With the recent increase in demand to get off the grid and go renewable, diversified industrial giant Bidvest Group Limited (JSE: BVT) has delivered strong annual results, boasting double-digit revenue growth this Monday.
The South African government has been outdoing itself with the number of days of load-shedding this year compared to the previous year. With roughly four more months left in the year, by my calculations, we have passed last year’s number of 206 days of load-shedding, and there is little hope that the momentum will be slowing down as we were told that we are in stage 6 at the beginning of the week. This, in turn, has driven the demand for renewable energy solutions through the roof, and Bidvest Group Limited has been well-positioned to capitalize on the shortfall of the power-generating SOE. The industrial giant reported double-digit growth to 7 out of the nine business segments, with an additional from the failure of Transnet, which has assisted the business with its freight division.
Figure 1: Daily candle stick chart from 2022
Technical
The share price for Bidvest Group Limited has had a great run since the last annual results, and in the period, the share broke above a significant resistance line of R232. The price of the resistance line was crossed in February of this year after the price action formed an ascending triangle from October 2022. Following the break, the company’s share price has been in an upward trend, as seen in the channel above.
The price action seems to be forming an Elliot impulse wave within the channel but is still far from completion as, at the moment, it is still at the third point out of five. The fourth point would be a price correction; then, the price could continue on its current trajectory of new highs. The MACD indicates that the upward trend could continue as the moving averages in the MACD remain above the neutral point, and the signalling moving average hints at a continued trend.
Fundamental analysis
Figure 2: Total revenue since 2017
The total revenue for the business has shown continued growth from the 2021 financial year, averaging 15% over the past three years. Overall revenue was up 15% to R114.9 billion, and trading profit for the Group was up 17.6% to R11.4 billion. The Group had exceptional organic growth, driven by the rising tide of interest in travel and tourism services as well as renewable energy products, and the Group supplies all manner of renewable energy equipment. Renewable energy sales had a strong performance and experienced a ten-fold increase in the financial year of 2023. Financial Services’ recovery has outperformed predictions. Freight exceeded R2.0 billion in trading profit, while Services South Africa crossed the R1 billion threshold.
Off of already strong bases, seven divisions recorded double-digit trading profit gains. This is admirable, given the fragile and unstable macroeconomic environment. For the Group’s management, margin management was a significant emphasis area during FY2023. Despite a minor decline in gross margin to 29.0%, the trading profit margin increased to 10.0% since operating costs were kept under tight control. Normalized HEPS increased by 17.7%, while HEPS increased by 24.5%. This is still significantly above the Group’s weighted cost of capital, notwithstanding rising interest rates.
Although it is unlikely that demand for renewable energy products would continue to expand at the same rates that Bidvest did over the past year, a diversified portfolio of assets aims to keep the overall operation stable. To achieve its diversification goals, the Group is looking to go on a shopping spree with its merger and acquisition war chest of R11.37 billion.
Acquisitions
The company recently completed a number of substantial acquisitions, some of which were anticipated to be disclosed next year, were probably small to medium-sized businesses, and ranged in enterprise value from R200 million to R3.5 billion. Autosure is an insurance underwriter focused on value-added products in the motor retail industry, and A2 is a related forklift rental company. In keeping with the broader Group’s worldwide expansion plan, it also purchased Sahicasa, a Spanish-based provider of pest and hygiene services, while Bidvest Australia purchased BIC.
Summary
As the adage goes, ‘one man’s trash is another man’s treasure,’ and Bidvest Group Limited is fully taking advantage of the current mess in South Africa. The business has had some fantastic growth over the past few years and is looking to keep the momentum going with many acquisitions in the pipeline.
Sources: Koy Fin; Trading View; Money Web, Business Day, and Bidvest
Author: Odwa Magwentshu
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