Despite a muted market, cash-flush industrial major Bidvest is actively shopping around for high-return, cash-generative acquisitions to bulk up its local and offshore operations.
The JSE-listed group, whose diverse interests span cleaning services to used cars and freight management, continued its acquisitive and capital-intensive investment strategy in the half-year to the end of December despite the “pedestrian” trading backdrop.
Bidvest spent R3.2bn on mergers & acquisitions activity in the half-year to the end of December, completing nine transactions — including several bolt-on transactions. These included deals in SA, Australia, the UK and Singapore.
Cash generated by operations almost doubled to R3.7bn as five of its seven divisions reported double-digit trading profit growth. The acquisitions, meanwhile, contributed 2.8% to the top line, the group said.
CEO Mpumi Madisa said the group’s strong cash-generating abilities coupled with available debt facilities gave Bidvest the ability to fund acquisitions both locally and internationally. The group’s war chest boasts a €458m offshore debt facility that it can tap into plus facilities of up to R15bn domestically.
“From an offshore perspective we are still pursuing hygiene and facilities management,” Madisa told Business Day, pointing out that while the group had made three hygiene acquisitions in the period and two in facilities management businesses, Bidvest still had opportunities in its pipeline in those areas offshore.
Offshore accounts for 22% of group profit, up from 20% in the prior year.
“Locally, it’s really across the portfolio where we’ve got opportunity,” said the CEO. “But in the pipeline, we’ve mainly got potential acquisitions sitting in our Services SA division, in our branded products division and one or two in commercial products.”
The company will also pursue pockets of opportunity in travel and tourism. At the same time, automotive-related acquisitions were being considered to advance diversification.
Madisa said Bidvest was confident that it would be backing the right assets to fit into the group structure, saying the criteria applied would be disciplined.
“We are very comfortable that we are deploying capital into assets that are high return, high margin and cash generative” Madisa said.
It reported a 5% rise in headline earnings for the first half, with five of its seven divisions reporting double-digit trading profit growth.
Revenue grew 8.8% to R62.2bn in the six months to the end of December and headline earnings per share (Heps) amounted to 987.9c, a rise of 5.3%.
The market welcomed the news with Bidvest shares gaining the most in a year, up 7.88% to R258.14.However, a flat performance from Adcock and a disappointing result by the automotive division put a damper on the group’s interim progress.
New and used vehicle volumes contracted in the period characterised by high competition, while the oversupply of cars from original equipment manufacturers (OEMs) compressed margins.
Madisa flagged a possible complementary automotive services acquisition into the retail business. This is in line with the planned diversification strategy.
“We are at various phases in those acquisition conversations, I’m hoping that we will be able to announce one or two once we get to year end,” she said.
Additionally, as the traditional OEMs have been losing market share to newer ones, Bidvest has been in conversation with the new entrants to the market and has clenched deals to represent some of these.
This included four Mahindra dealer points and one FAW truck dealer point, while talks continued with others, Madisa said.
The group, which is seen as one of the proxies of the SA economy — given its extensive footprint across services, freight, consumer and commercial products, financial services and automotive sectors — reported a 4.2% increase in aftertax profit to R3.46bn.
Bidvest said the growth was achieved largely through new business it has secured, and good gross margin and expense management despite the tough environment characterised by stubbornly high inflation, peak interest rates and minimal underlying economic growth.
IG senior market analyst Shaun Murison said Bidvest had showcased notable growth amid challenging economic conditions. The strong acquisition pipeline and focused financial discipline further bolstered Bidvest’s future growth prospects.
The board, headed by independent non-executive chair Bonang Mohale, declared an interim dividend of 467c, up 6.9% from the prior period.
Net debt increased R6.8bn to R25.9bn in the six months. Its debt profile is expected to rise as the group continues on its acquisition spree. However, CFO Mark Steyn emphasised that cost containment across the business would be maintained.
Bidvest is disposing of the Bidvest Life asset, which it has reported as a discontinued operation. With several buyers reportedly interested in the business, the process is expected to wrap up before year end, said Madisa.
Update: March 4 2024
This story has been updated with new information.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.