Industrial conglomerate Bidvest, whose interests range from cleaning services to freight management, is banking on its product, services and geographic diversification to weather the weak growth environment and maintain a competitive edge.
At Friday’s close of R254.69, Bidvest shares have soared just over 47% in the past three years, a signal of its resilience and investor confidence after the coronavirus pandemic.
Bidvest reported a 5% rise in headline earnings for the six months to end-December, with five of its seven divisions reporting growth of at least 10% in trading profit.
CEO Mpumi Madisa said the group was set to maintain its growth momentum despite a tough operating environment, as it focused on expense management, holding margins, disciplined working capital allocation, contributions from bolt-on acquisitions, strong new business and increased travel and tourism volumes.
That, coupled with a blended portfolio of defensive and cyclical businesses that are diversified, essential and asset-light, would ensure sustainable growth, she said.
“Our broad products and services offering remains a key competitive edge,” Madisa told investors at the group’s interim results presentation in March, adding it was underpinned by Bidvest’s geographic diversity. “Our decentralised, entrepreneurial model enables our businesses to pivot during difficult times and therefore gives the whole group agility.”
Founded three decades ago, Bidvest has seven divisions operating in SA, the UK, Spain, Ireland and Australia. They span services, freight, consumer and commercial products, financial services and automotive retailing.
In response to the weak SA economy, the group is looking abroad for growth and expansion.
Madisa’s confidence was echoed by group CFO Mark Steyn, who listed proactively managing margins and limiting expense increases as focus areas.
“We often talk about the resilience of the Bidvest business model, and this is all the more relevant in the current environment,” Steyn said. “The ability of our decentralised businesses to pivot and reprioritise opportunities is what differentiates us.”
Volume growth in Bidvest Services SA — which covers security and aviation, travel management and allied services, and hospitality and catering — has benefited from healthy volumes, new business and a strong pipeline of contracts.
Freight operations in Namibia have not only profited from strong oil and gas project activity but have also cashed in on greater bulk volumes of mineral exports redirected from SA.
The branded products business similarly managed to ride the wave of increased demand for print products, office furniture and automation to deliver double-digit trading profit.
Steyn highlighted that the group had €450m in offshore funding for M&A and a further R15bn available in domestic facilities.
The board approved an expansion capex of R550m to build multipurpose tanks and R185m for fuel tanks, both in Richards Bay to be commissioned in 2025 and 2026.
Rowan Goeller, research director at Chronux, believes Bidvest’s market share is likely to grow as present conditions favour large diversified companies.
Growth areas
“Despite the diversified nature, Bidvest is able to focus on growth areas within its broad business exposure and capitalise on pockets of demand,” Goeller said in a note. “The large balance sheet does provide a competitive advantage in having little restriction on inventory availability where smaller competitors may struggle.”
Still, the group has faced some uphill battles. The commercial products division, which operates in a highly competitive environment, has experienced muted growth as its price mix has come under pressure. Demand for renewables remained steady but was tapering, Madisa said.
The services international business, where profits are now equally split between hygiene and facilities management, has been battling higher wages across the various regions where it operates, restructured contracts in SA and lower office occupancy in Australia.
Moreover, the freight business was buffeted by deteriorating basic infrastructure, while overall bulk mineral volumes were lower due to a reduction of commodities such as coal and manganese.
However, the bulk terminal operations benefited from a positive product mix and rate increases, Bidvest said.
In a difficult trading environment, the automotive business saw inventory oversupply, discounting to move stock, high interest rates and an extremely constrained consumer result in volume declines and reduced trading margins.
New vehicle sales slipped just over 5% while used vehicles reported a 1.4% drop.
To capitalise on an emerging trend of high demand for newer, cheaper brands, Bidvest has been awarded four Mahindra dealerships and one FAW truck dealership. Additionally, its Cubbi offering — a new, independent used-vehicle business — was successfully launched and is progressing as planned.
“Our diversification strategy in this division remains a key focus, as we now represent two brands that have a growing market share — Mahindra and FAW,” Madisa said.
“Our entry into the independent used-vehicle market has been executed through Cubbi and we are also at various stages with bolt-on acquisitions that are complementary to our automotive offering.”
The financial services business, which is undergoing a turnaround, reported improved core profit, supported by an improved cost-to-income ratio, higher rates and net positive capital deployment.
Madisa said the disposal of the Bidvest Life insurance business was expected to be completed before the end of the year.
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