With a flat share price performance over the past 12 months, Bidcorp didn’t catch the GNU upswing and thus looks like an underperformer against the bulk of the JSE.
That makes perfect sense, as very little of Bidcorp’s business is based in South Africa. This is firmly in the rand hedge bucket as one of South Africa’s very best global expansion stories.
It took the Bidcorp listing a long time to really get going, with a demanding multiple on the initial listing leading to years of flat share price performance as the group tried to grow into those shoes. This is a cautionary tale, as buying Bidcorp (or anything else) at an inflated multiple means the underlying business performance may not translate into great investment returns.
On a dividend yield of 2.5% and a p:e of 18.6, Bidcorp is clearly still recognised by the market as a high-quality company. The multiple has historically been well into the 20s, so Bidcorp is starting to become more appealing in terms of the valuation. By all accounts though, that’s still a demanding multiple.
What do you get for that price? A very strong company indeed, with a vast footprint on the global stage that generated revenue growth of 15.1% and ebitda growth of 14.4% in the year ended June 2024. The headline earnings figure was up 16%, so the top-line performance translated into solid bottom-line performance. With the dividend also up by 16% and a double-digit increase in cash generated from operations, the cash quality of earnings looks good too.
The underlying diversification in the group is a major reason why the market is happy to pay a high multiple for the business. About 43% of revenue is generated from hotels and restaurants, with 14% from caterers, butcheries and canteens and a further 12% from quick-service restaurants. There are a number of other customer verticals as well, so Bidcorp is far more than just a hospitality-facing business.
If you dig into geographical exposures, you’ll also find considerable diversification. The UK contributes 28% of revenue and Australia is good for 13%. The next few names include the Netherlands, New Zealand and Italy, with South Africa all the way down at just a 4% contribution.
If you roll it up into segmental reporting, the UK was the star of the show with 24.4% growth. Europe also did really well with 17.9% growth. Emerging Markets grew 7% and Australasia could manage only 5.4%.
Despite that uninspiring revenue growth rate, Australasia managed to expand ebitda margin from 8.6% to 9.2%. Emerging Markets maintained ebitda margin at 5.4%, as one would expect based on the revenue growth rate. The negative surprise was the margin trend in the two high-growth regions, with Europe only managing to maintain ebitda margin at 6.1% and the UK slipping from 4.4% to 3.9%, despite such strong revenue growth in both those segments.
It’s also worth taking note of how low the margin is in the UK compared with other divisions. With a primarily wholesale operation in that region, this is unlikely to change. If the UK remains a primary growth engine for Bidcorp, group ebitda margin will decrease over time due to mixed effects. The group ebitda margin was just under 6% for FY24, so the UK sits well below that average.
With the European business operating at roughly the same ebitda margin as the group average and Emerging Markets on the wrong side of the group average, this leaves Australasia as the key source of group margin uplift. Based on recent performance and the challenges in that market, that’s not a bullish outlook for near-term ebitda margin.
Margin pressures aside, the group is extremely cash generative and has a strong pipeline of acquisition opportunities. Bolt-on acquisitions have been the flavour at Bidcorp for its international expansion strategy and that won’t change, which is a good thing for shareholders. This gives Bidcorp a combined organic and inorganic growth profile that works well provided the business remains disciplined in its capital allocation decisions.
When South Africa is out of fashion, Bidcorp attracts local investors thanks to the global story and its track record. Of course, a weakening rand also helps greatly with returns vs JSE peers.
But when sentiment is more in favour of local opportunities and the rand is strengthening, as is currently the case, Bidcorp risks being substituted for the best local groups that offer similar growth at more modest multiples — and without the currency risk. Bidcorp looks like a hold for now.
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