Bidvest Group: South African Exposure

| About: Bidvest Group (BDVSY)

When many look to South Africa for investments, natural resources such as diamonds, gold, platinum and coal are first to come to mind. While natural resources are certainly a driving force, it is not the only opportunity for investment. Bidvest Group, Ltd (OTCPK:BDVSY) is a large multifaceted international conglomerate that prides itself on its decentralized management and an entrepreneurial spirit. While I just referred to the company as a conglomerate, it is a term the management is careful not to use when describing its own business. For a high level overview of the company I could do not better than what I found on the website to describe the company and it culture. The excerpt below if from

We're an international services, trading and distribution company,listed on the JSE, South Africa and operating on four continents. We employ 104 000 people worldwide,but our roots remain South African. In a big business environment we run our company with the determination and commitment evident in a small business heart. We believe in empowering people, building relationships and improving lives. Entrepreneurship, incentivisation, decentralised management and communication are the keys. We subscribe to a philosophy of transparency, accountability, integrity, excellence and innovation in all our business dealings. We turn ordinary companies into extraordinary performers, delivering strong and consistent shareholder returns in the process. But most importantly, we understand that people create wealth,and that companies only report it.

Bidvest was founded by its current chief executive, Brian Joffe with the intention of raising capital to acquire underperforming service businesses and then create an environment for the acquired businesses to flourish. With that goal in mind, the company made its first acquisition in 1988 and many more in the years following. Since that first investment, the group has provided strong returns to shareholders. Bidvest has grouped its businesses into four units known as Bidvest South Africa, Bidvest Foodservice Group, Bidvest Namibia and Bidvest Corporate.

The Bidvest South Africa division is the group's largest employer providing various products and services and is made up of 10 subdivisions based in South Africa.

  • Bidvest Freight provides freight management through various independent companies focused on terminal operations and logistics, international clearing and freight forwarding, logistics and marine services. This subdivision is the largest revenue and profit producer within the South African division and has benefited from increased commodity demand, which should continue.
  • Bidvest Paper Plus is a manufacturer, supplier and distributor of commercial office products, printer products, stationary, packaging products and other services.
  • Bidvest Automotive is a large motor vehicle retailer and servicer in South Africa. The division boasts 116 dealerships and service outlets offering leading brands including Alfa Romeo/Fiat, Ford )F), General Motors (NYSE:GM), Mercedes-Benz, Toyota (NYSE:TM), Volkswagen/Audi (OTCPK:VLKAF), Fiat (FIATY.PK), Chrysler, Land Rover and other major names. The division is also involved in vehicle auction services. Thanks to strong new car sales, the division saw revenue increase 17.4% in the year ended June 30, 2011, with Volkswagon/Audi coming in as the top performer.
  • Bidvest Office is a distributor of stationary, furniture, and office automation products and services. A few of its brands include Konica Minolta, Océ, and Walton's Stationary Company. The furniture segment has struggled as of late, but the division has been supported by its technology businesses.
  • Bidvest Travel and Aviation provides travel management and aviation services as well as car rentals. For the year ended June 30, 2011, the group achieved a revenue increase of 8.1%% and profits rose 32.3%.
  • Bidvest Services provides integrated and specialized security solutions, cleaning services, vehicle tracking, landscaping and other commercial services. The security and cleaning services businesses both saw strong performance in the year ended June 30, 2011.
  • Bidvest Rental and Products is a supplier of specialty clothing, industrial products, hotel amenities, commercial plantscapes, hygiene and drinking water equipment rentals. For the year ended June 30, 2011, revenue increased 9.7% and profits were higher by 16.3%. Poor performance by the garment and hotel amenities businesses was overcome by strong performance in industrial products and hygiene equipment rentals.
  • Bidvest Electrical is a manufacturer and distributor of various electrical products and services including cables, wiring accessories, lighting supplies, hand tools, test instruments, surge protection and distribution equipment. Due to the recessionary environment for construction, this division has been under pressure.
  • Bidvest Banking and Insurance provides a broad range of financial products and services. Pretax profits at Bidvest Financial Services soared 44.6% while Bidvest Bank also turned in a strong performance with a pretax profit increase of 17.9% for the year ended June 30, 2011.
  • Bidvest Industrial offers a full range of Yamaha products, Nissan imports,, electrical appliances, packaging closures and catering equipment.

Bidvest Foodservice is the largest foodservice operator outside of the United States with operations in Africa, Europe, Australia, New Zealand, Singapore, Hong Kong, China, and the Middle East. This division is responsible for nearly half of the revenue of the entire Bidvest Group and is broken down into three operating segments: Europe, Asia Pacific, and Southern Africa. Revenue increased slightly in the year ended June 30, 2011, driven by strong performance in the Asia Pacific region which offset a weak performance in Europe.

The Bidvest Foodservice division has recently drawn the attention of potential suitors that placed a value on the unit in the neighborhood of $4 billion. Potential suitors may have included Sysco (NYSE:SYY)1, an affiliate of Blackstone Group (NYSE:BX)2, which owns Performance Food Group, and Kohlberg Kravis Roberts & Co. (NYSE:KKR)3 unit U.S. Foodservice, Inc. The Bidvest Board of Directors has made a decision to pass on the offers and continue to expand the foodservice division organically and through further acquisitions. It should be noted the stock got a nice pop when the news was released, but has given back all of those gains.

Bidvest Namibia is a Namibia-based holding company with operations similar to Bidvest South Africa. Bidvest Nambia is split into two holding companies. BidCom has operations in freight, services, foodservice, industrial products and commercial products. BidFish is the holding company for the fishing and related processing operations. Bidvest Namibia turned in a strong performance for the year ended June 30, 2011, due to strong fishing results. Revenue was up 9.5% and profits increased 46.8%.

Other than providing the strategic direction for the overall group as well as other management services, Bidvest Corporate also has investments in the Bidvest Wits Football Club, Stellar Africa, which represents athletes, real estate and MCSSPORTS, which is involved in sports marketing, events management, sports memorabilia and public relations.

This is a very high-level overview of a large international company with many moving parts and the intention of the article is to bring to the surface a potential investment that may otherwise be overlooked. Therefore, detailed research would be required prior to making an investment in Bidvest. The company provides a wealth of information on its website and this document (pdf) provides a great overview of its performance for the year ended June 30, 2011.

(1) Sysco Corporation (SYY) is a major foodservice operator with over 180 locations throughout the United States, Canada, and Ireland. The company sells, markets and distributes food products to restaurants, healthcare, educational facilities, the lodging industry, and other various customers.

(2)The Blackstone Group L.P. (BX) is an alternative investment and advisory firm. It alternative asset management is involved in the management of private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. The firms advisory services include financial and strategic advisory, restructuring and reorganization advisory and fund placement services.

(3) Kohlberg Kravis Roberts & Co. (KKR) is a alternative asset manager specializing in large, complex buyouts. The firm has three primary business including private equity, fixed income and capital markets.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCPK:BDVSY over the next 72 hours.

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