CAPE TOWN - S&P Global Ratings downgraded the long-term national scale rating of Super Group from zaAAA to zaAA due to the effects of Covid-19 and its negative impact on the transport and motor industries worldwide.
Super Group’s short-term national scale rating from S&P was, however, affirmed at zaA -1+, a statement from S&P said yesterday. Super Group’s share price was down 4.15percent to R14.33 early in the afternoon, before closing at R13.94.
S&P said Super Group’s supply chain, transport and car dealership operations in South Africa, Australia and Europe would be hurt by restrictions, weak global car demand and reduced economic activity stemming from the Covid-19 pandemic.
“We expect the resulting drop in revenue, earnings, and cash flow to lead to weaker leverage and cash flow adequacy metrics in the year ending June 30, 2020, with dim prospects for a sharp recovery in 2021,” S&P said.
The Covid-19 pandemic had worsened an already difficult economic and business environment for the automotive sector.
“Furthermore, we expect the pandemic will result in global car sales declining by 15 to 20percent in 2020, before recovering by 5 to 10 percent in 2021.
"In 2019, about 70percent of Super Group’s revenue and 64percent of its operating profit were exposed to the car industry through its supply chain management solutions for carmakers in Europe, fleet leasing activities in South Africa and Australia and dealerships in South Africa and the UK.”
The credit rating agency forecast Super Group’s Supply Chain Europe, Dealerships South Africa, and Dealerships UK divisions would be hardest hit, with revenue likely to fall by more than 20percent in the 2020. SG Fleet and Fleet Africa would be less affected initially, owing to their annuity-like revenue streams, S&P forecast.
Demand for coal-commodity transport in the Supply Chain Africa operation would likely offset lower volumes in Super Group’s commercial and industrial segment, supporting the company’s cash flows until lockdown measures were lifted, S&P said.
“We believe Super Group has sufficient liquidity to weather the next few quarters of weak trading and likely negative free cash flows,” S&P said.