Mr Price

By Ron Klipin

03 DECEMBER 2021

Mr Price

HY 2021

  • Mr Price released a solid set of interim   results for the six months to September 2021, despite the challenges from   Covid-19 which mainly impacted the first quarters’ results. Supply chain   disruptions and a downturn in consumer spending were major impediments. Other   challenges, include the looting of 111 stores in KZN and Gauteng, resulted in   a loss of R320m, equivalent to 3.7% of sales.

  • Despite the many   obstacles facing the company, such as manufacturing costs rising 8.1% year on   year in October 2021, Mr Price was able to keep to its formula of low prices   as a discount fashion retailer, with the flexibility of reducing margins on   selected product lines.

  • Robust growth in revenue   of 35.2% to R12.4bn resulted in operating profit increasing by 48.9% to   R1.7bn. HEPS rose 33.7% reflecting an outstanding delivery by the management   team of this quality diversified retailer.

  • Strong cash generation,   aided by the 85.7% largely cash-focused nature of its business model, enabled   the company to declare an interim dividend per share of 282c per share, an   increase of 34.4% compared to the 2020 interim dividend.

  • This increase was   achieved despite capex for the continuing rollout of new stores and   acquisitions. The most significant buyout was Power Fashion, which still   resulted in closing cash on the balance sheet of R3.9bn at the end of the   interim reporting period. The Power Fashion acquisition fills a gap in the   group, enabling it to increase its presence and volumes in the lower LSM   markets.

  • Mr. Price’s apparel   division has gained market share for 19 consecutive months with its offering   of discount merchandise and fashion at affordable prices, which highlights   the strength and defensive nature of its largest and most profitable business   segment.

  • Around 40% of its   merchandise is sourced in SA which should be a positive aspect, resulting in   a more flexible supply chain with rapid merchandise delivery in a world with   global supply concerns.

  • The strong brand of the   Mr Price group is legendary, and the company is classified in the top 20   brands in SA, with a growing following by the Brand Z index.

  • Capital allocation and   acquisitions indicate a proven track record, despite some glitches along the   way.

  • Share buybacks totaled   R165m in 2021.

  • Mr Price has a clear   vision and strategy, and is well-stocked for the festive season. However, it   faces the challenging balancing act of passing on costs to protect profit   margins, and keeping prices low. Mr Price is exploring new market niches such   as school uniforms and baby clothing where it believes it can grow and   synergize its existing business operations. There has been speculation that   Mr. Price was involved in a bid for Long-4-Life’s sports division, consisting   of Sportsman’s Warehouse and Outdoor Warehouse, which would be a good fit.   This is part of the acquisition philosophy of the group to build on the   existing core operations using a strong balance sheet. This could be a   positive for the group, should a deal materialize.


By Ron Klipin

26 NOVEMBER 2021


FY 2021

  • Barloworld reported   a blockbuster set of results that ticked all the boxes as the group recovered   from the low point of the global downturn caused by the Covid -19 pandemic.   Barloworld has over the past few years undergone major restructuring which,   in addition, has been responsible for the turnaround in the company’s   fortunes.

  • The Caterpillar equipment operations surged due to the strong demand   for commodities in SA, Russia and Mongolia, contributing approximately 70% of   group operating profits in excess of R4 bn. This division has high margin   parts and services revenues, which was a major profit driver in the current   year.

  • A strong order book for equipment in the region of R4 bn for 2022 is   already secured, and should be a positive catalyst for the next financial   year. The turnaround in the car rental and leasing segment, previously   battered by the falloff in tourism, reflected an operating profit of R850m,   compared to a loss of R302m in the previous reporting period. This was also a   function of downscaling of the AVIS fleet. This division’s operating margins   jumped by 340%, with FCF up by 223%, on a rise in   revenue of only 3.5%. It benefited from the leverage of a lower cost base and   stronger pricing on the back of buoyant demand.

  • The Avis operations have been earmarked for disposal, with the sale   closing in 2022, and is part of the strategy of selling low margin capital   intensive businesses. It was the same strategy followed in the exiting of the   loss-making logistics division.

  • The grain, food and starch operations purchased from Tongaat made an   operating profit of R534m, and is part of the strategy to double the services   contribution to the group by 2026.

  • Group operating margins grew by 450bps, with FCF conversion of 92%   vs that of 69% in the previous year. EPS was 1391c compared to the previous   loss of 1236c, which enabled the group to pay a special dividend of R11.50   per share. This special dividend reflects the strengths of the balance sheet,   and the good capital allocation investment strategy (and good execution of   acquisitions).

  • The equipment division, with its geographic and commodity   diversification, are a sound long term theme, which should be positive for   Barloworld, as well as growing rand hedge income. Barloworld’s forward PE   rating of 12x, does not appear to be onerous given proactive management   results.


By Ron Klipin

01 OCOBER 2021


FY 2021

  • Bidcorp,   the global food service business, has just released an impressive set of   results for the year to June 2021. They come despite major challenges from   Covid-19, which resulted in lockdowns in the all jurisdictions in which   Bidcorp operates.

  • The UK was hardest hit with nine months of lockdowns, and now seems   to be in turnaround mode despite supply chain headwinds caused by labour   shortages, transport bottlenecks, cost pressures and skyrocketing energy   prices.

  • The company believes that it should be able to pass on most of the   higher food prices as economies reopen. Europe experienced a rebound in most   sectors during summer with local tourism buoyant. The Australian-New Zealand   operations, an important part of Bidcorp group operations contributing 50% of   group trading profits, showed strong growth to the end of June 2021. However,   the subsequent lockdowns in Sydney and Melbourne, coupled to the lack of   interstate travel, has in the short term resulted in a downturn in business.

  • The geographic spread of the group’s operations encompasses all   continents except North America and ranks in the top three players in the   global food services market. This diversification has stood Bidcorp in good   stead, enabling it to show quality results throughout the ups and downs of   the businesses cycles.

  • This quality is reflected in the recent results, where outstanding management   enabled the company to accomplish bottom line growth in HEPS of R868.4c, up   by 21.8%, despite a decline in revenue of 4.8% to R114.8 bn. Trading profit   increased by 17.7%, with working capital days seven days better, and cash   generation of R7.7 bn. Free cash flows were impressive coming in at R4.7 bn   versus R2.0 bn in the comparative period in 2021. This is the result of sound   management as well as proactive initiatives.

  • Hong Kong, China, and Singapore had various challenges due to   Covid-19 variants, as did South America. Chile and Brazil’s results were,   however, sound. Bidcorp ended the year with a strong balance sheet, with cash   and cash equivalents of R8.1 bn from R7.0 bn in 2020. The company maintained   its gross profit margin of 24%, and reduced finance charges by 10.3% and   13.4% in operating costs. This enables Bidcorp to make acquisitions and   increase dividends in the future. This is evidenced by the declaration of a   final dividend of R4.00 after passing on the interim dividend previously. One   blemish on the otherwise great set of results was a loss of R694 m suffered   in the Chinese business operations. This was relatively insignificant in the   overall context of the group.

  • The group’s business model to focus on fresh, chilled, and frozen   foods in the hospitality industry should enable it to capitalise on growth   opportunities in a fragmented food services market. The management team has   consistently bedded-down bolt-on acquisitions which have been earnings   accretive. Despite volatility and uncertainty caused by the ongoing Covid-19   pandemic, Bidcorp remains optimistic for the prospects of the food services   industry. We have been long term investors in Bidcorp shares for our   portfolios and remain invested in this quality counter with its exceptional   Rand-hedge attributes.


By Lee Kern



FY 2021

  • AVI, the producer of food, snacks and beverages, as well as footwear, apparel and personal care items, reported results for the year ended 30 June 2021 earlier this week. Group revenue increased by a lower-than-expected 0.5% to R13.27 bn due mainly to higher sales volumes at I&J and higher selling prices generally. Selling price increases were taken to offset the impact of higher raw material prices. These price increases across the group were supported by a tighter management of discounts, which was offset by volume declines in most of the business. Export sales in I&J did however benefit from the impact of the weaker Rand. As a result group gross margins came under pressure, falling 90 basis points to 39%. 

  • Group operating profits rose 3.2% to R2.41 bn, higher than in the 2020 period but below the 2019 levels before the pandemic. Selling and administrative expenses fell 5.4% in the period, and as a result operating profit margins jumped 50 basis points to 18.2%.

  • This set of results did not reflect the recovery many other companies experienced over last year when the pandemic hit. However, AVI did have a higher base, and these results cement its track record of resilience throughout the Covid-19 disruptions.

  • The group recorded an overall increase in earnings, although the segmental performance remains behind the pre-Covid numbers. Part of this dip in sales experienced in the recent period was a normalisation from the very high demand seen in the initial lockdown period for food stuffs and beverages.

  • Food and beverages, which includes Entyce Beverages, Snackworks, and I&J saw revenue rise 1% to R10.65 bn y-o-y for 2021. Operating profit was up 1.7% to R2.03 bn. Fashion Brands, comprised of personal care and apparel, had revenues fall 1.8% to R2.62 bn. Meanwhile operating profit for that segment jumped 13.7% to R400.8 million as lockdown restrictions eased verus the year-ago period.

  • The pandemic continues to have a material impact on demand for Ciro’s out of home coffee solutions business, and some of Indigo’s personal care categories, however the impact of the third wave on operations has not been significant, and AVI said it hopes to sustain operations without material disruption in the year ahead. Ciro is recovering gradually, in line with the opening up of the hospitality, leisure and tourism sectors. I&J experienced fewer operational disruptions from COVID-19, and therefore better fishing vessel availability in the period.

  • Net finance costs for the group fell 40% which helped push HEPS higher. HEPS were up 6.2% to 499.9 cents, the midpoint of guidance. A final dividend of 275 cents per share was declared, up 6.1% - as was a surprise special dividend of 280 cents per share, bringing total dividends for the year to 715 cents, ahead of consensus expectations. This highlights the remarkable cash conversion (of 100%) during the past five years, which has allowed the company to maintain a dividend policy with an almost 100% payout ratio.

  • AVI is a high quality company and an exceptionally well run business. It did provide a cautious outlook necessitated by higher raw material costs, with gross profit margin pressure being a concern. But despite the tepid results, and below par guidance, AVI is likely to attain high single-digit earnings growth and maintain its dividend. The company also has a healthy balance sheet in spite of the special dividend, and is a share I am comfortable adding into weakness for local portfolios.


By Ron Klipin



FY 2021

A   stellar set of results for the Shoprite Group, South Africa’s largest   supermarket retailer. It is a reflection of its successful investment in the   ShopriteX software, which has enabled it to launch its Sixty60 e-commerce   service in addition to many other aspects of its operations - such as its   Xtra Savings Rewards Program which has reached 20.3 million clients,   significantly above that of its peers.

Shoprite   confidence in the ongoing transformation of its business model is reflected   in the recent release of results for the year to 30th June 2021. This is on   the back of 27% growth in diluted headline earnings per share to 890c.

It   exhibited strong sales from continuing operations of 8.1% to R168bn, with the   RSA supermarket representing 79.7% of group sales.

Robust   cash generated from operations of R16.1 bn resulted in a major reduction in   debt. Trading profit increased by 24.9% to R10.3 bn, due to robust sales   growth, and aided by a solid increase in gross margin expansion of 55 basis   points to 24.5%.

A   strong balance sheet, with sound capital allocation returns, resulted in ROIC   of 12.4% from 9.7% in 2020. The debt to equity ratio of 24.9% is below the   group target of 25% to 30%.

Shoprite’s   operating margin of 6.1% is more than double that of Pick &Pay or Spar,   as well as beating global peers such as Walmart (3.3%), and the German   discount supermarket at 3.9%. This reflects the growing efficiencies brought   about by digital transformation, with areas like supply chain, inventory   management, e-commerce and the mushrooming growth in the loyalty rewards   schemes bearing fruit.

The   groups’ mobile app is now SA’s top grocery app with more than 1.5 million   downloads. Checkers’ value for money offerings, which enable users to track   the progress of their order status, is now operative in 233 stores.

The   recent acquisition of Massmart’s Cambridge food division will serve the lower   end of the Shoprite and Usave divisions with affordable merchandise.   Management believes that they can use their expertise in this sector of the   market to turn this this loss making operation around.

Furniture   showed growth of 13.5%, and other operations, such as the OK Franchise,   MedRite Pharmacies, Checkers Food Services, and Liquor operations, reflected   good growth despite lockdown challenges.

Pieter Engelbrecht, group CEO, stated that Shoprite has stolen   market share in South Africa for 28 months, which is reflected in the recent   results. The share price has re-rated by around 37% year-to-date, a   reflection that management strategy has proved to be successful, and that the   transformation is not yet complete. I have been invested in the share over   the past year in segregated portfolios, and remain a long term investor in   Shoprite shares.


By Roy Topol



FY 2021

  • Impala Platinum reported record breaking results this week for the year ended 30   June 2021.

  • Headline earnings increased by 125% year-on-year on the back of   record PGM prices and an improvement in output.

  • Production volumes of refined 6E PGM was up 16% as sales volumes   increased 17%.

  • The group recorded a net profit of R37.9bn, free cash flows of   R38.3bn and paid out R18bn in dividends to shareholders for the financial   year.

  • In addition, Impala repurchased its convertible bonds giving it a   strong debt-free balance sheet. It is now sitting with an extra R23.5bn of   net cash.

  • The average price received for a 6E basket was $2587 per ounce.

  • Rhodium was by far the biggest contributor to earnings growth, and   with rhodium prices having fallen more than 30% from their highs earlier this   year, the market may be stamping these results as peak earnings.

  • Interestingly Impala said they were first platinum miner to   vaccinate all of their staff. And with the share trading on just 4x earnings   with a 10% dividend yield, there is margin of safety buying Impala at these   levels, with the possibility for significant growth should platinum prices   continue to remain elevated.

Super Group

By Ron Klipin


Super Group

FY 2021

  • Super  Group, a global diversified operator in the logistics and automotive sectors,  released a robust set of results this week for the full year ended 30 June   2021. This was subsequent to a major decline in business activity over the   past year due to the COVID-19 pandemic and ensuing lockdowns, which caused  havoc for the group and the economy at large.

  • The South African business suffered significant disruptions in their   logistics operations in areas such as liquor, quick service restaurants,   hospitality, and leisure, as well as at motor dealerships. Similar challenges   prevailed in the UK, EU, and Australia.

  • Management utilized this period to reduce costs, downsizing some of   the businesses divisions such as the European supply chain, consumer   logistics operations, and dealerships. This was spurred by an uptick in   revenue resulting in substantial leverage benefits with a 44% increase in   operating profits from R1.578 bn, to R2.273 bn.

  • The benefits of this strategy are amply reflected in the fact that   revenue grew by only 14% from R34.6b to R39.5b resulting in HEPS rising by   89% to 285c per share.

  • In addition, the once off costs in 2020 such as impairments of   intangible assets, goodwill and properties, which resulted in an EPS loss of   52.1c per share in 2020, were not repeated in 2021. This was due to proactive   interventions of management and an uptick in demand.

  • Some of the businesses such as the Africa logistics operations are   still facing challenges, with lower commodity volume exports as result of   border disruptions. However, the South African operations in terms of volume   growth in most of the logistics operations, such as commodities and consumer   operations showed a healthy turnaround in profitability.

  • The motor dealerships in all the geographic jurisdictions saw a   major increase in demand, especially in the used motor vehicle markets, off a   depressed base, with strong revenue and margin expansion.

  • Cash generated increased by 11% from R4.30 bn to R4.78 bn. With a   strong balance sheet Super Group declared a dividend of 47c per share after a   prolonged period of bypassing dividend payments in favour of expansion and   acquisitions.

  • Net debt to EBITDA of 1.6x vs 1.26x in 2020, was well below the debt   convenance of 2.3x, despite R2.5bn in capex and acquisitions. This buoyed   pre-tax profits to R177.4 bn vs that of R117.6 bn in 2020.

  • The European divisions operating profits increased by 212% due to   restructuring initiatives and cost savings. Once again proactive management   rightsized the operations as a result of a change in the business   environment, which should prove positive in the future SG Fleet Australia, a   provider of fleet management and leasing services to corporates and   governments. It has already seen a steady recovery to pre-pandemic levels.   Super Group recently acquired 100% of Lease Plan Australia for AU$ 384m,   resulting in its investment in SG Fleet increasing from 59% to 60.1%.

  • The group’s revenue from its non-South African business was 51% in   June 2021, vs 46% in June 2020, with operating profit reaching 51% from 43%   previously. SG Fleet is quoted on the Sydney Stock Exchange, and is a growth   segment of Super Group, providing rand hedge exposure for the group.

  • Management have a proven track record in terms of delivery and the   subsequent turnaround of the company over the past few years. They have built   up critical mass in the various silos of the group as well as global   diversification, throughout both positive and uncertain economic cycles. The   current share price of R32 puts the company on a PE OF 11.2x, and represents   an attractive entry level for patient investors. It also has the prospect of   a growth in dividends, which have recently been resumed, as well as tailwinds   from the opening up of global economies.


By Ron Klipin

25 JUNE 2021


Results for the Year Ended March 2021

  • Omnia   is a manufacturer and dealer of a range of products to the agricultural,   mining, and chemical sectors in South Africa, in addition to a growing   footprint in West Africa, Indonesia, Australia, and North America, with the   same customer as its local operations.

  • Strong tailwinds as a result of a bumper agricultural season and a   commodity boom resulted in a significant turnaround of the company’s   fortunes, from a highly geared operation to that of a strong balance sheet.

  • Cash on hand for the year ended 31st March 2021, swung from a debt   of R1.9bn to a positive balance of R1.3 bn assisted by the chemical product   profile of its customer base. This was a massive achievement in the face of   the prevailing Covid-19 pandemic conditions.

  • A new management team was instrumental with a disciplined approach   to costs, which saw a working capital reduction of 24% with curtailed capex   management. This resulted in margin expansion and strong cash generation in   addition to the sale of the non-core Oro–Agri operation.

  • The new CEO Seelan Gobalsamy, said that “nothing has been normal.   It’s been a topsy turvy time and this is a credit to the quality of   management execution in abnormal times - aided by a R2 bn capital raise   during the past year.”

  • The geographic expansion is a positive for Omnia, with a resumption   of global growth in its core areas of operations such as mining and   Agriculture. Global growth prospects for its operations look positive.

  • The strong balance sheet, due to proactive management, will enable   Omnia to gradually grow its presence in existing markets where it already   operates outside of SA, in the areas of its core operations in the mining and   agricultural segments.

  • Such was the success of the turnaround and cash pile on the balance   sheet, that the company has announced a distribution to shareholders of R1bn   in the form of an ordinary dividend of R2.00 per share and a Special dividend   of R4.00 per share.

  • This constitutes the resumption of dividend payments after three   years of no dividends payments. This was due to the highly indebted position   of the company under the previous regime which went on an extensive expansion   in a period of major global downturn, and was impacted by the prevailing   Covid pandemic. Management believes that there is still work to be done to   enhance profitability and dispose of assets such as property and other   non-core assets, with a focus on increasing returns on invested capital.

  • The company operations are cyclical and investors should be aware of   the volatility impacting on the groups’ operations. However, the company is a   high quality business, with strong cash generation, prospects of global   diversification, a competent management team, and can be accumulated in   period of market weakness. The PE ratio of around 14.6x is not onerous, with   the prospects of attractive dividend and a market cap of R9.3bn.


By Ron Klipin

18 June 2021


Strategy Update

  • Exxaro   group CEO Mxolisi Mgojo says the company has developed a new and sustainable   strategy as they continue to embark on a transition to a hybrid renewable   energy business, diversifying away from fossil fuels.

  • This shift, due to climate change, will involve major complexities   as well as opportunities as the company’s two wind farms generating a   combined 229MW in renewable energy will become its second core business. This   follows the completion of the acquisition of Tata Powers’ shareholding of 50%   for around R1.7bn.

  • The operational and financial excellence of Exxaro has resulted in   the S&P Global Ratings Agency upgrading the company’s credit rating   despite the challenges of dealing with the its largest and most unpredictable   customer, Eskom.

  • The company has not experienced major delays in terms of late   payments or a reduction in sales in 2020, despite the pandemic lockdowns.   Simplifications to the business model, with the sales of the Tronox non-core   assets and the pending sale of its Black Mountain operations, should be seen   as positive. This should result in a boost to positive cash flow. They will   utilize the proceeds for investment in core operations. Demand for thermal   coal in SA as a baseload for energy generation is likely to prevail for the   immediate future. This is despite the accelerated growth of renewable energy   following the positive recent announcements of additional offtakes by the   private sector for internal consumption.

  • Buoyant demand in the export market by China, India, and other Asian   markets has resulted in increased seaborne coal prices, aided by China   boycotting Australian coal. The strong balance sheet has resulted in the   S&P expecting Exxaro’s debt metrics to continue to support its   creditworthiness for the next three years, with capex estimated to decline to   R2bn by 2023.

  • This should lead to a boost in free cash flow in the next two years,   enabling a growth in dividends, and or share buybacks. This will be aided by   a robust flow of dividends from its investment in Sishen Iron Ore.

  • The results to December 2020 are a proxy for the interim results to   June 2021. Exxaro had strong cash generation, up 47% to R7.8b, EBIDTA   increasing 22% on the back of robust commodity prices, and a final dividend   of R12.43 per share paid. That is in addition to a special dividend of R5.43,   reflecting robust financial metrics.

  • The current share price of R159.00 mirrors a negative outlook for fossil fuels, particularly in the case of coal, with major global investment into renewables such as solar, wind, and hydro, outpacing dirtier technologies. The share price at R160.00 looks attractive on a PE of 5.8x, a dividend yield in excess of 12% (excluding) special dividends, and estimates of fair value of R200.00 per share.

British American Tobacco

By Lee Kern

11 JUNE 2021

British American Tobacco

Pre-Close Trading update

  • British   American Tobacco released a trading update ahead of its closed period   commencing 28 June 2021. The company owns traditional cigarette brands such   as Lucky Strike, Pall Mall, Dunhill and Kent, as well as new generation   smoking technologies like Vuse, glo, and Velo.

  • BTI upgraded its constant currency revenue growth outlook to over   5%, above previous guidance of 3-5%. The company has made market share gains   in combustibles and in each next generation product. Whilst the combustibles   category still makes up the largest revenue component of BTI, the update was   positive for growth in Next Generation Products (NGP). BTI grew   non-combustible products by 10% (1.4m consumers) in Q1, to reach a total of   14.9m. Their New Category products are now sold in 74 markets across 53 countries.

  • In the vapour category (a device which heats a liquid), BTI’s Vuse   reached 31.4% market share in the Top 5 vapour markets by April.

  • The Tobacco heating Product (THP) category (which are sticks heated,   instead of burnt), glo achieved strong volume share growth in Europe and   North Africa (ENA) driven by Hyper, with continued positive volume share   momentum in Japan. glo’s THP category volume share of consumables in the Top   9 THP markets reached 16.2% in the period ended April.

  • The Modern Oral category (in which pouches are placed under the lip)   saw BTI’s Velo brand consolidate volume share to reach 40.2% of the Top 5   markets in April. A strong performance coming from the US, Sweden and Norway   for that category.

  • Expectations for mid-single digit adjusted diluted constant currency   EPS growth remains unchanged. Forex is however now expected to be an 8%   headwind at EPS level from 7% previously. The company is not expecting a   recovery in Global Travel Retail until 2022. Leverage guidance was also   unchanged and is expected to reduce to around 3x Adjusted Net debt / Adjusted   EBITDA by year end.

  • There was also mention of Environmental, Social and Governance (ESG)   being an important strategy, with the company having set specific goals (and   social benefits) to achieve a carbon neutral objective by 2030. ESG has been   an important theme, with companies who are not ESG compliant being denied   funding by banks and excluded from certain indexes and funds. BTI’s Vuse   product was independently confirmed as the first global carbon neutral vape.   Refinitiv ranked BTI as the third highest ESG-rated FTSE100 company recently.

  • British American Tobacco is a high quality business which is trading   at a discount to fair value and is on PE multiple of 10. The update did not   highlight any major changes to the outlook. Despite a lack of a catalyst to   drive the share price currently, the dividend yield of 7.5% and stable   earnings growth are attractive. Perhaps once debt levels improve the company   could embark on share buybacks. An improvement in EM currencies would be   beneficial, as would a postponement of any legal challenges banning Menthol   products. We are holders of the stock in local portfolios, and added to   holdings recently at these levels. We do however prefer Phillip Morris International   for offshore portfolios and for the Cratos BCI Worldwide Flexible fund.


By Ron Klipin

11 JUNE 2021


Trading Update for the Ten Months to April 2021

  • Bidcorp   the global food service group that specializes in foodservice solutions,   including fresh, chilled and frozen foods, released a positive trading update   for the ten months ended April 2021.

  • The company’s sales appeared to be largely in line with market   expectations, with the UK and Europe showing a significant turnaround in May   thanks to the lifting of lockdown restrictions. In addition they had a robust   recovery in Australasia, with sales achieving between 89% and 99% of normal   demand during the third quarter.

  • Emerging markets were impacted by Covid for a longer period, except   for Greater China which made a quicker recovery.

  • Management seems to be confident that it is benefiting from an   increase market share in the jurisdictions in which it operates. The results   were also buoyed by a recovery in demand in discretionary spend, despite an   operating environment that remains volatile and challenging.

  • Gross profit margins have been largely maintained at similar levels   to the comparable period in 2020.

  • The groups net debt at 31st May of R138m which was R229m better than   in the prior period, and the Bidcorp debt coverage of 2.5x, was well within   the covenant range.

  • Bidcorp is a mix of small independent customers, which proved to be   a resilient plus factor, whilst the addition to some gains in the food chain   operators should prove beneficial in the longer term.

  • Although the acquisitive activities remain muted, a number of   bolt-on deals amounting to around R200m were concluded. There is a potential   for further opportunities, facilitated by a strong balance sheet, once global   conditions stabilize. Operating challenges still remain due to ongoing   government interventions, making it difficult to confidently predict levels   of sustained activity.

  • The share price has strengthened following a quality set of results.   Bidcorp has had a long history of strong sustained profit growth delivery as   well as predictable execution. It has experienced growth both organically and   thanks to their global acquisition strategy.

  • The market cap of Bidcorp is R102bn, and it is a pure Rand hedge   investment (except for a minute contribution from SA), which should also   benefit from rising global food prices. We are and remain long term investors   in this quality company, which can be bought into any major weakness in the   share price


By Roy Topol

04 JUNE 2021


Results for the 6 Months Ended March 31 2021

  • Nampak   reported an excellent set of interim results for the period ended March 31   2021. All 3 of their divisions were comfortably profitable and cash flow   positive.

  • Nigeria performed particularly well, with the company able to   repatriate a material amount of cash (R848m) from Nigeria and Angola, which   helped them pay down debt.

  • Total company debt was reduced to R5.8bn from R8.5bn over the   period. Nampak managed to comply with all group funding covenants over the   two quarterly measurement periods. Net debt/EBITDA was 3.72x as at 31 March   2021, remaining below the 5.25x maximum threshold. This is an improvement   from 4.48x as at 31 December 2020. EBITDA/interest cover came in at 3.08x as   at 31 March 2021. This exceeded the required 2.25x minimum cover and was also   an improvement on 31 December 2020’s figure of 2.62x.

  • Nampak stated that the next 6 months are expected to be very strong.   One major potential issue is in the below comments with regards to their debt   profile. This is something the market is certainly concerned about and is   likely the reason for the recent fall in the share price:

  • "The group’s debt funders require a R1 billion reduction of   interest-bearing debt by 30 September 2021, through strategic asset disposals   or a combination of asset disposals and a capital raise. During the   de-gearing process, set milestones needed to be reached. Nampak has met all   agreed milestones to date. The milestone requirement for binding offers   amounting to R1 billion by 31 March 2021 was reduced to R400 million, as a significant   asset had to be withdrawn from the disposal process after the licensor   critical to the business objected to the potential transaction. Based on   improved operating results and progress made in our disposal process to date,   the lenders have agreed to reassess the group’s position at 30 June 2021.   This will allow the lenders to determine whether the repayment of R1 billion   as at 30 September 2021 can be reduced and/or whether there will be a   requirement for a potential capital raise."

  • Using their recent results as a base, Nampak should be able to   comfortably generate in excess of R300m in free cash flow for this financial   year (potentially a lot more). My view is that they will be able to extend   the R1bn debt cut-off deadline for another 6-12 months. This would mean that   the chance of the dreaded rights issue may be lower than the market is   currently pricing in. Assuming there isn’t a rights issue, there is   significant upside from these levels of around R2.50.