Bidvest break-up delivers shareholder value

After years of speculation, South Africa’s Bidvest addressed its corporate structure earlier this year by separating its food distribution assets – now listed as Bidcorp – from the remainder of its portfolio, essentially splitting up domestic and international activities.

The move so far has rewarded investors as the “successful unbundling and listing” of Bidcorp on 30 May “adds significant value to shareholders”, Bidvest claimed in the annual results announced at the end of August. In fact, the combined market value of the two entities is currently 16% higher than Bidvest’s before the split took place.

The break-up “has allowed Bidvest’s management team to move forward with a refocused platform from which to pursue growth”, and as a leaner entity, Bidvest is now expected to benefit “from a greater visibility of its continued operations and their potential values”.

The annual result associated to the non-food assets owned by Bidvest – whose market value stands at R50bn (US$3.5bn) versus Bidcorp’s R94bn – showed a 3.5% year-on-year rise in turnover to R91.8bn, and higher trading profit at R5.8bn from R5.6bn one year earlier, while headline earnings and EBITDA rose 3.6% and 3.9%, respectively.

Barring changes in working capital, core operating cash flow was flat year-on-year at R6.7bn, but grew 16.6% to R7bn from R6bn once working capital changes were considered. Debts are manageable, and given cash flow from investing of R5.6bn, it generated enough free cash flow (FcF) for its shares to be able to boast a solid FcF yield in the region of 2%, which is a sign it could deploy more capital to chase inorganic growth.

Dividends fell 21.5%, but the forward dividend yield is still well above 3%, and is nicely covered by earnings, according to consensus estimates.

Following the spin-out of Bidcorp, Bidvest now operates seven units, with the automotive and freight divisions generating 58% of group sales.

Its asset portfolio comprises automotive (R24bn revenues), commercial products (R5.9bn revenues), electrical (R5.5bn revenues), financial services (R3.3bn revenues), freight forwarding (R29.1bn revenues), office and print services (R10bn revenues), and services (R12.4bn revenues). Total revenues also included the contribution of Bidvest Namibia and Bidvest Corporate, but were adjusted to factor in inter-group eliminations.

Inevitably, its balance sheet shrank in fiscal 2016, with total assets of R45bn at the end of fiscal 2016, compared to R89.8bn in 2015; while capital and reserves stood at R19.7bn compared to R37.7bn in 2015.

The group said it continued to hold strategic investments in Bidvest Namibia (52%) and in other assets – including Bidvest Properties, Adcock Ingram (38.4%), Comair (27.2%), and Cullinan Holdings (19.5%), as well as a controlling 80% stake DH Mansfield Group and 100% of Ontime Automotive in the UK.

More Insight?

Source: Transport Intelligence, September 13, 2016

Author: Alessandro Pasetti