BIDCORP: Big, but with room to grow
"We know where we are going and we know how to get there," Bidcorp CEO Bernard Berson proclaimed at a recent capital markets day presentation.
His confidence in the global food services giant’s future is well founded.
"Food services is a growth industry," says Evan Walker of 36One Asset Management. "Millennials in particular like to eat out and are very experimental with food."
This showed in Bidcorp’s results in its year to June, when group revenue in constant currency terms was up 4.6%. However, this figure did not do the company’s performance justice: if low-margin business areas that were sold during the year were excluded, revenue in constant currency terms was up 8%.
That’s not bad going at a time when global inflation is running at 3%, according to International Monetary Fund estimates.
Selling lower-margin businesses has been an ongoing process at the company for a number of years. "Bidcorp has been very clever," says Nadim Mohamed of First Avenue Investment Management. "It realised that better margins were to be had supplying independent smaller and midsize players than big customers who squeeze it on price."
According to Berson, 56% of Bidcorp’s sales volume was generated by independents in its past financial year, up from 51% in the previous year.
Bidcorp proved the value of its strategy in its past year, with rising margins helping to lift constant currency headline EPS (HEPS) 19.1%. In rand, HEPS lifted 9.4%. Though the company reports in rand, Berson noted that SA today accounts for only about 10% of group profit.
Bidcorp came into being as a separate entity on May 30 2016, following its unbundling by Bidvest. The move has been a resounding success for shareholders. Just prior to the unbundling, Bidvest’s market cap was R121bn. Today the combined market cap of the two companies is R163bn, with Bidcorp making up R93bn and Bidvest R70bn.
Bidcorp’s roots are South African and go back to the founding of Bidvest by Brian Joffe in 1989. Armed with capital of only R8m he chose food services as the foundation of the group.
Joffe parted company with Bidvest in August, resigning as a nonexecutive director. But his ties with Bidcorp, where he is nonexecutive chairman, remain strong. "It’s my baby," Joffe said of the company at its interim results presentation in 2017.
As the world’s biggest food services company outside the US, Bidcorp has grown into a very big baby. Operating in more than 30 countries on five continents, its annual revenue is R131bn. It serves more than 300,000 customers through 260 warehouses with a combined floor space of 1.3m m².
Big it might be, but there is still plenty of room for growth.
"We may have been around for three decades but we have never been a boring, stodgy company," Berson said in the 2017 annual report.
Speaking at the capital markets day presentation, he detailed Bidcorp’s growth strategy, which is made up of three components.
The first is organic growth. It includes strategies such as exiting low-margin business, moving up the value chain and increasing the adoption of digital technology to increase the all-important speed to market.
Berson emphasised that even in markets such as the UK, where Bidcorp has a significant presence, there is still room for organic growth. "It is estimated that we have less than 15% of the UK free trade market," he said.
He is looking to sustain double-digit sales growth in the UK, which accounts for about a quarter of group trading profit. The country ranks second to Australasia, which brings in 35% of trading profit.
Complementing organic growth is a steady stream of bolt-on acquisitions. In the past financial year, the company closed deals with eight companies in six countries worth a combined R590m. Bolt-ons, said Berson, are usually made at "very attractive valuations".
But they do not greatly increase profit. To really move the profit needle, Bidcorp needs very large acquisitions — the third component of the company’s strategy. Berson described these as "very rare", and usually involving a move to a new geography.
One such deal came Bidcorp’s way last April, when it bought a 90% stake in Spanish group Guzmán Gastronomía & Cuttings (Guzmán) for R1.1bn. The acquisition of the €100m annual revenue Guzmán provided Bidcorp with its first meaningful coverage of the Spanish food services industry, which has a potential client base of 46m locals and 75m tourists.
The question is: will Bidcorp enter the $730bn US food services market? Views are mixed.
"[The company] has been looking at the US for over 10 years," says an analyst, who requested anonymity. "The market that can’t be ignored."
Mohamed disagrees. "The US is extremely competitive. I believe Bidcorp still has plenty of opportunities in other areas, such as the very fragmented European market," he says.
If a really big deal comes Bidcorp’s way, the company will be ready, with a balance sheet boasting R6bn in cash and net gearing of
On a 23 p:e Bidcorp is not at bargain-basement levels. But as the anonymous analyst points out: "In this post-Steinhoff world, you have to pay for quality and transparency."