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Friday 19 April 2019
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Bidvest management lack conviction-Simonis Storm

Following poor financial performance in the recently-released financials, the management of Bidvest Namibia has been accused of lacking conviction of a turnaround strategy that could spark any major recovery soon. Simonis Storm analyst Megameno Shetunyenga said the results are very disappointing and fell short of our forecasts, adding that with pressure coming from all divisions in the group, “we hoped to see a turnaround in the Food and Distribution division, however clearly that did not come through the numbers.”
In the 2017 financial year results released last week, the operating profit for the group declined by 50% to N$187.4million compared to N$377.3mn recorded in 2016. Headline earnings continue to be depressed, declining by 74.0% to N$47.5million compared to N$182.6million in 2016. According to a Simonis Storm report titled “Bidvest Namibia Limited: No case for recovery soon”, calculations of cost of equity at 16.4% and ROIC of recent acquisitions gives an indication that shareholders would have been better served if the cash was returned to them as a dividend.” “We still expect management to hold off any major acquisitions in the medium term and focus on improving current business operation investment returns, if not to dispose of the non-performing divisions.  Management has indicated that they will use excess cash to pay of remaining debt and prefer to hold on to remaining cash reserves instead of rewarding shareholders with a special dividend. BVN is trading at a Tangible P/B of 0.8x. Should this not trigger a buying opportunity for investors?
We do not think so anymore, considering the uncertainty of future performances and possibility of further asset impairments going forward. Bottom line, management lack conviction of a turnaround strategy, hence we do not foresee any major recovery soon.” indicates the report. He further added: “In addition to the tough Namibian economic environment, we see the challenges that haunted the group in the past to continue into the future, we concur with management and do not foresee any turn around soon.” According to Shetunyenga, the challenges that haunted the company most include uncertainty of quota allocations and the threat of new foreign and public sector entrants in the local fishing market, prevailing operational inefficiencies in the Food and Distribution division and a seemingly poorly executed capital allocation strategy with value destructive acquisitions through T&C and Novel Motor Company.
Bidvest’s management indicated that they are currently in discussions, which if successfully concluded, may have a material effect on the price of the company’s securities and that they are not actively looking for acquisitions. In the 2016 annual report, the company said although the group’s revenue increased by 9,2% to N$3,9 billion, its trading profit decreased by 28% to N$294,9 million.  The increase in revenue was mainly attributed to the acquisition of Novel Motor Company, which made a N$755,2 million contribution to revenue.




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