Standard of logistics in South Africa is world class
The South African logistics and transport industry is closely linked to the current state of the economy, and logistics companies, in general, suffered in the past few years. Except for Value Group, the share prices of companies like Super Group, Imperial Logistics, Santova, Onelogix, and Grindrod was a huge disappointment over the past five years. They are priced for more bad news, and price-earnings ratios are below 10.
A good example is Onelogix: In 2015 the share price was almost double what it is trading at now, but profits were only half of what they are now.
The industry is highly competitive and continues to place pressure on operating margins; this emphasises the importance of stringent cost controls and the upkeep of a strong balance sheet. Globally, the logistics industry has also experienced pricing pressures and increased competition.
The recent results from KAP Industrial Holdings showed that its Unitrans division experienced an extremely challenging trading environment. Revenue was inflated by cost recoveries (fuel, wages, tyres).
It was not possible to recover the full impact of higher fuel prices; the average diesel price was almost 20percent higher compared to the previous year. Volume and margin pressure was felt in all areas, a reflection of subdued economic activity.
Super Group has a strategy of expanding its international footprint to buffer against the uncertain South African economy and emerging market turmoil. They recently invested R2.1billion in several acquisitions to ensure future growth. Super Group does not have a set target for its geographical diversity but indicated that they would not be uncomfortable with a 70percent non-South African to 30percent South African positioning. Super Group volumes are likely to remain under pressure in the short term, given the poor economic conditions.
However, management believes that recent contract wins in the consumer-facing operations and the robust African commodities environment, combined with improved operational efficiencies, should support earnings.
Super Group has a 59percent stake in SG Fleet, listed on the Australian stock exchange, worth 1108 cents per Super Group share (40percent of current share price) and trading at a forward price/earnings (* /e) multiple of 9.5 times. There is a slight improvement in the Australian business and consumer sentiment after the recent election and interest rate cut.
Given the current share price, the concerns mentioned are somewhat reflected in the valuation. The Super Group share is trading at a discount relative to historical averages and the lower end of their peers, with a forward * /e of 7 times.
Onelogix has an excellent track-record; the firm has a broad experience in logistics, having been in operation for more than two decades. Onelogix Group has built a strong brand with extensive retail, transport, and other logistics solutionswith an established track record of successful start-up operations and a clearly defined conservative acquisition strategy.
Logistics is a complex organisational operation that requires extensive planning and implementation of complicated processes. The logistics industry is increasingly booming, and South Africa has become home to some of the most successful logistics companies in the world. An industry with prospects and some very attractively priced players on the JSE.
Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity.