Santova has released its full-year results and, after a horror first half, it managed to deliver a small decrease in headline earnings per share (HEPS) of 6.4% — but investors need to keep in mind that the second half included a full six months from the chunky Seabourne acquisition, which helped to fill in a big hole in the earnings from the first half.
During the results webinar, CEO Glenn Gerber listed the various regions where Santova operates, with a recurring theme: it’s tough out there. In the year just gone, US tariffs caused a collapse in both volumes and freight rates, which hit all parts of the business.
The conflict in the Middle East is also not doing anything for the shipping situation, but at least after the tariff chaos, the industry has had a year to adjust.
No dividend was declared, as per Santova’s long-term strategy; instead, it is focused on building value per share. But share buybacks in the past year have been pretty muted, just about offsetting the dilution from employee options being exercised. If the HEPS line doesn’t get moving, Santova will have to materially ramp up buybacks.
Santova now operates in a market that is oversupplied globally, and with higher inflation and interest rates, the cost of living has put pressure on consumers’ buying power. Thus, the supply chains that facilitate moving goods from manufacturers to customers are thin on volumes. Santova is hoping for a better year ahead, but it is a case of wait and see.
Barca’s long-term intentions at Santova remain unclear
In relation to the Seabourne acquisition, this appears to be tracking with management expectations. This represents a move away from Santova’s traditional business into e-commerce fulfilment and express delivery. It also adds some hard costs and assets into the Santova business.
The Seabourne acquisition also came with an associated debt funding package from Santova’s long-term banking partner, Nedbank. Santova is generally a cash-generative business (even if this is lumpy at times), and it has a good track record of converting ebitda into cash. The debt is amortising monthly and priced at prime minus 0.5%, and the repayments have already started.
Management has stated that the Seabourne integration is complete and that the Santova and Seabourne teams are working collaboratively on cross-sell opportunities between the various customer bases to drive revenue and growth. We will get further evidence of how this transaction is performing at the half-year results.
The US business delivered another loss, though shareholders can take some solace that some of the onerous leases associated with the US operations will be exited in the next financial year. Gerber remains committed to the US market and, while one can understand the strategic rationale of having a presence in the US to complement Santova’s global footprint and the potential for future profits from a large market, management and the board must not be afraid to pull the plug if no tangible improvements are evident in the near term.
Santova also has US hedge fund Barca Capital still on its share register with a little over 20% of the share capital. At last year’s AGM, it managed to get all its resolutions passed after 25%-plus of shareholders voted against its remuneration and implementation policy at the 2024 AGM, primarily as a result of Barca voting against the remuneration resolutions.
Barca’s long-term intentions at Santova remain unclear. How it votes at the AGM in July would be something to monitor. Getting into JSE-listed small caps is the easy part; getting out of them, especially at size, can be very difficult, especially for institutional players. Barca could end up being an overhang on the Santova stock price if and when it decides to exit its position.
So where does all this leave shareholders and potential investors? A cautious wait-and-see approach looks like the most prudent course of action. Once we get results for the first half of 2027 in late November, we will have a clearer indication of three key things. First, have current trading conditions improved in Santova’s transitional fourth-party logistics business? Second, is the Seabourne acquisition panning out as intended and meaningfully contributing to the profitability of the group? And, third, has the US business moved into at least a small profit position as opposed to its long history of losses since its acquisition?
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