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.

Finweek English Edition - - NEWS - By Mox­ima Gama ed­i­to­rial@fin­week.co.za Mox­ima Gama has been rated as one of the top five tech­ni­cal an­a­lysts in South Africa and out­per­formed the mar­ket dur­ing the re­cent re­ces­sion. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fin

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.

What next?

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.

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