Hudaco has long been regarded as one of the JSE’s more reliable compounders. Its niche distribution model, centred on importing and supplying leading brands such as Makita power tools, Partquip automotive parts, Cadac gas products and various bearings parts to both industrial and consumer-facing sectors, has consistently generated growth even in South Africa’s stop-start economy.
From headline earnings of R13.55 a share in 2019 to R20.12 in 2024, the group has delivered a compound annual growth rate of about 8%. Yet despite this steady performance, the share price has barely budged over the past year, trading at roughly R180. That leaves Hudaco on a trailing multiple of just nine times earnings — low for a company with such a long record of execution.
The interim results for the six months to May 2025 underscore the story of resilience. Group sales slipped 2.4% to R3.9bn as mining and manufacturing, together contributing a third of turnover, contracted sharply. Yet operating profit rose 1.5% to R419m with operating margin improving from 10.4% to 10.8%. Headline earnings climbed nearly 20% to 938c a share, and the interim dividend rose 7.7% to 350c a share.
Commenting on the results, CEO Graham Dunford said the group had succeeded by “managing the things within our control”, highlighting “a really good result” in gross margin, which nudged higher to 37.8%. He added that generating R442m of cash from operations in such a difficult climate was “an important sign of a healthy business”.
Still, the macroeconomic backdrop weighs heavily on sentiment. “South Africa, as we all know, has been recorded as one of the most difficult places to do business in, and we’re really feeling it,” Dunford admitted in the results presentation. He lamented the decline of mining’s contribution to GDP, from 21% in the 1980s to about 6%-7% today, calling the sector’s 4.1% contraction in the half-year a major drag.
Our businesses are cash generative even in a tough economy … and borrowings are well within our capacity
— CFO Clifford Amoils
Manufacturing, too, has been in retreat, leaving Hudaco with the challenge of maintaining sales in shrinking markets. That it has kept mining and manufacturing at 32% of sales in such a context is notable, but the broader question is how long investors are willing to reward operational resilience without top-line growth.
The acquisitions of Isotec, which manufactures and distributes thermal and electrical insulation materials used in manufacturing and repairing transformers and electrical motors, and Flosolve, a specialist supplier of lubrication, filtration, fuelling and related equipment solutions to the mining and industrial sectors, illustrate the group’s strategy of supplementing organic growth with bolt-ons.
Though their contributions were marginal in the first half, they will be fully consolidated in the second half and are expected to strengthen Hudaco’s position in electrical power transmission and mining services respectively. Dunford was upbeat: “We’re excited about their contribution in the second half,” he said, noting that Hudaco traditionally posts a stronger second half. CFO Clifford Amoils reinforced this point, reminding shareholders that “the second half of the year is much stronger when it comes to earnings and cash flow”, with fewer holiday disruptions and higher trading intensity.
The stagnant share price likely reflects investor fatigue with the South African macro story rather than company-specific issues. As management conceded, Hudaco is a South Africa Inc business. Policy drift, governance failures, rising costs and chronic power instability all weigh on growth prospects. “Unless these issues are addressed through robust action by government,” the results commentary warned, “it will be difficult to achieve the kind of inclusive economic growth required.”
Investors may also be discounting Hudaco’s exposure to consumer spending, where pressure on disposable incomes has kept volumes under strain. Even within its consumer division, automotive and data networking businesses performed well, but batteries, power tools and security equipment “really struggled”, according to Dunford.
Yet the valuation is hard to ignore. A trailing multiple of nine, coupled with an attractive dividend stream — consistently covered by cash flows — presents a strong case for investors seeking reliability. Hudaco has repeatedly shown its ability to generate cash, preserve margins and fund growth through acquisitions without stretching its balance sheet.
Net borrowings remain comfortably within covenants even after the recent R250m payment for Isotec and R45m for Flosolve, and Amoils reiterated the group’s capital allocation discipline: dividends first, acquisitions when available, debt reduction and opportunistic buybacks. “Our businesses are cash generative even in a tough economy … and borrowings are well within our capacity,” he said.
As an importer and distributor of everything from car parts and power tools to batteries, security equipment and industrial bearings, Hudaco may not appear exciting at first glance, but its consistent track record of compounding returns makes it a compelling anchor in uncertain markets. The share price drift around R180 may reflect investors’ reluctance to pay up for anything linked to the domestic economy.
But for those with patience, the current valuation offers a chance to buy into a business with a long record of delivery, a steady hand on costs, and the capacity to grow earnings through organic recovery and acquisitions. As Dunford put it in closing: “The potential for Hudaco is enormous … if our country’s leadership can create a conducive environment for business growth, Hudaco is well placed to take advantage of any uptick in activity.”
For investors willing to wait, that might just be the entry point worth considering.
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