JSE listing sets Motus up for overseas expansion
Vehicle group out to test unpredictable Australian market
● The listing of the Motus vehicle group this week will seal a historic split from Imperial Holdings and may propel the company into a more aggressive international expansion.
On the immediate radar are “selective acquisitions” in Australia, a market where many South African businesses have tried their luck and failed. The UK also holds further promise despite Britain’s imminent exit from the EU, said Motus acting CEO Ockert Janse van Rensburg.
Janse van Rensburg said the acquisition of a vehicle dealership in the UK midlands a year ago saw Motus make inroads into the passenger vehicle market in addition to its presence through sales of truck brands DAF, MAN and Mercedes-Benz. But Motus plans additional bolt-on “selective acquisitions to cover all the brands”.
“Despite what everyone says about Brexit, that market is still growing. It still has positive GDP growth.”
The International Monetary Fund (IMF) has forecast the UK’s growth to slow to 1.4% this year from 1.7% in 2017. Growth is expected to improve to 1.5% next year. The IMF expects medium-term growth of 1.6% for Britain and for this to be weighed by “anticipated higher barriers to trade following Brexit”.
In Australia, where other South African companies such as Woolworths and NuClicks battled to gain traction, Motus had previously acquired small dealerships in Sydney and in October last year bought 75% of the SWT Group for R261m. It operates 16 dealerships there.
Australia’s economy is growing, fuelled by consumer spending as household savings shrink. The economy grew by 3.4% in the second quarter of this year from 3.1% in the first quarter.
Janse van Rensburg said that in Australia “there’s a lot of consolidation currently taking place through private equity players to mop up some of these family-owned dealerships, and that’s probably an opportunity for us to do the same and get some real scope”.
Arnold Werbeloff, senior equity analyst at Vunani Securities, said consolidation in Australia’s vehicle market was an opportunity.
“Longer-term prospects for the Australian economy are attractive given its proximity to the expanding Chinese market for commodities and its trade relationships within the growing Pacific nations.”
Werbeloff said SA’s Super Group had “done particularly well” with its fleet operation business while offering vehicle-related financial services in Australia.
However, Janse van Rensburg said, it would be “impossible” to be among the top three vehicle companies in Australia in the medium term.
Further expansion in Africa is not high on the company’s radar. Whereas former parent company Imperial’s logistics businesses has expanded into the continent and abroad, Motus sells only 140 new cars a month into Zambia, Kenya, Tanzania and Malawi. The region is dominated by the dumping of “grey imports”, particularly two-year-old secondhand vehicles.
The unbundling of Motus from Imperial was part of a process started by now departed CEO Mark Lamberti.
Janse van Rensburg said there were “very little synergies” between the two businesses except for the balance sheet and debt provision. Cash flow from Motus had helped to build the logistics business over the past 15 to 20 years, he said.
“It had to come to a point where both businesses were able to completely stand alone and we finally got to that point.”
Motus will list on Thursday, initially floating 200-million shares on the stock exchange. Existing Imperial investors will have the option to retain both shares, sell or keep either share.
Janse van Rensburg said despite economic conditions there was interest from investors who wanted to invest in Motus because they “want to be in emerging markets [like SA]. In a lot of cases investors have reiterated that one of the reasons they would want to invest is because you are positioning yourself if there’s a turnaround in the South African economy.” The group’s diverse integrated operations, which include vehicle finance, retail and after-market parts sales companies, were also attractive, he said.
Werbeloff said Motus’s business in SA offered diverse cash-generative activities and strong management, and its dominant presence in new and used vehicle markets had enabled the group to weather the tough business climate.
“Assuming there is no [international credit rating] debt downgrade with Moody’s, vehicle demand is expected to benefit from a gradual recovery in the economy.”
An analyst who spoke on condition of anonymity said Imperial constituted “a number of significant indices on the JSE and the split-out of Motus will reduce the market cap of Imperial Logistics. Both those stocks will start being excluded from some of the indices that Imperial is part of and that rebalancing could have a short-term impact.”
He said there are still questions over the potential value add from Motus’s international expansion for local shareholders because the acquisitions are fairly small operations.
“I’m sure they’ll start diversifying currency, which is a big reason why everybody does that.” Whether they could deliver the benefits of international expansion, “I think that will remain an open-ended question”.