Portfolio Manager, Peter Brooke, discusses pleasing performance from Bidvest this week and the implications of their offshore exposure, as well as performance from AVI and RCL in the food producers sector.
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Bruce Whitfield 00:05
Peter Brooke now, he is a Portfolio Manager at the Old Mutual Investment Group, and really quite stellar results coming out of Bidvest, Peter, good evening.
Peter Brooke 00:13
Ja, hello Bruce. Very exciting. Being a happy shareholder, it's nice to see some good numbers. But actually, just before we even talk about the results, the sheer scale of the company is just... they did 100 billion Rand of revenue and 10 billion Rand of profits. That's a really big business.
Bruce Whitfield 00:34
And only growing, and growing that influence not only in South Africa, where it is, you know, 80% of its revenues come from, but increasingly now as Mpumi Madisa just explained to us, expanding that influence, again, globally.
Peter Brooke 00:48
That's true. And, I mean, they grew their revenue by 13%, and their profits by 24%. So, very credible results. I suppose... the fact that they are growing offshore is good news for us, in terms of it gives us additional growth over and above the South African economy. But as a - really, Bidvest is a bellwether for the South African economy. And so, it's always interesting to read their results with that perspective. And a couple of things stood out to me, you know, their comment, "SA mining and agriculture sector remains robust. Increased investment from private sector, especially in renewables. Demand and tourism and hospitality has been increasing." That's not... that's quite pleasing to hear, in terms of things getting a little bit better out there.
Bruce Whitfield 01:36
Absolutely. And it's that sort of detail that is so important, from getting out of bed in the morning in South Africa perspective. Two companies related to food, AVI, more snacky, and RCL, more foodie. Both of those companies are pretty solid performers.
Peter Brooke 01:56
Ja, so it's super interesting. I mean, RCL was up nearly 10% on the day. I wouldn't read too much into that. It's partially because they've been very weak beforehand. So, they've pulled down 12% for the year, but they definitely produced numbers, where you've got sales up 10 and headline earnings per share up 10. The problem with RCL is it's pretty hard to gauge, because you've got sugar in there and chicken, both of which are volatile, and then you've got the rest of the businesses. So, not bad. My preference would be for AVI, they had sales up four and headline earnings up six. But you've got to remember, for both these companies to deliver actual positive earnings in an environment where food inflation is so rampant, is incredibly difficult. So, think of the wheat and maize price feeding into the bakery business for RCL. Think of price of coffee and oil and all these sort of costs coming into AVI. So, both I think did well to deliver where they did. Probably still some pressure this coming year, and you get lag impact of food inflation coming through. But then typically what happens is after that you get a benefit, because your selling price has gone up, but your cost price starts to drop. So, we look further out, and I mean more like a year and a half time, things should get better for them.
Bruce Whitfield 03:24
Ja, I mean, just generally, our market is feeling a little bit forlorn, a little bit neglected, a little bit unloved. But there's some really solid performers in this market. And again, the valuations have been attractive for a long time. And they remain attractive in, you know, amongst companies that are really performing better than they have in many years.
Peter Brooke 03:47
Ja, well, if you just think about Bidvest as an example. So, if they've done 24% earnings up, but the share price is up 10% over the last year, that means that your price earnings ratio, your valuation, has gotten a bit cheaper. And so, generally we are seeing pretty good valuation, and that flows through into better dividend yield. So, South African equities definitely look attractive relative to the rest of the world. Hope more especially against America.
Bruce Whitfield 04:21
But we do need growth, Peter. I mean, this is the thing. I saw your Economist the other day was saying yes, South Africa headed for plus 2% growth this year. And that's nice, but still not good enough, not anywhere near to where we need to be.
Peter Brooke 04:35
That's true, but don't forget Bidvest with a 24% earnings growth, in this economy. So, it's actually... you... there is inflation, plus your real GDP growth, and there is some activity. It's up to the company to get out there and make it happen.
Bruce Whitfield 04:55
Absolutely. Peter Brooke, thank you very much indeed. Peter Brooke, our market commentator this evening, he is with the Old Mutual Investment Group, on a day where the JSE added the princely amount of 21 points to end at 67,400. Financials had a pretty good day. Gold shares were positive. And we saw resources shares perform strongly, as well for much of the day. The currency was a little bit better off against the pound, the euro, and the dollar, each one of those economies with their own issues with which to contend of course.