Financial Mail - Investors Monthly
BUY, HOLD, SELL
Some companies in the vehicle and transport sectors have been more resilient than others in the face of depressed consumer spending
COMBINED MOTOR HOLDINGS Share price: R20 JSE code: CMH
BUY AMONG ITS MORE ILLUSTRIOUS peers, Durban-based investment holding company Combined Motor Holdings (CMH) flies under the radar. Founded by Jebb McIntosh and Maldwyn Zimmerman in 1976, the group, which started out as a Chevrolet and Datsun franchise motor dealership in KwaZulu-Natal, has in many respects defied its humble beginnings.
There is a strong case why CMH is a worthy BUY, notwithstanding the headwinds retailers face due to depressed consumer confidence.
In the past four years, CMH — a R10.6bn company — has steadily increased its NAV per share, headline earnings and dividends per share. Dividends per share have more than doubled from 78c a share in 2014 to 161c, while headline EPS (HEPS) have soared from 156.7c a share to 332.9c. In the year ended February 2018, CMH increased dividends by 15%. HEPS were up by 17.1%.
So what makes CMH so resilient? Its sensible business model. CMH is vertically integrated, with a presence in new and used vehicles, parts, services, rentals and financial services. It has a mix of “value-orientated” brands such as Mazda, Ford and Toyota that benefits from the consumer trend to down-trade. In the 2018 financial year the group’s sales increased by 11.8%, at a time when growth in new vehicle sales has been muted.
SUPER GROUP Share price: R34.49 JSE code: SPG
HOLD THE TOUGH ECONOMIC conditions and political uncertainty in SA have done little to slow down transport logistics and mobility group Super Group, which has outperformed its peers in the JSE mobility services subsector. In the past five years, the firm’s shares have increased by more than 24%, outpacing the JSE all share index. Other companies in the subsector have had a tougher time.
It is not as if Super Group has been shielded from the headwinds in SA and international markets. The Supply Chain Africa business has taken strain from the low growth in the economy. But the company has recently reaped rewards from the upswing in commodities.
The SG Coal business transports primary minerals commodities to railheads. The vibrant mining commodity industry in the rest of Africa has boosted SG Coal’s volumes. Supply Chain Africa looks set to benefit from the positive commodity cycle.
But Brexit is a threat to Super Group’s UK dealerships business. Conditions for the company’s logistics business in the UK and Europe are generally subdued. Add to that the fact that its consumer-facing operations in SA have been affected by the difficulties consumers have faced.
Taking all these factors into account, Super Group is a HOLD.
MOTUS Share price: R91.83 JSE code: MTH
SELL MOTUS HOLDINGS’ unbundling from Imperial Holdings in November was premised on the elimination of duplication, complexity and costs.
The firm, which generates 68% of its revenue and 92% of operating profit in SA, is the exclusive SA importer of Hyundai, Kia, Renault and Mitsubishi vehicles. The remainder of its revenue and operating profit is generated in the UK and Australia.
Through its subsidiaries, Motus provides automotive finance, rental, insurance and maintenance services.
The UK market offers a lot of potential, despite the uncertainty about Brexit. Australia is also a vibrant market, with 1.2-million vehicle sales a year.
The international markets provide viable prospects for Motus given the unfavourable local economic situation.
In March, domestic sales of vehicles slumped 3.1%, or 1,512 units, compared to March in 2018.
For an investor with a long-term view, Motus offers good prospects. It expects performance in the year to end-June to yield improved revenue, increased working capital efficiency and reduced debt. But the market will take its time to assess Motus’s growth engines, which might mean the brakes being applied to sentiment for the foreseeable future.