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Super Group (SPG) will be the stock in focus: (Price at time of writing: R43.50 as 24 March 2016)
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Background and overview of Super Group
Super Group is a leading transport logistics and mobility group, headquartered in South Africa. The Group includes supply chain, dealerships and fleet solutions businesses focused on offering a comprehensive range of services, utilising world-class skills and technology. The Supply Chain division comprises Supply Chain Africa (consisting of Supply Chain South Africa and African Logistics) and Supply Chain Europe (representing the 75% interest in IN tIME acquired effective 2 November 2015);
The Fleet Solutions division comprises FleetAfrica and SG Fleet (Super Group’s 52% interest in SG Fleet Group Limited, a listed Australian fleet management business); the Dealerships division comprises Dealerships SA and Dealerships UK (being the 100% interest in Allen Ford (UK)) and Services. For more info on Super Group go to www.supergroup.co.za
Supergroup used to be the darling of the market, until they got consumed by debt while management continued to pay lavish dividends even though they had mountains of debt. Eventually the bubble popped and it's taken years and a lot of hard work for Supergroup to get back on track. Question is whether they are leaner and meaner than ever before? We take a look at the financial results below.
The Fleet Solutions division comprises FleetAfrica and SG Fleet (Super Group’s 52% interest in SG Fleet Group Limited, a listed Australian fleet management business); the Dealerships division comprises Dealerships SA and Dealerships UK (being the 100% interest in Allen Ford (UK)) and Services. For more info on Super Group go to www.supergroup.co.za
Supergroup used to be the darling of the market, until they got consumed by debt while management continued to pay lavish dividends even though they had mountains of debt. Eventually the bubble popped and it's taken years and a lot of hard work for Supergroup to get back on track. Question is whether they are leaner and meaner than ever before? We take a look at the financial results below.
Scroll over or click on the funnel chart to get more details of SPGs latest financial results
Financial review:
In Super Groups last set of financial results they obtained a operating margin of 7.2% and a net profit margin of 4.9%.The industry they are in is a extremely competitive and to keep new business coming in, margins will be squeezed as clients can easily find a new supplier of the service SPG provides if they feel that SPG is to expensive. So buyers of SPG shares should not expect much higher profit margins than what SPG is currently getting.
The graphic below shows the contribution of SPGs major divisions to their revenue and contributions to pre tax profits. What is interesting to note is that Fleet solutions only contributed 10% to Revenue yet contributed almost 50% of pre tax profits. Clearly SPG is earning massive margins on Fleet solutions. Perhaps they should focus on increasing that part of the business in order to push up overall margins achieved.
Cash generated per share for SPG amounted to close to R4.00 per share. For SPG as a whole they generated close to R1.4billion in cash during the financial period in question. This shows that SPG is extremely cash generative and that the profits generated are not paper profits (I.e asset revaluations) but actual cash business taking place. In addition to this they are sitting on a cash pile of R2.8billion (or around R8.00 per share).
What is nice to see for SPG is the fact that all three of their divisions are contributing substantially to revenues and pre-tax profits. Their dealerships is where they earn the lowest margins, as it brings the largest chunk of revenues but lowest contribution to pre-tax profits.
The only concern we have with SPG right now is the build up in inventories during the financial period. The question is whether this is a planned build up of stock, or whether stock is taking long to be moved to consumers. Our guess is consumers are under severe pressure and they are struggling to move the stock off dealership floors. Possible and current investors in Supergroup should keep a close eye on their inventories. If it continues to grow, one can expect lower margins from SPG as they start dropping prices to move stock sitting in inventories.
They share the market with strong competitors. Especially in the transport and logistics space. Thin Grindrod, Onelogix, Value logistics all active in this sector. Greater competition leads to lower margins (unless a niche market is served, which of the aforementioned Onelogix is covering with the movement of abnormal load cargo).
What is nice to see for SPG is the fact that all three of their divisions are contributing substantially to revenues and pre-tax profits. Their dealerships is where they earn the lowest margins, as it brings the largest chunk of revenues but lowest contribution to pre-tax profits.
The only concern we have with SPG right now is the build up in inventories during the financial period. The question is whether this is a planned build up of stock, or whether stock is taking long to be moved to consumers. Our guess is consumers are under severe pressure and they are struggling to move the stock off dealership floors. Possible and current investors in Supergroup should keep a close eye on their inventories. If it continues to grow, one can expect lower margins from SPG as they start dropping prices to move stock sitting in inventories.
They share the market with strong competitors. Especially in the transport and logistics space. Thin Grindrod, Onelogix, Value logistics all active in this sector. Greater competition leads to lower margins (unless a niche market is served, which of the aforementioned Onelogix is covering with the movement of abnormal load cargo).
Valuation:
Based on SPG current financial results, its foothold in the industry, the market they operate in, and their strong cash position and cash generation capabilities we value SPG at between R55.36 and R56.10
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question