Super Group sights on local acquisitions
Company fails to declare dividend as CEO says deal opportunities in country indicate an unsettled market
Transport logistics and mobility company Super Group is eyeing a number of acquisitions in SA, CEO Peter Mountford said on Monday.
Speaking after the release of the company’s results for the year to June, Mountford said he is surprised at the acquisition opportunities that have become available in SA. "This is an indication of a market that is unsettled," he said.
Mountford said that after a quiet financial year on the acquisition front the company is "definitely" considering acquisitions in the new financial year.
The potential acquisitions could provide a much-needed boost to the company’s SA businesses.
Super Group’s consumer-facing operations in SA took strain from the difficulties consumers faced. These included the increase in VAT, fuel price increases and high unemployment levels.
Super Group’s past acquisitions, which saw the company spread outside SA, shielded its exposure to local difficulties in the past financial year as the mining commodity industry in the rest of Africa experienced increased volume growth.
This countered difficulties experienced in SA, Europe and the UK during the year.
Mountford said businesses from outside SA accounted for 47% of Super Group’s revenue, while their share of operating profit was 60%.
Super Group increased revenue 19.4% to R35.7bn. Operating profit was up 15.1% to R2.4bn, while headline earnings grew 19% to R1.2bn. Headline earnings per share were up 15.3% to 332c and operating cash flow grew 21.4% to R3.8bn.
An analyst, who declined to be named, said on Monday the local transport and logistics sector is grappling with the effects of subdued consumer environment and increasing fuel costs. "The advantage of Super Group is that they can acquire the smaller players," the analyst said.
Super Group did not declare a dividend. Asked about the company’s dividend policy, Mountford said that with a gearing of 25%, Super Group prioritises organic growth, acquisitions, share buybacks "and dividends". He said the company considers dividends every year.
In October 2017, Super Group raised R500m through an accelerated bookbuild placement of 12.4-million shares at R40.25 per share in order to fund the acquisition of a higher stake in SG Fleet Group.
The analyst said Super Group prioritises acquisitive and organic growth over dividends. "That is what sets them apart from a company like Imperial, which declared dividends. That is the reason why the Super Group share price is trading at a discount [to net asset value]. Their shareholders rely on the share price growth," she said.
As a result, she said, Super Group management has to justify at results the performance of acquisitions. "They have to give a justification for not declaring a dividend," the analyst said.
Mountford said the company prefers organic growth to acquisitions because it is simpler to implement. "With organic growth you can build a business that you already know. You know your business better than somebody else’s," he said.
Mountford said the company has mixed views on the economic conditions and prospects for its businesses for the coming financial year.
"Locally, despite new political leadership, policy uncertainty remains extremely negative and there is still no indication of economic stimulus or encouragement of investments.
"SA consumers are under even more pressure and therefore we expect the low growth rates to persist," he said.