Hello, the yellow is looking brighter
Bell Equipment is a colourful stock and IM is not referring to the yellow metal that the company manufactures in South Africa and Germany, but rather its recent management actions and share price history.
Bell, based in Richards Bay, is a legacy family-owned business that has evolved into a sophisticated niche capital equipment company with a wide range of heavy equipment used primarily in the mining, infrastructure and construction sector.
Its best-known products are a range of articulated dump trucks (ADTs) that work in tandem with excavators in the materials handling sector. Bell has carved a niche for itself with its products and technology development.
The colour in Bell started during the pandemic, when the company and its global customers took a hard hit.
During the stock market sell-off in 2020, Bell slumped to 550c. Earnings in the financial 2020 period to December, which were delayed, saw the company report a headline loss of 31c a share. The NAV was R33.64 a share with the share trading at R10 when the results were released in April 2021.
In February 2021, ahead of results, IA Bell, the familyowned structure, acquired, for R10 a share, a 31.41% stake in Bell that US-based agricultural and industrial equipment giant John Deere had owned for 20 years. That took the family’s ownership to 70.1%.
Despite the slump, Bell continued to add growth vectors to its business. In February 2021 Bell gained the JCB sales distribution agency for South Africa to enhance its product offering. This adds to the growing agricultural and forestry products portfolio.
Interim results for June 2021 contributed to an earnings recovery to 177c a share (+469%). NAV edged up to R33.79 a share.
After the John Deere purchase, IA Bell made an offer to the 29.45% Bell minorities in October 2021, also at R10 a share. This was at a discount to the ruling trading price as well as NAV.
Activist and institutional shareholders were livid at what was seen as an opportunistic and undervalued family offer for the company, which was still in post-pandemic recovery mode. They denounced the derisory offer, saying the niche business was easily worth more, and pushed for the family to seek offers from global capital equipment
OEMs or raise the offer closer to R25-R30 a share. The family declined to seek alternative offers, and their buy-out bid failed.
Fast-forward to the present, and the cheeky nature of the 2021 bid became starker as Bell reported improving earnings, a bigger order book and growth in
NAV. The share price ran to a 52-week high of R27.74 in late March ahead of the release of the 2023 final results.
Those results detailed a continuing robust and resilient corporate performance where revenue rose 32% to R13.5bn with profits ahead 66% to R793m. Headline earnings surged 67% to 798c a share with the NAV at R55.27 a share. But Bell dropped a clanger when it decided to forgo a dividend to preserve cash. That went down like a lead balloon with the market and the stock consequently sank 13% after the results.
In the results presentation, management were confident of plans to break new ground for growth. A move into agricultural equipment and a further repositioning of ADT manufacturing from South
Africa to the northern hemisphere was reported, with Bell aiming to position itself as a leading niche global player.
In the OEM capital equipment world, Bell is a minnow as it competes against multinational behemoths such as John
Deere and Caterpillar. IM is also aware that despite its material improvement in operational activity, the family have a stranglehold on the ownership and are unlikely to come up with a revised, higher offer. Thus the company could be said to be takeover-proof which might limit share price ascension.
Year to date Bell is ahead 8% and has risen 40% in the past 12 months. The rating remains a modest 3.1 times though long-standing institutional gripes about debt, working capital and inventory remain as difficult as ever to improve. Management says it is working on these issues, but it’s been saying that for 10 years.
In short, Bell is a company with a globally recognised presence, a heritage of research & development and a competitive edge regarding its ADT product technology.
Globally, the interest rate cycle and continuation of the commodity rally is key to Bell’s push into key growth markets such as the US.
Growing efficiencies and access to market opportunities from Bell’s expanding German manufacturing base and its ADT range also adds some lustre. The company itself is more cautious and sees some market softness.
Notwithstanding the stock’s recent rally, IM can envisage a move back towards recent highs. That said, a more cautious outlook as South Africa shifts into electioneering mode would mean IM prefers a hold recommendation on Bell for now but would suggest investors watch the stock for further weakness.