Bar its European supply chain unit, Super Group has seen strong growth across its portfolio in the year to June 30. Yet the share price remains attractively valued despite the revenue and profit growth.
In the 12 months, Super Group’s revenue jumped 30.6% to R61.8bn, headline earnings were 23.3% higher at R4.69 a share and the dividend increased by 27% to 80c apiece.
One key to Super Group’s success is its global diversification. The company’s operations outside South Africa contributed 54% to revenue and 56% to operating profit. Among its three divisions, fleet solutions remains the profit-spinner.
SG Fleet, which manages about 260,000 vehicles in Australia, New Zealand and the UK, saw revenue jump 23.6% to R12.1bn while operating profit rose 23% to R1.6bn. The Fleet Africa unit, which operates in Kenya, Botswana and South Africa — a key growth area for the group, according to CEO Peter Mountford — posted a 1.2% increase in revenue to R1.1bn and an 8% rise in operating profit.
On the supply chain side, which includes road haulage, warehousing, vehicle rentals and courier services, Super Group coined some serious growth. The Supply Chain Africa unit delivered revenue growth of 38.3% to R17.8bn, while operating profit was up by almost half to R1.26bn. That was made possible by the increasing use of technology, large customer wins, and inroads in the hospitality, entertainment and quick service restaurants industries.
The troubles at Transnet Freight Rail, in moving commodities to port, also benefited Super Group.
“Coal volumes are up 12% on the prior year,” Mountford says. “A lot is exports going through Maputo.” That’s despite the recent decline in coal prices. “At this stage we haven’t seen a significant softening of our export coal volumes.”
Whereas the African unit is printing profits, things aren’t as rosy up north.
Supply Chain Europe, where the company operates in 10 countries, had a 30% increase in revenue to R4.4bn. However, an operating margin of 2.7%, compared with the African unit’s 7.1%, means it eked out a small pretax profit of R20.6m.
“The reason for the underperformance in Supply Chain Europe is absolutely volume related,” Mountford says “We’ve taken significant costs out of that business and our volumes are 25%-30% below where they need to be.”
Optimising the unit includes consolidating more shipments onto larger vehicles, higher average kilometres per load and increased recovery of diesel and other operating costs.
Super Group is now banking on its R810m acquisition in July of UK-based Amco to drive volumes higher.
On the supply chain side, which includes road haulage, warehousing, vehicle rentals and courier services, Super Group coined some serious growth
“The Amco acquisition will make a significant impact on [volumes],” Mountford says. “Amco is seeing significant volumes coming through from clients in the UK, including automotive.” Big production increases — as much as 33% — at customers such as Bentley, Land Rover, Rolls-Royce and Jaguar will drive demand for road haulage in the next year, he added.
The problem, it seems, is in Germany “where volumes are very disappointing across a lot of luxury brands”.
As global vehicles and vehicle parts shortages subside, Super Group’s dealerships units in the UK and South Africa fared much better than the previous financial year. In the UK, sales jumped 44.6% to R15.7bn, partly driven by the opening of a Ford, two Suzuki, two Kia and two Hyundai dealerships. The performance came despite higher interest rates and cost of living pressures damaging consumer confidence in the UK.
“We’ve got record order books in the UK,” says Mountford. “We’ve not been unable to fully fulfil on outstanding orders, particularly in the Ford brands in the UK.”
In South Africa, the dealerships’ revenue was up 14.5% to R10.6bn, and cost containment led to a 20.5% jump in operating profit. The unit’s operating margin widened to 3.9% from 3.7% a year earlier, compared with the UK unit’s most recent margin of 2%.
“We think the [South African] margin will erode slightly to 3.6%-3.7%,” Mountford says.
But is it a buy? Super Group trades at an earnings multiple of 7.4 and a dividend yield of 2.3%. What is remarkable though, given the company’s capital-heavy balance sheet, is the latest return on earnings. That improved to 11% for the year through end-June from 10.8% in the prior year.
No wonder the company bought back R528m of its shares in its most recent financial year. “We are still targeting share buybacks,” says Mountford. “We still see significant value in the underlying Super Group share and at this point in time we would still be focused on a dividend cover of approximately six times.”
That may be a fair assessment. Super Group’s price-to-book value is 0.75 times, implying a 25% discount to the company’s net assets.
Thus, some upside for investors, or in their absence, the company itself.
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