BROKERS’ NOTES: Buy Bidvest, sell MultiChoice

Chantal Marx, head of investment research and content: FNB Wealth & Investments

Buy: Bidvest (long term)

Bidvest’s share price has not fully recovered after a soft trading update released in November. Management flagged a slowdown prior to the release, but the depth of pressure on volumes and margins in the consumer-facing businesses was more severe than anticipated. The interim results released in March, however, showed that despite this pressure the overall performance was relatively resilient — testament to the company’s diversified business model and management’s cost-containment efforts. The outlook statement was relatively positive, with management remaining confident in the group’s growth prospects. The group also has a pipeline of reasonably sized acquisitions that are being considered, which could complement its organic growth profile. We would expect a recovery in most of the strained businesses as economic conditions improve (expected from mid-2024). 

The share price is trading about 15% below its November highs (on a total return basis), and more than one standard deviation below its forward p:e and EV/ebitda averages over time. We think current levels present attractive upside for long-term investors. Technically, the stock is trading near major support, which will limit downside potential barring any significant negative surprise on the fundamentals. Still, we recommend a stop loss at R229 as this level could trigger a technical sell-off.

Sell: MultiChoice (profit take)

We still like MultiChoice from a long-term perspective, but the Canal+ offer of R125 may limit near-term upside potential. Because of heavy near-term investment in Showmax, we don’t think investors have much bargaining strength in pushing for a higher offer price and there is also substantial downside risk should the deal not go through. The regulatory hurdles attached to this deal may also result in it taking quite some time to be concluded and there will be an opportunity cost attached to staying invested in the stock while it trades close to the deal price over this time.

We will reconsider a long position in the combined entity should it ultimately list on the JSE.