Sustainability Initiatives And AI Adoption Will Improve Operational Efficiency

Key Takeaways

• Bidcorp's expansion through acquisitions and infrastructure investment is expected to enhance market share, operational efficiency, and future revenue growth.
  
• Strong operational management in high inflation environments and focus on sustainability may boost margins and investor appeal.
  
• Challenging economic conditions, high startup costs, inflation, market uncertainties, and currency volatility could hamper Bid's revenue and profitability.

Catalysts

Engages in the provision of foodservice solutions in Australasia, New Zealand, the United Kingdom, Europe, Africa, South America, Asia, the Middle East, and internationally.

• Bidcorp's continued investment in infrastructure, such as opening new warehouses and distribution centers in key geographies, is expected to provide a platform for future growth and enhance operational efficiencies. This is likely to benefit future revenue and margins.
  
• The company's strategy of expanding through acquisitions, particularly in emerging markets and regions such as the Baltics, will likely provide additional revenue streams and market share gains, enhancing Bidcorp's earnings potential.
  
• Bidcorp's resilience in managing high inflation environments in countries like Turkey and Argentina, alongside its ability to maintain and even improve margins, suggests strong operational management that could drive future net margin improvements and earnings growth.
  
• The focus on sustainability, including significant reductions in emissions and energy consumption, may lead to future cost savings and align with growing global emphasis on ESG factors, potentially improving net margins and investor attractiveness.
  
• The use of artificial intelligence to leverage Bidcorp's rich data for sales and procurement efficiencies may lead to improved operations and customer insights, offering potential improvements in net margins and driving future revenue growth.

Bid Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bid's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 3.9% in 3 years time.
• Analysts expect earnings to reach ZAR 10.5 billion (and earnings per share of ZAR 31.38) by about February 2028, up from ZAR 8.0 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 24.6x on those 2028 earnings, up from 19.9x today. This future PE is greater than the current PE for the ZA Consumer Retailing industry at 20.8x.
• Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.94%, as per the Simply Wall St company report.

Bid Future Earnings Per Share Growth

Risks

• Challenging economic environments in multiple geographies, such as New Zealand, the U.K., and some European countries, could dampen future revenue growth as consumer spending power is affected.
  
• High costs associated with starting up new facilities in places like the U.K., Italy, and Australia, which could impact net margins and delay return on investments intended for future growth.
  
• Persistent inflationary pressures on wages across various regions, especially where wage growth outpaces food inflation, could compress net margins by increasing the cost of doing business.
  
• Market uncertainties in Asia, particularly China and Hong Kong, due to low consumer sentiment and changing market conditions, may affect revenue generation and earnings growth in those regions.
  
• Currency volatility, especially related to reporting in different currencies, could impact real earnings and financial reporting, creating unpredictable effects on revenue and profitability.

Valuation

• The analysts have a consensus price target of ZAR494.643 for Bid based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ZAR560.0, and the most bearish reporting a price target of just ZAR421.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR271.3 billion, earnings will come to ZAR10.5 billion, and it would be trading on a PE ratio of 24.6x, assuming you use a discount rate of 15.9%.
  
• Given the current share price of ZAR476.0, the analyst price target of ZAR494.64 is 3.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.