The Bidvest Group (BVT ZA)

Jul 10, 2022 | Stock Picks

The Bidvest Group is a service, trading and distribution company focused mainly in South Africa.  The company specialises in services, private sector freight management; commercial, and automotive retail, among others.

The company recently completed the 100% acquisition of the PHS Group for an enterprise value consideration of £495 million (approximately R9.1 billion).  PHS is the number one hygiene service provider in the UK and holds top positions in Ireland and Spain.

Fundamentally, we view Bidvest as a well-run business with a committed and highly regarded management team.  The company is well diversified across a variety of sectors—both cyclical and non-cyclical, with no one segment contributing more than 25% to profit.

Technically, a price action that remains in an inclining channel pattern, makes the share attractive as an investment opportunity (see the black parallel trendlines on the main chart as well as the insert).  The expectation is for the price action to progress upwards to test the upper range of this pattern (which is our profit target).

According to the Relative Strength Index (RSI), the price seems to be overbought at R280.00.  This classifies our profit target of R248.00 as realistic.

 

SUMMARY

Position:                                               LONG

Upside target:                                 R248.00

Recommended stop-loss:           R198.00

 

Recommendation:                         BUY

Analysts:

Peet Serfontein, Thabiso Mamathuba

 

Technical analysis

The lower panel shows the duration of the bullish trend in weeks.  The upward trajectory indicates that the share remains longer in a bullish trend once established.  This scenario might assist the share to remain in a bullish trend for longer, and will support the positive bias towards the share.

The price action remains above its 200-day simple moving average which is at around R200.00.  As long as a share price remains above the 200-day SMA on the daily time frame, the share is generally considered to be in an overall uptrend and bullish in nature.

Downside price momentum according to the Coppock curve remains a concern.  However, it would appear that the indicator is bottoming out.

The entry range is between R205.00 and R219.00.  Our upside target is set at R248.00 (+18.6% upside potential from current levels).  This level is at the upper range of the inclining channel pattern.

Time to exit is early September 2022 (taking a medium-term stance).  Keep the option open to close the trade idea if the price action reaches our profit target in a shorter time.

A price action below R198.00 (-5.3% from current levels) remains a major concern for downside potential and is recommended as a stop-loss.  This level is at the lower range of the inclining channel pattern.

Expect some medium volatility in the price action going forward.

 

Long-term fundamental view

Bidvest is a well-run business with a committed and highly regarded management team.  The group is mostly service-driven, and is well diversified across a variety of sectors—both cyclical and non-cyclical—with no one segment contributing more than 25% to profit.

The company boasts a strong balance sheet with significant cash on hand.  Cash generation is strong and should result in lower gearing going forward.

The recent acquisition of the PHS Group (based in the UK) has provided offshore exposure and is in line with Bidvest’s strategic intent to diversify into the services industry internationally.

The 10-month business update was solid, with management noting that half-year momentum has continued into the remainder of year, which was a key highlight.  All divisions delivered an excellent performance and likely gained further margin share with strict cost controls supporting trading profit growth.

We retain our favourable long-term view of this counter and view it as a key beneficiary of a continued (albeit slower) recovery in SA and UK economic growth and thematic support for hygiene services globally.

Risks to our fundamental views include weak macros in SA and the possibility that global trade could take several years to improve.  Gearing is expected to increase, but should remain manageable following the PHS acquisition. In addition, the cancellation of the Eqstra acquisition should help to preserve liquidity and shore up the balance sheet as the group navigates through tough trading conditions.