Imperial Holdings could be eyeing the fast lane
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.