Bell sees trading conditions improving with elections over
Headwinds and the group’s investment programme have resulted in high gearing, increased inventory levels and reduced asset turnover, investors told
Bell Equipment, the family business that has existed for 62 years, expects the trading environment to improve following peaceful national elections.
Gary Bell, chair of the company that manufactures heavy equipment for use in construction, mining and agriculture, told shareholders at Wednesday’s annual general meeting he expects the difficult trading conditions in SA to improve after a “very peaceful election”.
Bell told shareholders attending the unusually long and engaged meeting that the group’s performance in recent years has been adversely affected by the difficult trading conditions in SA and its rest-of-Africa subsidiaries.
In response to concerns raised by one US-based shareholder, Kerem Aksoy of Glacier Pass Partners, Bell said the difficult trading conditions, combined with the group’s investment programme, have resulted in high gearing, increased inventory levels and reduced asset turnover.
Aksoy indicated to the meeting that the deterioration in these key performance measurements was behind the poor share price performance of the past four years.
“This [Bell’s articulated dump truck] is the best product at the lowest total-lifetime cost in the global market and Bell has been able to increase its market share despite competing with companies that are 100 times its size,” said Aksoy before adding, “but when I look at the share price performance, I see a huge disconnect.”
On Wednesday the Bell share price was trading at R10.14, almost half the level it was trading at in May 2014.
Chris Logan, CEO of Opportune Investments, said at the meeting the share is trading at one-third of its net asset value of R35. “We see huge potential for the share price to move towards net asset value,” Logan said.
He urged the board to consider changes to the remuneration policy that would align executive pay with economic value added rather than just earnings.
“Economic value added is a better indicator of sustainable profit than earnings as it reveals whether or not investments are actually creating value and not just growing the balance sheet,” Logan told Business Day.
Bell CEO Leon Goosen told Askoy the board is comfortable with gearing of 30%-40% and said the increase was necessary to support Bell’s growth strategy.
“We have to invest in facilities and in increased working capital until those facilities are fully operational,” he said.
Struggled to get funding
Goosen added that the tough trading conditions meant many of its customers had to be assisted as they struggled to get bank funding. “This increased our receivables and our working capital.”
Askoy told Goosen he understands the investment cycle but suggested that “as a small player in a very cyclical industry 40% gearing was not appropriate and that the 20% gearing target be re-introduced”.
He said many of Bell’s investments over the past six years had evidently not “yielded results” and urged the board to review the remuneration policy to ensure better returns.
Logan said after the annual general meeting he is encouraged by the board’s willingness to listen.
“It’s unfortunate the remuneration policy was endorsed by 92% of the shareholders, but I remain hopeful of a change,” said Logan who pointed out that the Bell family owns 37% of the shares and US heavy equipment manufacturer Deere owns an additional 31%.