Much more than a GDP proxy
It’s not often you see a JSE top 40 share rally 15% in a day, as Bidvest did this week. Clearly, South Africa Inc is far from dead despite the body blows delivered by interminable power cuts, municipal disarray and the feeble attempts at economic reform under Cyril Ramaphosa’s presidency. Bidvest stock is now almost 25% higher year to date; over three years the total return to shareholders sits at 56%. On a 14% rise in first-half revenue to R57.2bn, Bidvest managed to wring out higher trading profit (up 14.5%) and dividend growth, up 15%. The FM spoke to CEO Mpumi Madisa.
Were you stunned by the move?
MM: To get a response that was three times more [than the usual 5% rally] was very surprising. [But] we’ve always signalled growth, that there are pockets of opportunities.
But given how moribund the overall economic picture is in South Africa, it’s not hard to see why investors might be sceptical. Or are you just cleaning up from small businesses that are falling by the wayside?
MM: I think it’s a couple of things and it’s not a six-month story. Around 2017, when we unbundled the food distribution business, we decided to take another look at the portfolio and say what we think fits and what doesn’t. We decided we wanted to run businesses or own them 100%, so anything noncore we would exit. We were then able to redeploy capital back into the businesses we own 100%.
The second thing, if you think about unbundling to now, we haven’t made a lot of acquisitions but they’ve been really good. And then, when I came into the role in 2020 I said to the team: let’s worry less about what the macros look like. Everybody says Bidvest is a South African GDP proxy I disagree with that. I said we are going to be called a GDP proxy if our growth mimics South Africa’s GDP and we can’t mimic South Africa’s GDP when it’s 1.5%. We can’t wake up in the morning and that’s what we aspire to: GDP plus inflation
that’s not good enough.
In any economy you’re not going to have all sectors going backwards, there’s no way. There are always sectors that are moving forward. And you’ll see that over the past couple of years our growth has been mainly organic. For example, in the renewables sector our sales have increased five times on the previous year. And maybe lastly, when Covid hit, I think we came out of it with a lean business. The cost discipline we had to relearn in 2020, we held onto.
Your freight division produced what you call an “outstanding” profit, of R1.1bn. So Transnet can be a basket case and you’ll still do well?
MM: If Transnet were doing better, those numbers would be better. In the freight business, a significant part is terminal operations. We handle products such as bulk minerals — coal, or copper. The reason it matters is that we have the largest rail siding in Durban and yet we are receiving zero cargo on rail. In the last quarter, rail to our private siding was nothing. All of it is on the roads, in trucks. We’ve just, over the years, found a way of operating within the inefficiencies as best we can.
Transnet seems to be very defensive
… MM: I think that within Transnet the challenges around logistics are known and understood. Consider the tender that is out at the moment. It’s a full 20-year concession and whoever gets that will also be able to put rolling stock on the line. So Transnet is saying, we understand our challenges to the extent that we are giving an entire concession on the rail line, which has never ever happened before. For me that’ sa very strong signal and I don’t think the market should just ignore that. Even for LNG [liquefied natural gas], they’ve put out a tender for an LNG terminal. So they understand the energy issues in the country and the role they can play.
You say the growth areas are energy, mining, agriculture, tourism and hospitality, but aviation is an area that’s taken a real whack. Would you ever consider backing another airline again to benefit BidAir, say?
MM: It’s a big no. Running an airline is complex and not easy, and the reason we had a minority stake in Comair was we had no appetite to deploy further capital in that space.
Where are the acquisitions you’ve hinted at in South Africa and abroad?
MM: [In South Africa] we’ve got McCarthy, where we represent the OEMs [original equipment manufacturers] — we want to bring in a second cluster so we can compete in the independent motor retail space. McCarthy can only retail second-hand vehicles that are maximum five years old, and that’s only 25% of the market. The other 75% is vehicles that are older, where we don’t even play. So we’re launching a new brand in April and I’m excited about that. We also want to add allied services and products to motor retail — and there we’ll look at acquisitions.
Offshore, we’re focused on hygiene businesses, facilities management businesses, and businesses dealing with plumbing-related products. I’m hoping that, come year-end, I’ll be able to announce some transactions.