BDVSY.PK - Bidvest Group Limited

[rjstc]

Thanks Ross for the update.

[ourkid8]

I wanted to add Bidvest to my watch list but here is a question, how accurate are the numbers they are reporting? Would you say there is a a possibility or potential of Fraud?  I am from Kenya and most businesses (even publically traded companies) use two different sets of books which makes it extremely difficult to value. If I am talking crazy, please let me know with examples as it seems he has a long runway for growth in this untapped emerging economy.

 

S

[Sunrider]

I wanted to add Bidvest to my watch list but here is a question, how accurate are the numbers they are reporting? Would you say there is a a possibility or potential of Fraud?  I am from Kenya and most businesses (even publically traded companies) use two different sets of books which makes it extremely difficult to value. If I am talking crazy, please let me know with examples as it seems he has a long runway for growth in this untapped emerging economy.

 

S

 

Hi there

 

I'm not an accountant or an auditor but I work with accountants/finance folk most of the day (in banks though). My gut feel would be that in SA standards are much higher - SA was one of the first countries to adopt IFRS, the listing standards at the JSE are very high (some say too high) and pretty much anybody that wants to amount to something in SA either qualifies as a CA or as an actuary, both of which work on the UK system and to the UK standards (and are thus recognised as equivalents in Europe but also in Canada as far as I'm aware ... at least for the actuaries - somebody correct me if I'm wrong).

 

So no - I don't think you need to worry about Bidvest or a similarly large SA company keeping two sets of books.

 

Cheers - C.

[Ross812]

Bidvest will release earnings next Monday, March 4th. Shares in the company are trading at 23,650p per share (p/e of 16). The ADR equivalent is $53.45 for two shares of BVT.J.

 

http://www.bidvest.com/Interim_results_dail-in.php

 

 

[Ross812]

Press release. The earnings are up >15%.

 

The Bidvest Group Ltd announced that for the first half of 2013, it expects on a normalised basis, excluding the abnormal profit of ZAR399.1 million on the partial sale of the investment in Mumbai International Airport Private Limited (MIAL) in the comparative period, headline earnings per share to be between 17% and 19% higher than the comparative period (December 2011-ZAR6.134 per share); and earnings per share to be between 23% and 25% higher than the comparative period (December 2011-ZAR5.818 per share). Including the abnormal profit of ZAR399.1 million on the partial sale of the investment in MIAL in the comparative period headline earnings per share are expected to be between 1% and 3% lower (December 2011 -ZAR7.423 per share); and - Earnings per share are expected to be between 1% and 3% higher (December 2011-ZAR7.108 per share).

[Partner24]

Just a prediction, real numbers will be out soon. But still, they tend to be right with their pre-releases. So, in few words, they keep making dust. I've been an owner since more than 5 years now and I'm very satisfied with the business intrinsic performance and it's management. If the stock get cheaper (12x headlines earnings per share or so), I will add to my actual position significantly (watering the flowers like Peter Lynch said).

 

Cheers!

[Ross812]

Results are out:

 

Revenue up 12.7%    Headline EPS up 27.4% (up 16.8% when currency is normalized)

 

http://bidvest.com/ar/bidvest_ar2012/images/pg2_6.png    http://bidvest.com/ar/bidvest_ar2012/images/pg2_7.png

 

Bidvest by Segment - http://bidvest.com/ar/bidvest_ar2012/go-cons-seg.php

 

Bidvest South Africa - % Change (yoy Revenue – yoy Results)

 

Divisional Contribution to Bidvest South Africa Revenue

http://bidvest.com/ar/bidvest_ar2012/images/pg30_2.png

 

Automotive –          2.8% - 97.5%

Electrical –              4.5% - 12.9%

Financial Services –  2.3% - 13.1%

Freight –                8.4% - 7.5%

Industrial –            (.8%) – (38.5%)

Office Products –    13.6% - 29.6%

Paperplus –            4.1% - 0.8%

Rental and Products – 20.8% - 18%

Services –                5.4% - 33.5%

Travel and Aviation – 9.6% - 19.0%

 

Bidvest Foodservice - % Change (yoy Revenue – yoy Results)

 

Divisional Contribution to Foodservice Revenue

http://bidvest.com/ar/bidvest_ar2012/images/pg38_2.png

 

Asia Pacific –        20.1% - 18.4%

Europe –              18.6% - 40.3%

Southern Africa –  13.5% - (16.4%)

 

Bidvest Namibia – Rev up 39.3% - Results up 15.3%

 

Divisional Contribution to Nambia Revenue

http://bidvest.com/ar/bidvest_ar2012/images/pg46_2.png

 

Bidvest Corporate - % Change (yoy Revenue – yoy Results)

Properties –                      33.3% 23.3%

Corporate and investments – 7.9% - (622.1%)   

 

Segment analysis - Share of Revenue - Share of Results

South Africa-    45% - 53%

Foodservice -    52% - 30%

Nambia -        2.1%  - 9%

Corporate -      0.6%  - 8%

 

[matts]

South Africa is having some real issues with labor strikes. What is Bidvest's exposure. Are their workers unionized?

[Ross812]

I had a post typed on this and I forgot to hit the post button earlier.

 

The work strikes hurt Bidvest Freight in the fall of last year. The truck drivers union had a strike. It was settled in October of last year.

 

Bidvest SA accounts for 45% of the groups revenue.

 

Of this, I would not be concerned with the automotive division (car sales- 30% of SA Rev), financial, office products, or rental. This is approximately 50% of the SA revenue. Whatever the danger of further freight division strikes are I don't know. I do know that freight is an integral part to keeping the rest of the group's divisions running smoothly. I am hoping that the strike eight months ago was the last strike we will see in the division for a while.

 

In conclusion, as long as the freight division is happy, there should be minimal interruptions from labor strikes for the group. A max of 10% of group revenue, and that is if all the problem divisions strike at the same time (ex. freight!).

 

The labor disputes are driving down the the Rand which is good for Bidvest in the short term. I think with currency exchange, the Rand will at some point appreciate back to 7-8 ZAR:USD. Hopefully when this happens, the economy is SA is growing at 6%+ and the effect of Rand appreciation will be negated.

 

That said I have sold almost 2/3 of my Bidvest position above $55 an ADR share. The P/E is higher than I have seen in in a long while at 17x and I would like to buy at <13x ($37.5).

[matts]

Hey Ross,

 

The ADR is approaching $50. What do you think of the valuation here? Good time to initiate a position?

[Ross812]

Here is a good article on the Adcock aquisition:

 

HARD-driving entrepreneur Brian Joffe, whose empire spans shipping to mop sales, has a favourite saying: "Why go into business to test the waters? Go in to make waves."

 

The 66-year-old son of Lithuanian immigrants may do just that next month, when he is expected to block a R12.8bn Chilean company’s bid for drug maker Adcock Ingram, in which his Bidvest Group owns a stake.

 

CFR Pharmaceuticals has offered R12.8bn in cash and shares for Adcock, aiming to add Africa to its operations.

 

But Mr Joffe — described by those who know him as a numbers-focused straight talker — sees in Adcock his own chance to access new markets, and turn around another lagging firm.

 

Adcock supplies life-prolonging HIV/AIDS medicine through a government programme and is an important player in a plan to overhaul South African healthcare. It has suffered lacklustre sales and an over-reliance on its home market, but could harness strong economies elsewhere in Africa with its wide range of over-the-counter medicines.

 

The tug-of-war is South Africa’s biggest corporate spat in recent memory and has revived concerns that South Africa is uneasy about foreign investment, especially takeovers that could affect the black majority.

 

Mr Joffe has established a pattern for overhauling the firms he acquires: focus on cash flows, capital allocation and returns, and encourage each business to work with others he owns. Some group companies are cleaned by the cleaning unit and furnished by the furniture arm.

 

"One thing about Brian is that he’s got the ability to grow big companies," says veteran stockbroker David Shapiro, who grew up with Mr Joffe.

 

He has turned a small venture selling bakery ingredients into an empire totaling more than 300 businesses ranging from freight and motor sales to frozen food.

 

Revenue is $15bn and Bidvest employs nearly 140,000 people in its main markets of South Africa, Europe and Asia.

 

"He can overpay, but he gets more out of a business than the incumbent management," says a business associate. "He’s very good at making the business focused, and then managing finances and return numbers. He’s a pretty demanding fellow."

 

Since 1990, Bidvest’s share price has increased 142-fold — and Mr Joffe says it "outscores Jack Welch’s GE and Warren Buffett’s Berkshire Hathaway as a wealth creator".

 

Now, he believes, Adcock products could provide a further expansion opportunity in sub-Saharan Africa, where economic growth is expected to be 6% this year — or as much as 8% in Mozambique and Zambia — fuelling demand for everything from cosmetics to painkillers.

 

"From Mr Joffe’s perspective, Adcock is a brilliant asset. It has excess capacity and it gives him the opportunity to move into Africa. He clearly believes it has been inefficiently run," Renaissance Capital analyst Roy Mutooni says.

 

Mr Joffe first attempted to take over the drug maker early last year but was rebuffed. After CFR stepped in, he went direct to Adcock shareholders with a cash bid and now owns about 7% — enough to block CFR when combined with the 22% held by the state pension fund.

 

CFR needs backing from investors with 75% of Adcock in a vote next month.

 

Yet Bidvest’s record is not unblemished: in 2006 it sold its money-losing printing business Lithotech France for a loss of €26m after failing to turn it around. Mr Joffe also walked away from packaging firm Nampak in 2008 after it released a hefty profit warning. The company subsequently revived and its shares trebled.

 

Mr Joffe, who declined to be interviewed by Reuters, was candid about his setbacks in a 2009 magazine interview: "There was a time when the Joffe name might have commanded a premium — but that’s gone now."

 

In a more recent interview with CNBC Africa, he appeared annoyed when asked about charges by CFR that his offer for Adcock would benefit only himself. "That’s a bit rich coming from them, seeing that they control about 52% of CFR and I’ve got about 1% of Bidvest," he said, referring to the Weinstein family, who in fact own about 73% of the business.

 

Reuters

 

http://www.bdlive.co.za/business/healthcare/2014/01/15/bidvest-founder-wants-to-put-joffe-touch-on-adcock

 

 

 

 

[Partner24]

Thank you Ross!

[Ross812]

The South African Rand dropped 24% against the USD today. Bidvest is down 8%.

 

http://www.sharenet.co.za/news/South_African_shortterm_rates_jump_as_market_sees_domestic_rate_hike/74a201296e3de7a8e6cc10346c20d21a

[fareastwarriors]

Ross, what are your thoughts on this EM "crisis" and the depreciating rand? How will this affect BidVest?

[Ross812]

Ross, what are your thoughts on this EM "crisis" and the depreciating rand? How will this affect BidVest?

 

SA is having some trouble right now. Labor strikes, high unemployment, 2013 growth of 1.9%, and now the fed tapering hitting international borrowing. SA increased the borrowing rate from 5% to 5.5% which will ultimately help curb inflation, but stunts their economy even more. Here is a good article about the depreciating Rand:

 

http://www.bdlive.co.za/opinion/columnists/2014/01/28/a-look-at-past-rand-crises-may-provide-some-perspective

 

Bidvest's financial director commented on currency fluctuations last June in his letter:

 

http://www.bidvest.com/ar/bidvest_ar2013/fin-dir-review.php

 

Currency fluctuations are of course going to have an effect on Bidvest, but Joffe has proven to be successful managing currency swings in both directions in the past. 48% of Bidvest's cash flow comes from non rand denominated currency so the European, Asian, and new S. American divisions are going to have a huge windfall from a favorable conversion rate. Bidvest has been growing its non SA divisions the past few years while the Rand was relatively strong and is now pivoting back to Africa with the Adcock acquisition (which would be a net exporter) underway. Overall, I'm not too worried in the long term. I'm confident management will be able to buy SA companies with the foreign earnings at a favorable exchange rate and come out stronger after the 'crisis'.   

[Ross812]

I bought more Bidvest over the past week. The stock is down 30% YoY with no change to its business or growth prospects. 

[frog03]

Ross, what is your 2014 PE estimate for Bidvest?  Thx

[Ross812]

This next earnings report is going to look huge because the Rand had moved down so much with respect to the Euro. I'm looking for somewhere around 18 Rand per share for this year. This comes out to $3.30 per ADR share. I usually add at a P/E of 13.5 or less.

[Ross812]

Bidvest results for the 6 months ended December 31, 2013 are out:

 

http://www.bidvest.com/downloads/pdf/BVT%20H1%20F2014%20booklet%20ABF%2026%20Feb%2021h00%20ex%20Mel%20ex%20cmm.pdf

 

Bidvest once again had a strong semi-annual report:

 

 

10% Revenue and 12% EPS growth on a constant currency basis.

 

I'm going to amend what I wrote for an estimate on 2014 EPS. I'm looking for 17.3 Rand per share which means I'll add a little more when the price dips below $43.7.

 

TTM EPS are at 15.914 Rand per share.

This is $2.98 per ADR share.

 

 

[fareastwarriors]

Ross, anything of note from Bidvest lately?

 

Thanks.

[Ross812]

Ross, anything of note from Bidvest lately?

 

Thanks.

 

I haven't heard too much from Bidvest lately. Bidvest going down ~8% at the same time the Rand was down 12% made for a great buying opportunity back in February! It seems Bidvest is starting to apply their culture to Adcock. Bidvest and PIC replaced the CEO and Board at Adcock.  Brian Joffe, Lindsey Ralphs (CEO of Bidvest's SA division) now sit on the board, and Kevin Wakeford (CEO of Bidvest Travel and Aviation Division) took over as the CEO . They are reshuffling Adcocks corporate structure to look more like Bidvest by separating each unit to provide more transparency and allow the company to be more nimble. Adcock should be accreditive to Bidvest in the next 12-24 months. It looks like Bidvest is looking for some bigger acquisitions. Adcock is roughly 10% of the size of Bidvest by market cap right now but is easily worth 2-3x that when they begin firing on all cylinders and start to leverage Bidvest's network.

[fareastwarriors]

Thank you.

 

Do you follow Naspers as well? I think that company has a great portfolio of assets (pay TV)and their minority stakes (TenCent/mail.ru).

 

 

[Ross812]

Bidvest’s results came out on Monday, 1 September. Overall I was pleased as they beat my earnings estimate by about 4 cents.

 

http://www.overendstudio.co.za/online_results/bidvest/annuals_2014/images/highlights3.gif

 

Headline EPS are the most used metric in South Africa. HEPS are Basic EPS ignoring onetime charges. HEPS and Basic EPS are usually pretty close in Bidvest’s case but in H2 Bidvest took a 1.05B Rand charge off for their acquisition of shares of Adcock Ingram. This amounted to 335.3 Rand per share. Basic EPS were 1462 rand.  This is down ~4.5% from last year.

 

Bidvest had this to say about Adcock:

 

In January and February 2014, the Group acquired an additional 44,5 million shares in Adcock for a consideration of R3,9 billion, bringing its total voting interest to approximately 30,0%. The Group has accounted for Adcock as an associate with effect from March 1 2014. The performance of Adcock has been negative, below expectation and at complete variance to what was portrayed in publicly published information prior to and at the time of our investment. Given ongoing uncertainty around the current trading performance, Bidvest continues to evaluate its position and has not determined whether to take steps to achieve control.

 

I’m a bit surprised they made a mistake of this magnitude on Adcock. I invest with Bidvest because I want exposure to emerging markets, and I want an experienced team to do their research and avoid landmines.

 

On the bright side, my favorite segment of the business, foodservice was up 20+%. Again. As usual. Providing food to the developing world in an efficient utilizing vertical integration is a fantastic business. This leads to an exciting piece of possible news:

 

Bidvest remains conscious of the need to ensure the relevance of our business models and structure in a rapidly and ever-changing global environment. In view of the strategic considerations for Bidvest and the prevailing international equity market conditions, the board has resolved to evaluate the benefits of the listing of the international foodservice operations on the London Stock Exchange.

 

Some googling turned this up: https://www.destinyman.com/2014/09/02/london-stock-exchange-lisiting-for-bidvest/

 

Joffe’s Quotes:

 

“It has been quite complicated to continue to fund significant acquisitions abroad out of the South African balance sheet. Management are quite keen, having now expanded into Europe [and] South America, to potentially get involved in the US,”

 

“The prospects for the group remain positive, supported by the anticipated benefits arising from the significant acquisitions and investments made over the past year. In South Africa, trading conditions are expected to remain tough, compounded by the impacts of a rising interest rate climate, its impact on consumer demand and low economic growth,”

 

“Management is thinking about the US. There are significant regional players there that could give us the opportunity to build a presence in the US. We have some targets in mind. The issue is that you need substantial resources to fund acquisitions in the US. Globally interest rates are low, in SA they are high.”

 

“The business is performing well, markets are buoyant, money is cheap and there has been quite a bit of demand [for a listing]. We are evaluating the option to see if we can unlock shareholder value in the event of it going ahead.”

 

This has the potential to allow investors to buy the best part of the business, and is something to keep an eye on. 

 

On a division level Bidvest did well this year (with the exception of Nambia and Corporate). Excerpt regarding Bidvest Nambia:

 

Results remained under pressure as a result of a lower fishing quota allocation and weak market prices for fish. However, continued gains by commercial businesses underpinned a 10,7% rise in turnover to R4,0 billion (2013: R3,6 billion). Trading profit fell 16,6% to R493,7 million (2013: R592,2 million). A protracted legal dispute impacted the performance of the Bidfish JV in Angola. Sardine businesses performed well. The Namsov horse mackerel fishing business investigated new refrigerated seawater technology. Stronger contributions were made by Freight and Logistics as well as Commercial and Industrial Services. The Steiner restructure delivered the expected benefits, the Waltons turnaround gained ground and Kolok performed strongly. Namibianisation programmes made continued progress.

 

Corporate:

 

Bidvest Properties continued the development and refurbishment of premises for divisional operations, with strong focus on automotive. Cost-cutting continued at the UK-based Mansfield group of automotive, rescue and recovery businesses. At Ontime Automotive the contract was renewed for the UK and European distribution of Lotus vehicles while unit volumes rose on the BMW contract. Significant one off costs relating to the acquisition of Mvelaserve Limited were incurred. Bidvest continues to invest in the promotion of the ‘Bidvest” brand, both locally and internationally.

 

I added in the division contribution to revenue and profit and each subs contribution to the division to make it easier to see how they company is performing as a whole:

 

 

[rjstc]

Bidvest’s results came out on Monday, 1 September. Overall I was pleased as they beat my earnings estimate by about 4 cents.

 

http://www.overendstudio.co.za/online_results/bidvest/annuals_2014/images/highlights3.gif

 

Headline EPS are the most used metric in South Africa. HEPS are Basic EPS ignoring onetime charges. HEPS and Basic EPS are usually pretty close in Bidvest’s case but in H2 Bidvest took a 1.05B Rand charge off for their acquisition of shares of Adcock Ingram. This amounted to 335.3 Rand per share. Basic EPS were 1462 rand.  This is down ~4.5% from last year.

 

Bidvest had this to say about Adcock:

 

In January and February 2014, the Group acquired an additional 44,5 million shares in Adcock for a consideration of R3,9 billion, bringing its total voting interest to approximately 30,0%. The Group has accounted for Adcock as an associate with effect from March 1 2014. The performance of Adcock has been negative, below expectation and at complete variance to what was portrayed in publicly published information prior to and at the time of our investment. Given ongoing uncertainty around the current trading performance, Bidvest continues to evaluate its position and has not determined whether to take steps to achieve control.

 

I’m a bit surprised they made a mistake of this magnitude on Adcock. I invest with Bidvest because I want exposure to emerging markets, and I want an experienced team to do their research and avoid landmines.

 

On the bright side, my favorite segment of the business, foodservice was up 20+%. Again. As usual. Providing food to the developing world in an efficient utilizing vertical integration is a fantastic business. This leads to an exciting piece of possible news:

 

Bidvest remains conscious of the need to ensure the relevance of our business models and structure in a rapidly and ever-changing global environment. In view of the strategic considerations for Bidvest and the prevailing international equity market conditions, the board has resolved to evaluate the benefits of the listing of the international foodservice operations on the London Stock Exchange.

 

Some googling turned this up: https://www.destinyman.com/2014/09/02/london-stock-exchange-lisiting-for-bidvest/

 

Joffe’s Quotes:

 

“It has been quite complicated to continue to fund significant acquisitions abroad out of the South African balance sheet. Management are quite keen, having now expanded into Europe [and] South America, to potentially get involved in the US,”

 

“The prospects for the group remain positive, supported by the anticipated benefits arising from the significant acquisitions and investments made over the past year. In South Africa, trading conditions are expected to remain tough, compounded by the impacts of a rising interest rate climate, its impact on consumer demand and low economic growth,”

 

“Management is thinking about the US. There are significant regional players there that could give us the opportunity to build a presence in the US. We have some targets in mind. The issue is that you need substantial resources to fund acquisitions in the US. Globally interest rates are low, in SA they are high.”

 

“The business is performing well, markets are buoyant, money is cheap and there has been quite a bit of demand [for a listing]. We are evaluating the option to see if we can unlock shareholder value in the event of it going ahead.”

 

This has the potential to allow investors to buy the best part of the business, and is something to keep an eye on. 

 

On a division level Bidvest did well this year (with the exception of Nambia and Corporate). Excerpt regarding Bidvest Nambia:

 

Results remained under pressure as a result of a lower fishing quota allocation and weak market prices for fish. However, continued gains by commercial businesses underpinned a 10,7% rise in turnover to R4,0 billion (2013: R3,6 billion). Trading profit fell 16,6% to R493,7 million (2013: R592,2 million). A protracted legal dispute impacted the performance of the Bidfish JV in Angola. Sardine businesses performed well. The Namsov horse mackerel fishing business investigated new refrigerated seawater technology. Stronger contributions were made by Freight and Logistics as well as Commercial and Industrial Services. The Steiner restructure delivered the expected benefits, the Waltons turnaround gained ground and Kolok performed strongly. Namibianisation programmes made continued progress.

 

Corporate:

 

Bidvest Properties continued the development and refurbishment of premises for divisional operations, with strong focus on automotive. Cost-cutting continued at the UK-based Mansfield group of automotive, rescue and recovery businesses. At Ontime Automotive the contract was renewed for the UK and European distribution of Lotus vehicles while unit volumes rose on the BMW contract. Significant one off costs relating to the acquisition of Mvelaserve Limited were incurred. Bidvest continues to invest in the promotion of the ‘Bidvest” brand, both locally and internationally.

 

I added in the division contribution to revenue and profit and each subs contribution to the division to make it easier to see how they company is performing as a whole:

 

 

Thanks much Ross. Great discussion.

[Partner24]

Regarding the subs, I would be surprised if they would sell them. They have a business model that is quite similar to Berkshire and this have been a subject with Bidvest in the past. As far as I know, Joffe think that the conglomerate as a whole create better value than dividing the parts of it.

 

Good results overall, as usual. Happy to be a shareholder of that business.