SUMMARY

Position:                                         LONG

Upside target:                            R378.00

Recommended stop-loss:        R314.50

 

RECOMMENDATION: BUY

Analysts:

Peet Serfontein, Tlamelo Ntabeni

BidCorp is an international broad-line foodservice group.  It has presence in developed and developing economies on five continents.  Food services includes manufacturing, sourcing, and delivering food products from fresh to finished meal solutions.

The industry enjoys relative high barriers to entry as significant capital is required to build not only logistics infrastructure, but human capital is required in terms of delivery know-how.

Geographic scale and growing industry allows opportunities for revenue growth outside of just gaining market share.  Beyond the benefits of operating leverage, as restrictions ease, and the turnaround of underperforming businesses, there is significant scope for growth through market share gains and mix improvement.

The lower panel shows occurrences of Golden Cross signals.  A reading of one indicates when such a signal occurred.

A Golden Cross is a pattern in which a 50-peroid moving average crosses above a 200-period moving average (see the insert on the main chart).  A Golden Cross indicates a bull market is on the horison and is reinforced by high trading volumes.

 

Technical analysis

A price testing major resistance (see the black dotted trendline) makes the share attractive as an investing option.

The expectation is that the price action will break above this resistance and continue its upward trajectory.

According to the Coppock curve, downside price momentum is forming a trough. 

The recent sideways trajectory of the on-balance volume (OBV) indicator shows that money remains in the share.

The price remains above its 200-day simple moving average, which classifies the long-term trend as bullish

Our entry range is between R323 and R342 or as close to the current reference price of R332.06 as possible.

A fall below the suggested entry range suggests that a structural change in the trend has occurred, and provides reason to negate the trade idea.

Our upside target is set at R378 (13.8% upside potential from current levels).

Time to exit is mid-January 2022.

A price below R314 (5.4% below current levels) is a major concern for downside potential and is recommended as a stop-loss.

 

Long-term fundamental view

BidCorp has a well-diversified client base and businesses at different life cycles across developed and emerging geographies.

BidCorp boasts dual strategy of targeting organic and acquisitive growth spreads risk; and flexible balance sheet offers room for bolt-on acquisitions or a major transaction in a new market.

It has shown consistent profit growth generation in constant currency terms, while operating in relatively low inflation environments.  This reflects the company’s ability to sustain profits without the assistance of price increases.

This business boasts a strong balance sheet with very low debt levels.

In FY21, headline earnings per share (HEPS) from continuing operations increased 21.8% to 868.4 cents per share.

Group sales (in constant currency) in FY21 reached a low of 65% of prior year sales in the week ended 21 February 2021 (where the base was mainly unaffected), but the group saw an improvement in 4Q21 as the European and UK markets opened and the base became less demanding.

A recovery in travel, leisure and conferencing sectors could provide a near-term boost.

Risks include continued competitive pressure in what is already a low-margin industry, the loss of people, and a lack of significant annuity income, adverse currency impacts, and a resurgence in COVID-19 restrictions in the jurisdictions in which it operates.