BidCorp (BID ZA)

Mar 11, 2022 | Stock Picks

SUMMARY

Position:                                         LONG

Upside target:                            R389.00

Recommended stop-loss:        R312.00

 

Recommendation:                      BUY

 

Analysts:

Peet Serfontein, Thabiso Mamathuba

 

BidCorp is an international broad-line food service group with a presence in developed and developing economies on five continents.  Key customers include catering groups and the restaurant industry.  The company’s most significant markets are the UK and Europe.

The industry enjoys relatively high barriers to entry, as significant capital is required to build not only logistics infrastructure, but also human capital.  Other key barriers would be Bidcorp’s e-commerce platform and strong customer relationships.

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 improvements.

Technically, an incomplete rising wedge pattern makes the share attractive as an investing option (see the black converging trendlines on the main chart as well as the insert).  This pattern turns bearish once it has matured.  The expectation is that the price will first test the upper range of this pattern before correcting.

According to the Relative Strength Index (RSI), the share will be overbought at ~R405.00. This classifies our profit target of R389.00 as realistic.

 

Technical analysis

The lower panel shows the Relative Strength Index (RSI), which measures the magnitude of recent price changes to evaluate overbought or oversold levels in a share price.

The grey rectangle represents stability in the price where there are no significant fluctuations.  This is good when a bullish trading setup occurs, and it shows that there is a balance between supply and demand.  Over the long term, prices generally increase in such a scenario.

The price remains above its 200-day simple moving average.  A continued price above this level keeps the long-term trend bullish.

Our entry range is between R323.00 and R345.00.  Our upside target is set at R389.00 (+15.9% upside potential from current levels).

Time to exit is mid-April 2022.  Keep the option open to extend the time exit should the price move sideways or reach our profit target in a shorter time.

A price below R312.00 (-7.1% from current levels) is a major concern for downside potential and is recommended as a stop-loss.  We expect high volatility in the share price near term.

 

Long-term fundamental view

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

The company is not overly exposed to any one specific client or market category.  Market leading positions in countries of operation provide BidCorp some pricing power in a low-margin industry.

BidCorp’s 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.

Geographic scale and a growing industry allow opportunities for revenue growth outside of just gaining market share.

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

For the first half of 2022, management guided for headline earnings per share (HEPS) to increase between 68% and 73%—but with a more demanding second-half base to come.

A recovery in travel, leisure and con-ferencing sectors could provide a continued 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, as well as adverse currency impacts and a possible resurgence in COVID-19 restrictions in the jurisdictions in which the company operates.