Super Group (SPG)
Super Group provides logistics and mobility solutions across sub-Saharan Africa, the UK, Europe, and Australasia. The company offers a variety of supply chain, dealership, and fleet solutions.
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The company boasts strong geographical and divisional diversification. Vertical integration offers margin benefits.
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The balance sheet is solid and provides scope to make further bolt on acquisitions when the opportunity arises and trade through downturns.
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FY23 results were solid, underpinned by strong revenue and operational performances from all key businesses and across all geographies. Healthy demand for the logistics and fleet solution offerings was supported by management's strong focus on operating efficiencies as well as rigorous cost controls.
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Management's outlook for FY24 was positive.
Super Group itself (on a forward PE of 6.6 times) offers reasonable value, and this remains the case, particularly when excluding its investment in Australian-listed SG Fleet (forward PE of under 3 times).
Reunert (RLO)
Reunert manages various businesses within three operating segments: Electrical Engineering (EE), Information and Communication Technologies (ICT), and Applied Electronics (AE). Outside of South Africa, it also operates in Australia, India, Lesotho, Mauritius, the United States, and Zambia. Established in 1888 by pioneers, Theodore Reunert and Otto Lenz, the group has played a major role in the South African economy for more than a century.
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The company has a diversified portfolio of quality assets, which are supported by good market fundamentals.
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Reunert is well run with good ROE, strong cash generation, and a high dividend yield.
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The solid cash generation capability of the group, together with the headroom in its bank funding capacity, provides adequate financial resources to fund operational and strategic initiatives and dividend payments.
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Post Covid-19, revenue has grown at a CAGR of 17.6%, while segment operating profit was up 14.6% per annum. Revenue was about 4% above pre-Covid-19 levels in 2022 and operating profit still about 10% below.
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The group had a strong start to FY23, with headline earnings per share (HEPS) for the first half improving 36.6% y/y, and revenue growing 21% y/y to R6.2 billion. For FY23, revenue is expected to grow 20.9% to R13.5 billion and earnings by 45.3%, with growth tempering in FY24 to 10.9% and 13.5%, respectively.
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The full-year result will be supported by the level of orders received in both EE, specifically the Power Cable businesses, and in AE. The ICT segment is expected to deliver an improved y/y performance on the back of the accelerated growth of +OneX and stable growth from the Total Workspace Provider and Business Communications cluster.
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The group, through its AE business, is well positioned to benefit from the renewable energy thematic, with current demand for the Renewable Energy cluster's products and services accelerating due to sustained levels of load-shedding in South Africa.
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The company will benefit from a weaker rand in two ways - higher export demand and lower import competitiveness.
On valuation, Reunert is trading on a forward PE of 7.8 times and a forward dividend yield of 4.9%, which remains attractive. The company boasts a strong balance sheet and delivers good cash flows through the cycle.
Raubex (RBX)
Raubex is one of southern Africa's leading construction and development groups. The group operates across four main divisions, namely Materials Handling and Mining (providing material-handling, screening and contract-mining services), Roads and Earthworks (specialising in construction, rehabilitation and surfacing), Infrastructure (offering construction solutions to various other avenues including renewable energy, facilities management, telecommunications, housing and commercial buildings) as well as Construction Materials (focuses on the supply of aggregates, asphalt and value-added bituminous products). The group also operates in Western Australia in both the roads and earthworks and the general civil engineering market.
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The group's management team is held in high regard, given its excellent track record of delivering strong growth within a tough industry.
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Recent financial metrics have also been impressive. In FY23, both revenue and HEPS climbed ~32% y/y as an uptick in construction activity drove a healthy contribution from all businesses. This was complemented by a strong operational performance across the board.
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The group is in a better liquidity position than before (due to stronger cash generation), and the balance sheet is in good standing.
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The Materials business holds a commanding share of the SA market, and hence the group stands to benefit from any improvement in construction activity - whether it wins contracts or not.
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An added bonus is that the group is vertically integrated (i.e., construction materials are supplied internally to both the Roads and Infrastructure divisions).
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Raubex holds a significant amount of work-in-hand and considering that only a few of the major players in the construction industry remain (i.e., large contracts can only be awarded to a limited number of firms), the overall outlook is positive.
On conservative forecasts, the company trades on a forward PE of ~5.8 times and an expected dividend yield of ~5.2%, which seems attractive - even in a challenging market.
Fairvest (FTB)
Fairvest is an internally managed South African REIT that is focused on retail assets in non-metropolitan areas servicing the lower LSM market. The current portfolio is made up of 137 retail, office and industrial properties valued at R11.9 billion.
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The retail portfolio (currently 66.6% of total gross lettable area [GLA]; 49.8% of total property income) is made up of smaller convenience retail centres with an average GLA just above 7 000m² per centre, located in non-metropolitan and rural areas (close to commuter nodes).
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The group remains focused on retail assets with ongoing plans to dispose of several office and industrial properties. These proceeds will be used to find further opportunities in the retail sector with enhanced growth/yield prospects.
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The portfolio boasts solid fundamentals with low-mid-single-digit vacancies, over 90% tenant retention, positive reversions, and strong lease escalations (70% to 80% of the portfolio is expected to grow by 6.6%). Further improvements are expected as the group addresses some of the vacancy issues in the Arrowhead assets (either through disposals or property management). The companies merged last year.
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The company's debt profile is relatively healthy, with a loan-to-value ratio of 38.4%. Further improvements are expected as management plans to use a portion of the proceeds from the disposal of Indluplace to pay down debt (LTV target of ~33%) and for share buybacks.
Fairvest B is trading on a forward distribution yield of ~12.9%, which appears attractive. We like the quality of the portfolio (particularly the core retail assets), management, and operations, as well as its accretive asset recycling programme.
CA&S (CAA)
CA Sales Holdings, or CA&S (Collaboration Activation & Sales) Group, is a collective of fast-moving consumer goods (FMCG) retail solution businesses with operations across southern Africa. These businesses offer route-to-market services to leading domestic and international manufacturers and brand owners of consumer packed goods. The group operates in eight southern African countries, with broad trade coverage from informal and convenience segments, through to formal and corporate stores across all major centres.
CA&S' primary services include warehousing and distribution (~85% of group revenue) as well as retail execution and advisory services which encompass sales, merchandising, shopper marketing, enabling technology and data solutions, brand promotion and activation, training as well as selected debtor services, category consultation, and key account assistance.
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The business enjoys market dominance in and around Botswana, given its unparalleled infrastructure and industry-leading software and analytics. This has facilitated increased market share for the group's clients through speed of distribution and reduced cost-to-market.
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The client and product portfolio is diverse in terms of tiers, brands and channels. CA&S services the top 200 international and local blue-chip brand owners of consumer packed goods, including the likes of Distell, Diageo, Tiger Brands, Kellogg's Simba, Nestle, and Unilever.
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Clients own established consumer brands that generate revenue irrespective of whether consumers are trading up or down. Its geographical diversity also bolsters business resilience, with a spread of markets balancing out instability in any single area.
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CA&S has a healthy growth strategy, pursuing a mix of 80% organic growth and 20% acquisitive expansion opportunities. Management is also investing in IT infrastructure to build a long-term digital capability, while developing solutions and new acquisitions that add to its digital capacity and learning.
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Through the years, the group's strong balance sheet and robust business model have helped it weather the unprecedented levels of risk and global uncertainty, while taking advantage of opportunities in the marketplace.
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Covid-19 had an adverse impact on performance, but the business bounced back quickly and strongly and proved resilient through the pandemic, maintaining profitability through effective cost containment measures and robust demand for the clients' underlying products.
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The group has a conservative capital management approach, maintaining low gearing, with a long-term debt-equity ratio <15% (5yr average: 18%), which provides ample headroom for organic and acquisitive growth.
The listing on the JSE (June 2022) brought with it a larger compliance and cost burden but provided access to a bigger marketplace. This raised the company's profile within South African-based retail and institutional investors, and increased liquidity as the volume of shares traded increased significantly. Appetite has remained restrained in the retail space and with limited coverage of the stock, it remains undervalued.
At 9.3 times, the company is trading below its two-year average historic PE. The company has continuously delivered robust returns, with ROAs averaging 20% over its long-term history. We value CA&S' shares at R9.69, offering ~33% upside from its current share price of R7.30. This puts CA&S on a forward PE multiple of 10.2 times in FY23E and 10.1 times FY24E, based on our current forecasts.
