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Super Group - Firmly on the profit road

Feb 25 2013

​Super Group was in top form in its half-year to December, lifting adjusted headline EPS (HEPS) 21,8% compared with the same period in 2011. The performance confounded analysts’ muted forecasts and, seemingly, even surprised its CEO, Peter Mountford.

“We were pleasantly surprised on the upside,” says Mountford. “Our results don’t reflect how difficult it has been.”

Super Group’s results, he says, were boosted by a few operations that “shot the lights out”. The most notable was Australian fleet management business SG Fleet, which turned in a 129% (R126m) rise in pretax profit to R224m, almost half the group total. In Australian dollars, pretax profit was up 116% and built on a 70% rise in the year to June.

SG Fleet’s showing in the latest six months more than offset a 40% (R47m) fall in Super Group’s SA fleet management unit’s pretax profit to R69m. The fall resulted from expiry of contracts with the City of Johannesburg and the Eastern Cape government. Analysts polled by I-Net expected Super Group’s HEPS growth to be limited to 2% in its year to June 2013 by the contract losses.

SG Fleet was not the only star performer in Super Group. Its SA supply chain operation also shone, lifting pretax profit 56% (R56m) to R144m. The closing of a deal to acquire 50,1% of Digistics in October and five new contracts in what Mountford says is a tough fast-moving consumer goods sector helped boost profit.

Digistics is a big business and adds over 10% to the SA supply chain business’s operating profit, says Mountford. Focused on the fast-moving food sector, Digistics provides food procurement, freight forwarding, warehousing and distribution.

Uys Meyer, a director of BlueAlpha Investment Management, believes the retail sector holds big potential for Super Group. “All retailers now want centralised distribution,” says Meyer. “We are happy holders of Super Group.”

Though Mountford does not underplay challenges presented by SA’s stalling economic growth and strong competition, he is optimistic about Super Group’s prospects. The SA fleet management business, he says, has won contracts from Polokwane municipality and Transnet and is enjoying strong ad hoc demand from municipalities at good margins.

SG Fleet also remains in strong growth mode. What should provide a big boost in the six months to June 2013 is a contract SG Fleet secured in December to manage the Australian finance & deregulation department’s vehicle fleet. According to the department, it has a fleet of 13900 vehicles worth A$405m.

Super Group appears set to better its first-half adjusted HEPS of 97c in the six months to June 2013 and achieve about 215c for the full year to December 2013. Uys agrees: “On a forward p:e of about 9, Super Group is cheap.”

Its share price, says Uys, is also underpinned by strong cash generation which, in the six months to December, was a net R606m (209c/share).

A strong financial base positions Super Group to undertake acquisitions. “They are there to be had but must be priced correctly,” says Mountford. “At 12 or 13 p:es, we have zero interest and would rather do more share buy-backs.”

Super Group’s share price is up 10% since the release of its interim results, with strong buying indicating further gains ahead. But is Super Group a better bet than Imperial, its far larger rival?

On a forward p:e of about 11,5, Imperial is itself not looking particularly expensive against the background of the JSE all share index’s 16,7 p:e. For investors bullish on transport and logistics, Super Group and Imperial both deserve strong consideration.

Source: Financial Mail, Stafford Thomas