Long-term upside seems imminent
The tide seems to have turned for logistics company Super Group, even though management is expecting the South African economy to remain under severe pressure.
Logistics company Super Group’s share price has been relatively flat over the past year, and the group is yet to restart paying dividends since its struggling industrial products operations (since closed) and a pricey deal in Angola in the late 2000s left it in dire financial straits.
Two rights issues in a matter of six months in 2008 and 2009 to raise R1.5bn contributed to the departure of former CEO Larry Lipschitz, who was at the helm for 22 years. His successor, Peter Mountford, has led a turnaround of the business, which recently concluded a successful R900m rights issue to fund the acquisition of the holding company of German transport firm IN tIME. The group has operations in Germany, Sweden, Hungary, Romania, the Czech Republic and Poland, and serves the auto, pharmaceutical and electronics industries.
Founded in 1986, Super Group consists of three main divisions: supply chain, fleet solutions and dealerships. Its recent acquisitions include Allen Ford, which operates 13 Ford dealerships and two Kia dealerships in the UK, and Phola Coaches, an eMalahleni-based bus company focused on long-term passenger transport contracts in the construction, mining, power generation and education sectors. On 17 November, it announced the purchase of Melbourne-based novated and vehicle procurement specialist NLC for $200m (R2.8bn).
Super Group has been steadily recovering from lows of 570c/ share in February 2009, but remains a long way off the highs of 15 300c/share reached in 2007, the last time it paid dividends, according to INET BFA data.
In the year to end June, Super Group saw its revenue increase by 39% to R19.8bn, while operating profit was up 12% to R1.5bn. Its fleet solutions business contributed 46% to operating profit, compared with 17% from its dealerships and 37% from supply chain services. Headline earnings per share were up 9% to 271c.
Management warned that the South African economy is expected to remain “under severe pressure” over the short to medium term. Operational challenges in the local market include increased competitive pressure on pricing across all sectors, the weak rand, and depressed consumer spending as a result of exceptionally high unemployment rates.
Part of its strategic focus will be on the regeneration of its African Logistics business, which saw its profit before tax decline by 73% in the past financial year. This was due in part to a reduction in transport rates due to increased competition; sporadic mining labour unrest in the Democratic Republic of the Congo and worsening border efficiencies.
Management will also focus on improving its FleetAfrica division, which saw revenue increase by 37% in the past financial year. The group depends mainly on public sector contracts. While fastgrowing, it only contributed about 2.6% of overall group revenue.
Possible scenario: Super Group has been trading in a downward consolidation since December 2014. It’s now testing the upper slope of this pattern, which could be breached, and therefore presents a good buying opportunity above 3 525c/share. Gains to the 4 115c/share first target, with the medium- to long-term objective being at 5 195c/share, would be possible. Alternative scenario: A reversal below 2 755c/share could steepen downside to the 2 050c/share prior low.