us­ing up a lot of cap­i­tal, and man­aged to build a stronger bal­ance sheet from some of its wor­thy busi­ness ac­qui­si­tions. Not for­get­ting its good gains ob­tained in the lo­cal car mar­ket, par­tic­u­larly through Hyundai and Kia.

Im­pe­rial pri­mar­ily fo­cuses on ve­hi­cles and trans­port, but also has in­ter­ests in tourism and fi­nan­cial ser­vices. The group is the largest owner of auto deal­er­ships in the coun­try, rep­re­sent­ing all the ma­jor car man­u­fac­tur­ers. Through its sub­sidiary As­so­ci­ated Mo­tor Hold­ings (AMH), it also im­ports and dis­trib­utes ve­hi­cles and mo­tor­cy­cles for brands such as Hyundai, Kia, Dai­hatsu, Re­nault, Kawasaki and Tata. AMH also op­er­ates Ford deal­er­ships in Australia.

Since 2012, and for a num­ber of rea­sons, Im­pe­rial has been con­sol­i­dat­ing in a huge tri­an­gu­lar pat­tern. The knockon ef­fect from the weak­en­ing of the rand dur­ing that year im­pacted on its prof­its, se­verely de­press­ing the in­dus­try – in Au­gust last year, the lo­gis­tics group re­ported a 7% drop in full-year profit.

One of its big­gest frus­tra­tions was the neg­a­tive ef­fects of the industrial strike ac­tions in 2014, which al­most crip­pled parts of its sup­ply and de­liv­ery sys­tems. Last year’s strike, which saw more than 200 000 me­tal­work­ers down tools for a month, hit car­mak­ers hard, in some cases forc­ing them to halt pro­duc­tion. The strikes al­most pre­vented the af­fected and af­fil­i­ated South African com­pa­nies from tak­ing ad­van­tage of the eco­nomic up­turn in West­ern Europe, which in ag­gre­gate

is SA’s largest trad­ing part­ner.

How­ever, in its ef­forts to grow its busi­ness, Im­pe­rial re­cently an­nounced a 70% pur­chase of Im­res BV, a Dutch whole­saler of med­i­cal sup­plies, for €46m (R606.85m) in cash to ex­pand its phar­ma­ceu­ti­cal dis­tri­bu­tion in fast­grow­ing Africa. Although the com­pany is based in the Nether­lands, Im­res will mainly tar­get Africa’s de­vel­op­ing health­care mar­kets.

Im­pe­rial is con­sol­i­dat­ing within a large sym­met­ri­cal tri­an­gle and is edg­ing closer to the up­per slope. Af­ter re­tain­ing sup­port at 17 050c/share last year, Im­pe­rial formed ris­ing bot­toms – a sign of in­creased buy­ing in­ter­est – ig­nor­ing its re­cent an­nounce­ment of ex­pect­ing half-year earn­ings to drop around 11% be­cause of a weaker rand, which has hit in­come from its car im­port busi­ness.

A pos­i­tive break­out of this pat­tern would be con­firmed above 21 115c/ share, seem­ingly driven by sen­ti­ment and not fun­da­men­tals. The up­per slope would be breached above 20 635c/share. Af­ter con­sol­i­dat­ing for such an ex­tended pe­riod, Im­pe­rial will most likely em­bark on a new bull trend to the 28 880c/share up­side tar­get – upon a pos­i­tive break­out.

AL­TER­NA­TIVE SCE­NARIO: A neg­a­tive break­out be­low 16 415c/share would com­mence a new bear trend, tar­get­ing the 8 650c/share down­side ob­jec­tive.


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