Proceed with caution
Diversified conglomerate Bidvest, which has seen its share price decline nearly 13% since the start of the year, warned at a recent investor day that market conditions have deteriorated “as reflected in lowered business and consumer confidence”.
Bidvest, which spun off its international food services business into Bidcorp last year, is a South African company with operations in the automotive, commercial products, electrical goods, financial services, freight and services sectors, as well as in the office and print space. It also owns stakes in a variety of other businesses, including Comair and Adcock Ingram.
It said on 8 June that it expects more challenging trading conditions for the rest of the year due to the “volatile socio-political outlook and the weaker than expected macroeconomic environment”. However, the quality of its earnings remains high, Bidvest said, and its annuity income-type businesses delivered “solid results”. Following the unbundling of Bidcorp, Bidvest gapped upwards, triggering the third phase of its long-term bull trend, with the share price spiking from 10 275c/ share to 18 375c/share.
But having reached a ceiling there, and with the three-week relative strength index (RSI) negatively diverging, caution should be exercised.
How to trade it: If Bidvest fails to recover beyond 17 200c/share, alarm bells should sound. Key support is at 14 650c/share, and Bidvest may confirm a double-top at 18 375c/share on downside through 14 650c/ share. The bearish target would be at 10 925c/ share. Since gaps are usually closed, losses could extend to 10 275c/share – so as to close the May 2016 upward gap. Otherwise, go long above 18 375c/share as the upside objective would be at 22 100c/share.