Super Group share offers decent value
The group has a strong footprint in Africa, with operations in Mauritius, Zimbabwe, Zambia, Malawi, Mozambique, Democratic Republic of Congo and Ghana. Its principal operating activities include supply chain management, dealerships and fleet management activities.
Super Group is essentially a supply chain mobility company revolving around the optimisation of supply chain processes and vehicle fleets with a strong IT focus and technology underpin. It encompasses the planning and management of all activities across the supply chain, from sourcing, procurement, transport and warehousing to the distribution of goods and services. This is made possible through co-ordination and collaboration with our valued channel partners; be they suppliers, intermediaries, third-party service providers or customers.
Super Group integrates supply and demand management within and across companies. Super Group is expanding internationally and increasing its geographic footprint as well as offshore earnings. Revenue and operating profit from non-South African businesses now comprise 49 and 50 percent respectively. The results for the six months ended December 31, 2018, were excellent, mainly attributable to the ongoing strong performance by the commodity business within Supply Chain Africa. This division contributed 30 percent to revenue and 36 percent to operating profit.
Revenue increased by 27.20 percent to R5.92 billion on the back of strong performance in all the mining commodities businesses. The return in equity increased to 15.70 percent thanks to the improved performance in the commodity operations and cross-border transport businesses. The weighted average cost of capital is 12.20 percent.
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 strong African commodities environment, combined with improved operational efficiencies, should support earnings. Government and SOC tenders were scarcely released leading up to the National Election, and the roll-out of existing contracts remain slow.
The net debt to equity of 25 percent shows a strong financial position with an acceptable level of gearing. The experienced management team expects Supply Chain Africa to continue reaping the benefits from the positive commodities cycle.
Decreasing consumer spending and the uncertain political environment impact the consumer-facing and other supply chain businesses, keeping them under pressure. The group's 57.5 percent stake in SG Fleet, listed on the Australian stock exchange is worth 974 cents per SPG share and is trading at a historical Price/Earnings multiple of 9 times. The tough Australian consumer environment is expected to remain a headwind, but balance sheet risk seem to be low. The European supply chain businesses continue to face a number of uncertainties, which is impacting its outlook.
The concerns mentioned above are fairly reflected in the current valuation. It is trading at a discount relative to historical averages and the lower end of peer multiples. Trading at 1.2 times its net asset value and a forward Price/Earnings of 10 times, the share seems to offer decent value.
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. Super Group shares are not held personally or on behalf of clients.