Expansion Into Australia And Asia Pacific Will Enhance Operational Efficiencies And Future Earnings

Key Takeaways

• Strategic M&A efforts in Australia and Asia Pacific drive revenue growth through expanded market presence and synergies.
  
• Streamlined operations from exiting banking and infrastructure improvements aim to boost margins and optimize earnings.
  
• Exiting the banking industry, margin pressures, competition, and uncertainties in international markets may negatively impact Bidvest's revenue and profit growth.

Catalysts

An investment holding company, engages in services, trading, and distribution businesses in South Africa and internationally.

• Bidvest's strategic M&A efforts, including expanding their footprint in Australia and entering the Asia Pacific market, are expected to drive substantial revenue growth by increasing market presence and service offerings.
  
• The integration of acquisitions within the Hygiene and Facilities Management sectors, particularly in Australia and Singapore, is anticipated to enhance operational efficiencies and boost net margins due to synergies and economies of scale.
  
• The planned exit from the banking sector aims to streamline operations and reallocate capital more effectively, potentially increasing net margins and optimizing future earnings.
  
• Continued focus on organic growth, alongside the deployment of growth CapEx in infrastructure improvements like the Butane spheres and multipurpose tanks, is expected to bolster revenue and improve trading margins through expanded capacity and service capabilities.
  
• Anticipated political and economic stability in South Africa, coupled with reforms in sectors such as electricity and logistics, is expected to create a favorable environment for increased domestic investment, positively impacting revenue and earnings growth.

Bidvest Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bidvest Group's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.2% today to 5.6% in 3 years time.
• Analysts expect earnings to reach ZAR 8.2 billion (and earnings per share of ZAR 24.85) by about February 2028, up from ZAR 6.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.6x on those 2028 earnings, up from 13.8x today. This future PE is greater than the current PE for the ZA Industrials industry at 12.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.08%, as per the Simply Wall St company report.

Bidvest Group Future Earnings Per Share Growth

Risks

• The decision to exit the banking industry by selling Bidvest Bank and FinGlobal might result in short-term financial uncertainties and integration risks, which could impact net margins and earnings.
  
• The report of declining gross margins in Commercial Products and Automotive divisions due to raw material prices, wage inflation, and rand weakness could pressure revenue growth and net margins.
  
• Reduced maize export volumes and challenges in renewable sales present potential obstacles to maintaining growth in the Freight and Commercial Products divisions, impacting revenue and trading profit.
  
• Increased competition from Chinese and Indian automotive brands is linked with profit contractions in Bidvest’s Automotive division, potentially affecting revenue and net margins.
  
• Continued economic and political uncertainties in international markets, particularly related to acquisitions and regulatory approvals, might pose risks to M&A success and financial stability, impacting overall revenue and profit growth.

Valuation

• The analysts have a consensus price target of ZAR333.975 for Bidvest Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR146.6 billion, earnings will come to ZAR8.2 billion, and it would be trading on a PE ratio of 22.6x, assuming you use a discount rate of 18.1%.
  
• Given the current share price of ZAR259.4, the analyst price target of ZAR333.98 is 22.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.