BROKERS’ NOTES: Buy Bidcorp, sell Spar

Buy: Bidcorp

Recently Bidcorp, the food service group with 90% of its operations outside South Africa, provided an encouraging performance update with trading profit increasing a very respectable 10% in a low food inflationary environment. Though interest rates have slowly started coming down in many markets, Bidcorp hasn’t really seen any improvement in consumer behaviour and sentiment.

Many consumers spend more time at home and do not eat out as much as they did in the past. The operating environment remains tricky. Food inflation has disappeared, but core inflation tracks higher than food inflation in most parts of the world. The good news is that revenues continued to reach record levels into the first week of November.

Bidcorp CEO Bernard Berson notes: “Our teams have once again risen to the occasion and performed brilliantly in a tough environment, executing very well on a clear and deliberate strategic framework.” Bidcorp is a long-term must-have.

Sell: Spar

Convenience store retailer Spar is fighting running battles on many fronts. In September shares dropped 14% as it announced its exit from Poland at a great loss and with the associated debt of R2bn remaining. In its upcoming earnings report, due this week, analysts expect no growth in earnings per share and that revenue will be down by about 38% from the prior year-end quarter.

Spar is also reviewing the rest of its European portfolio with a view to further sales. It’s interesting that Bidcorp is doing so well with its overseas portfolio and keeps adding new divisions and companies but that Spar, by contrast, is retreating on its international fronts. Spar shares are a sell at this delicate juncture.

- William Meyer, founder of Fenestra Asset management