Buy Bidvest

MONEYWEB, Felicity Duncan, 25 August 2004

Bidvest surprised the market with strong results, and there is the promise of more to come

Diversified industrial conglomerate Bidvest confounded expectations and delivered a good set of results for the year ended June 2004, and there are plenty of reasons to expect as good in the future.

Bidvest has been growing for sixteen consecutive years, and the share price has also steadily moved upwards, although its path has been anything but smooth. Following the release of positive results on Monday, Bidvest shares closed at 5850c, and traded as high as 5920c on Tuesday.

Historically, payouts to shareholders have been good. Over the twelve years to June 2004 the distributions per share grew at an annual compound rate of 27%; earnings per share over the same period also grew at 27%. Bidvest shareholders have been rewarded as the company grew.

Bidvest has a price:earnings ratio of approximately 11,8, and analysts predict it will remain at that level this month. That is slightly higher than the two other big industrials: Barloworld is on a PE of 9,5 and Imperial is on 9.4. This could point to the fact that most analysts are confident that Bidvest will continue to perform well. At the least the Bidvest PE is broadly in line with that of similar companies.

What the experts say Investment strategists like the look of Bidvest. According to John Biccard, portfolio manager at Investec Asset Management, Bidvest is a good stock to have in a portfolio. “Bidvest listed in the late ’80s and it went from a very high-growth company to a lower-growth company, and the earnings growth used to be 40,50% per annum in the early ’90s, and flowed all the way to sub-10% last year. I think we have seen the trough of those earnings. And from here the earnings growth, through acquisition and through the offshore businesses, will accelerate again. It is a fantastic cash generator and on a 10 PE and a 5% dividend yield, even at R59, I still think it is a buy,” he said.

Momentum MultiManagers managing director Wayne McCurrie agrees. “Bidvest has exceeded the expectations of the market. Certainly the June 2004 year-end results have come as a positive surprise to the market and consequently we have seen a very sharp rise in the share price. But even at this price, given the details that we know now, if the rand did not work against them earnings would have been up 21%,” he said.

He believes that the prospects for the group are bright. “They have a lot of money, they are going to take up their gearing and, of course, gearing is a wonderful thing. If you take up gearing now at low interest rates, the compounding effect on your earnings can be material if you invest that money fairly wisely, which Bidvest has shown a knack of being quite successful at. But I do not think there are too many opportunities domestically. So I think the focus will be offshore. I think it is still reasonable value, that, at R60,” said McCurrie.

However, speaking on the Moneyweb Radio Breakfast Show, Arthur Buchner of Nedcor Securities gave a word of warning. While he agreed that R60 is still good value for Bidvest shares, he cautioned against buying at that level. “What people must remember is that in doing the Dinatla Black Economic Empowerment deal Bidvest introduced the BDE shares. These shares trade at a discount to the Bidvest shares, and they do not share in the upside above R60. They convert to Bidvest shares in 2006. So what you may see happening is people buying BDE shares at R41 and the price of the Bidvest shares not getting above R60,” he said.

“I would not buy at that level,” he concluded.

Posted in Market commentary

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