The market gave Bidvest the cold shoulder, sending its shares 10% lower, after the services, trading and distribution group delivered a voluntary trading update for the four months to October 31, 2023, saying its performance was “muted”.
By 3.38pm yesterday the share had tanked nearly 10% lower at R244.20. Year to date the share is up 26.41%.
Bidvest CEO Mpumi Madisa said, "Group performance was muted during the first four months of FY24. Whilst the expected slowdown was signalled previously, the actual volume and margin drop, particularly in the consumer-facing activities, was greater than anticipated.“
Overall, revenue growth slowed as activity, off a high base, was diluted by contracting durable consumer spend, volume reduction in some sectors and increased price competitiveness. Travel and hospitality as well as commercial demand for basic products and services were pockets of growth.
Gross margin pressure could not be neutralised by good cost management. Active margin and expense management remained a key focus, Bidvest said.
However, Services South Africa, Freight and Financial Services divisions, delivered a resilient result. Travel and hospitality demand remained healthy as the weaker rand made South Africa an attractive destination.
“Contractual pricing continued to support revenue growth, while contract retention came at the expense of margin, which will be clawed back over time,” it said.
Bidvest said consumable sales and service innovation differentiated the businesses, while structural growth drivers remained intact. Bulk volumes through its terminal operations contracted from peak volumes handled in the prior year.
The benefit of accelerated capital deployment in Bidvest Bank and the endowment effect of higher interest rates was moderated by lower new policy sales in short-term insurance.
However, the trading and distribution operations, which included the Branded Products, Commercial Products and Automotive divisions, came under pressure. Commercial and industrial demand was robust on the back of higher office occupancies and private sector investment.
“Unfortunately, there was little follow through on the initial municipal infrastructure spend flagged at year end. Renewable energy sales, while higher, are well off peak levels as consumer demand is closely linked to load shedding levels, which reduced during the period,” it said.
Meanwhile, the Automotive result was significantly weaker as volumes declined and gross margins contracted.
“Customers remain very price sensitive and operating expense management is, therefore, top of mind,” it said.
Bidvest said in line with normal business seasonality, working capital was absorbed. Inventory levels were higher than desired in Automotive and renewable energy products and would take some time to work down. The debtors book remained well managed.
Returns had moderated from the prior year, but remained healthy and value accretive. There had also been a meaningful increase in net interest charges due to funding for the acquisition of Consolidated Property Services in Australia, working capital and the annualisation of rising interest rates.
Bidvest said in October 2023, it had successfully raised R1.4 billion in the domestic bond market to replace existing maturing bonds.
“We have been actively converting the Groups' M&A pipeline over the past few months. Transactions with a combined value of R3.5 billion have been concluded with most becoming effective in recent weeks,” it said.
Acquired businesses included Consolidated as well as hygiene services businesses in Singapore, the UK, Ireland and Australia, and bolt-on acquisitions in Branded Products, Services South Africa and Services International.
The group said further diversification in the Automotive division continued with the activation of its first Mahindra dealer point, and it awaited closing on other potential transactions.
Discussions were also ongoing with regards to private sector participation in Freight.
“Other potential opportunities have also recently been added to the pipeline,” it added.
Bidvest interims were expected to be posted on March 4.
Wayne McCurrie of FNB Wealth and Investments (@WayneMcCurrie) said on X, “Bidvest trading update. Not good. Services (hospitality, travel, leisure) are doing well, but all others are battling with revenue and margin pressure. Of interest, the renewal energy (solar, inverters at voltex) is doing poorly, off a very high base."
The Passive Income Guy (@hazelwood_dave) posted on X, “Bidvest has been on a spending spree lately & their debt is concerningly high. Now trading is falling off. Seems like poor management to me.”