The resilience of the diversified services group was enabled by the company’s widespread portfolio of businesses.
Bidvest owns a vast array of businesses that span diversified services like car dealerships, airlines, toilet hire, banks, real estate, food services and information technology. Now the diversified services or conglomerate business model is no longer in vogue.
It is outmoded and yet since 1988 Bidvest has grown from being a fledgling pet foods dealer to one of the largest companies listed on the Johannesburg Stock Exchange on the back of the same model. This diversified services model has given it the strength to withstand the shocks from the pandemic and also to weather the adverse economy in its home country and abroad. The company has made a resounding comeback.
Bidvest has gained a worthy reputation for being a value accretive investment for shareholders over the years. Its blue-chip status is well deserved, it has returned 18% in capital gains to its investors over the last year and 45% over the last 5 years. This diversified services group known as Bidvest should be on every savvy investor’s radar and watch list!
Conglomerate companies are no longer fashionable.
Nowadays the buzzword in corporate lingo is the focus. Not diversity but focus. Conglomerates were fashionable once upon a time. In the United States in the 1960s it was in vogue for large companies to diversify their operations away from their core competencies to other unrelated businesses. This strategy was aimed at halting the slowdown in earnings by buying other businesses whose earnings were vibrant.
The US company which made it cool to be a conglomerate was ITT in the 1960s which was led by Harold Geneen a celebrated US businessman. He was chief executive of the company which would because a formidable telecoms group but at that time it was a stodgy conglomerate with a coterie of businesses.
According to a leading British tabloid in the 1960s:
“Over the ensuing decade Geneen purchased over 300 companies operating in over 60 different countries. There was no rationale to these purchases, no common thread, other than that of profit. Sheraton hotels, Avis car hire, Continental Baking, were all tucked away in ITT’s roomy locker.”
Harold Geneen was celebrated for his success in managing a company with so many moving parts. Conglomerate companies are in every country in the world from first world countries to those in less developed parts of the world. In the Philippines, a mention of the name Ayallah recalls one of the largest conglomerate companies in that country which is run by family patriarch Jaime Augusto Zobel de Ayallah.
The company is a massive collection of diverse businesses operating in every sphere of the economy. In Columbia, the Santo Domingo family owns the largest conglomerates which exerts great influence over the economy. In Zimbabwe, any mention of the name Shingi Mutasa and TA Holdings immediately recalls a conglomerate company whose interests ranged from fertilizer manufacturing, fuel service stations, real estate, financial services, and hotels.
Now Brian Joffe and the Bidvest Group are arguably modern South Africa’s equivalent to Harold Geneen and ITT. Brian Joffe is a business magnate and entrepreneur extraordinaire.
He is a Jewish man whose mother had preferred that he become a medical doctor to be an accountant. He initially pursued his mother’s dream but quickly dropped out of medical school. He then began reading for an accountancy degree and graduated from Wits University.
He and a partner started a pet foods business and made a success of it. Joffe sold the business and made US$ 1 million from his interest. He moved to the United States and spent a considerable amount of time there playing golf. He then returned to South Africa and started Bidvest in 1988.
This venture has since grown to be a massive conglomerate with interests in food services, automotive, commercial products, financial services, freight, branded products, and services. The foodservice business was spun off into a separately listed entity named Bidcorp.
The business still has its founder’s imprint on it. Brian Joffe was notorious for being blunt and taking no prisoners. It’s reported that once upon a time when purchasing a GM dealership, he made a statement that the GM brand was worth zip. His comments caused so much disquiet at the event that his top lieutenants were at pains to emphasize to GM executives that his views did not represent those of the company. He is also superstitious it is reported that whenever he buys a new company, he never signs the agreement of purchase and sale with a brand-new pen.
He would rather look for the most chewed up and worn-out pen there is and signs the document with it. The man has had such a long and successful record of acquisitions that he would be forgiven for not wanting to tempt fate.
Brian Joffe is retired from the company he founded. He left some in 2017 to start a company called Long 4 Life. The company was more of a hobby to keep him busy in retirement than a business venture. From the illustrious business career of the company’s founder, it’s not possible to describe the Bidvest Group without the use of superlatives and hyperbolic language.
In the 6 months to the end of December 2021, the company achieved ZAR 50 billion in revenues which were up 13% from the previous period. If this trend continues it will be well on course to earning ZAR 100 billion in annual revenues.
Board chairman Bonang Mohale described the company’s results as phenomenal. Bidvest’s portfolio of businesses is organized into 6 divisions. All divisions recorded double-digit profit growth and expanded their respective market shares. The company employs 112,000 people.
The company’s financial performance according to its top brass was underscored by its disciplined approach to cost management which has helped its margins. Bidvest achieved a profit for the 6 months of ZAR 5.1 billion. A fifth of the profits came from the company’s international operations. This buoyant performance enabled the company to not only pay a dividend of 380 cents per share but also one which was 31% higher than in the same period last year.
The company generated very healthy cash flows in 2021. When it reported its financials it’s shares jumped by as much as 6.99%.
The company increased debt on its balance sheet from ZAR 2.2 billion to ZAR 15.5 billion. It ended the year with free cash flow at ZAR 6.6 billion which was up from ZAR 5.9 billion the year before. The company is starting to invest in its future with increased capital expenditure which it reported was back to pre-pandemic levels.
The group is thriving again. It raised US$800 million from bond issuance and can embark on acquisition without asking shareholders for more money. The group financially and operationally is firing on all cylinders however, its financial services unit was a lag in its performance. The division slowed down by 6% in terms of revenues and increased impairments.
The company also has exposure to the property market which has been adversely affected by the pandemic both in terms of value and its earnings. This too was a drag on the company’s resurgence. Bidvest has 130 properties worth ZAR 8 billion.
Going forward acquisitive growth remains a priority for the company. The company is bullish about the next 6 months and sees opportunities in infrastructure development and renewables. Bidvest’s operating units are lean and structured for growth according to the company’s chief executive Mpumi Madisa. The inclusion of this stock needs to be a point of consideration for investors in their portfolios. Bidvest is a highly defensive share whose diverse operations across business activity and geography provide a very lucrative rand hedge for its investors.
This is the consensus view on the share, and its share price so far.