JOHANNESBURG - Bidvest shares tumbled nearly 5 percent on Friday after the company released a trading update in which it said it still expected profit to grow, but at a slower pace than last year.
Bidvest said its executive management had briefed stakeholders, including shareholders and financial analysts,
on Friday with regard to the performance of the group for the 10 months ended April 30, 2018.
The group said that overall in the year to date, operating performance had been satisfactory.
“As anticipated, the positive sentiment stemming from the political changes post the December 2017 ANC elective conference has not, as yet, translated to increased economic activity.
“This is also evident in the GDP contraction in the first quarter of 2018.
“Spend at some state-owned enterprises contracted even further as procurement decisions and policies are interrogated and delayed,” according to the company.
It added that despite this background, its trading profit continued to grow, although at a slower pace than that reported to December last year.
“This is testament to the resilience of the underlying Bidvest businesses, tight expense control, strategic measures implemented to remain relevant and competitive, as well as the continuing strong focus of the management team on ensuring an acceptable shareholder return.”
It said the South African operations delivered a solid trading result, which was also partially assisted by the acquisitions of Brandcorp and Noonan.
Volumes
“Given the broad reach of activities, Bidvest has benefited from greater commodity and agricultural volumes in various businesses, as well as the annuity-type nature of many of its operations.”
The group added that contract pricing was very competitive and had challenged margins to some degree.
“Businesses exposed to the infrastructure and construction sectors witnessed further contraction in demand.
“Consumer-facing businesses reported weak results.
“Bidvest has always maintained strong B-BBEE credentials.
“Current demands around economic transformation are varied, and the heightened focus on black ownership presents its own set of challenges.
“The group continues to address this on a basis that is both relevant and commercially sound,” said the company.
Dexter Mahachi, a senior equity research analyst at Momentum Securities, said the ability by big South African companies to build diversified portfolios might help them weather the storm in the current state of the country’s economy.
Mahachi said the key takeaway from the group’s 10-month trading update was that the services division seemed to be the one that was doing quite well, while most of the other divisions had achieved moderate results so far.
“By their very nature, conglomerates such as Bidvest look to build diversified portfolios of businesses which help them to weather any potential economic storms that might materialise.
“As a result, the recent weakness in the economy is not expected to materially affect the performance of the group in the long term because it is well positioned in most of the markets that its operating divisions compete in,” he said.
Mahachi added that new acquisitions made by Bidvest were also expected to add value to the company in the long run, with Noonan delivering an additional foreign currency component to the business’s earnings and revenues.
“On the whole, we see the trading result as being in line with expectations, given the current state of the economy.
“We see other South Africa-based conglomerates as being likely to exhibit similar earnings growth patterns as the South African economy rebounds from the negative quarter of GDP growth,” said Mahachi.