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ALEC HOGG: If you had a long-term view you’d have seen Allan Gray pumping enormous amounts of money into Super Group, and we all sniggered on the sideline. Of course, today Super Group’s got three billion shares in issue, which is a little bit of a problem, because there’s a whole lot of shares that go around. But it also is starting to perform very nicely. The profits coming out today – it is a stock that perhaps you should be looking at again, Dave.
DAVID SHAPIRO: The results came out late, but I had a quick look at them. They doubled their profit and they are on the way to recovery. The share price not that cheap at the moment, up at an 8 P/E. So I think the market’s been pretty smart.
ALEC HOGG: Peter Mountford, the chief executive of Super Group, joins us now. Dave thinks your share price is, hmm, stretched, Peter.
PETER MOUNTFORD: Hello, Alec. How are you?
ALEC HOGG: Good, thank you. In a better frame of mind than most of the times we've spoken in the past with Super Group.
PETER MOUNTFORD: Absolutely.
ALEC HOGG: Things are looking a lot better, aren’t they?
PETER MOUNTFORD: Yes, they are. Just back to Dave’s comment, I'm not sure it looks expensive. Obviously all those P/E ratings will change tomorrow with the announcement of the headline earnings per share at 10.7c. So at 79c it's about a 7.38 price/earnings multiple, and I think it's relatively good value on the market at the moment.
ALEC HOGG: Ja, 10.7c for the year as a whole. The way you are going, you’ve doubled it from last year. Is it possible you could double it again, or are you now getting close to the capacity of the business?
PETER MOUNTFORD: No, we certainly couldn’t double it again next year, and we are getting to the type of levels that we expect the core operations to operate at. But certainly we’d expect reasonable growth next year. We’d certainly like to expect to at least achieve double-digit growth in headline earnings per share plus.
ALEC HOGG: Well, the bailouts worked. The banks are happy. They got R210m worth of interest. SARS is happy – it got R115m worth of tax. I don’t know if shareholders are quite that happy yet, because they haven't seen any dividend flows. Are they next in line?
PETER MOUNTFORD: Yes, Alec. We've said for the last 18 months on our investor roadshows that we'd reassess the dividend position in June 2012. I think that is our board’s position. We’ll look at it again at the end of the forthcoming financial year.
ALEC HOGG: But you are buying again, and I suppose that shows a sign of great health. You made an acquisition – a company called Haulcon – not a huge one for a group your size, R28m, but nice to be buying rather than having to sell, as you’ve been doing.
PETER MOUNTFORD: Absolutely. We've been saying for about the last 18 months as well that there’s certain transport and distribution niches that interest us. One is certainly pharmaceuticals and the other was bulk tankers, whether it be specialised chemical, fuel or powder transport. And certainly Haulcon meets the latter requirement. It's about a R28m-odd deal, but is a good start in that sector.
ALEC HOGG: Are you finding that Transnet’s getting any better? It is a competitor of yours, of course.
PETER MOUNTFORD: It is – although in many ways we wouldn’t see it as a significant competitor to road transport. And I think the in- and outbound logistics to rail is a tremendous opportunity into the future. We’d be supportive of a stronger rail infrastructure, and certainly there are a lot of primary products that should be moving on rail. And we’d back ourselves to do, as I say, some of that in- and outbound logistics in that scenario.
ALEC HOGG: Peter, we cover something on Moneyweb called the Mooi River Index, which is the Mooi River Toll Plaza, and that’s been rising 20% a year kind of continuously for a period now. Certainly the economy isn't rising 20% a year, and your volumes aren't either. It's got to be coming from somewhere.
PETER MOUNTFORD: Yes. There certainly is more and more road traffic, and I think that’s the story for the whole of the sort of SADC region. But it's certainly got to be good for the region ultimately if the rail infrastructure increases and if some of the projects like new ports in Mozambique come off the ground.
ALEC HOGG: So you'll benefit from the multiplier effect for the company generally. An area that you did have problems with in the past was fleets that you give to the public sector. Now, having spent a very brief period in the public sector, I know that the way that people drive cars owned by the state is certainly not quite as delicately as they would be driving their own. You must be getting the pricing right now, because it appears as though you are starting to make money out of these contracts.
PETER MOUNTFORD: Yes, we put a lot of effort into the service and maintenance costs within those fleets. We've gone through a whole lean evaluation of our Fleet Africa business. We've looked to optimise service level in our maintenance depots, we've looked to take a lot of cost out of that business. So a lot of the benefit has come through cost reduction and optimisation. But you are right – some of those fleets do have quite a high accident rate and that’s something that we've got to manage carefully as well and certainly look at all sorts of innovative driver and driver assistant training programmes in those environments.
ALEC HOGG: Peter Mountford. David, when I did my national service all those years ago, I remember one guy actually took a Jeep home and went to go and fetch it the next day and the whole engine has disappeared. That was one of many instances. So the kind of business that Super Group does with the public sector – sometimes strange things will happen.
DAVID SHAPIRO: Like a hired car. … Look, full credit to him. If you look at the results today, what do they earn? A profit of about…
ALEC HOGG: 339.
DAVID SHAPIRO: That's big money. And I think he’s turned it around very well in to a proper, serious business. Maybe a consolidation now, so we get a share price of around 79c.
ALEC HOGG: But R600m in debt, David, gearing down to 27%. This is absolutely one that can go forward. And well done to Allan Gray and the others who supported them.
DAVID SHAPIRO: Of course. Look, it's capitalised now – what, R2.5bn-odd. A serious company once more.
ALEC HOGG: Well, nice to see Super Group back on its feet. Peter Mountford sounds pretty positive about the future, saying that David’s view that it's stretched at 79c is a little pessimistic. But there are a lot of shares in issue. So perhaps sometime to consolidate them – I'm sure the board will be looking at that at a period in the future.