Imperial Holdings Ltd
Imperial holdings Ltd is an international group of companies listed under the Industrial sector on the JSE. The Group has a market capitalisation of around R 37bn and operates across different areas of transportation and mobility, both locally and abroad.
History
Imperial started out as a single Chrysler car dealership in downtown Johannesburg in 1948, and in 1973 became a Toyota dealership. Truck and car rentals were added to the Group’s offering in 1975 and 1979 respectively and, up to 1999, various transport companies were acquired to form the backbone of Imperial’s logistics business today. In 1996 the Group diversified into vehicle-related financial services, with the establishment of Imperial Bank and Regent Life Assurance. Imperial Bank was subsequently sold to Nedbank in two tranches. In 2008, the Group unbundled its leasing and capital equipment division as JSE-listed Eqstra.
Operations
Imperial Holdings Ltd is not a conglomerate that operates in disparate sectors or industries, but focusses completely on three major areas of mobility:
1. Consumer and industrial logistics
This division includes traditional logistics services in SA across almost every industry, as well as more comprehensive route-to-market solutions in the rest of Africa. Warehousing, inland waterway shipping and container port management is offered in Europe and South America.
2. Vehicle import, distribution, dealerships, retail, rental and aftermarket parts
This unit imports and distributes passenger and commercial vehicles through 126 owned dealerships in SA and 6 in Australia, with brands including Hyundai, Kia, Renault, Mitsubishi, Tata, Daihatsu and Bentley. The group operates the largest network of franchised dealerships in SA, as well as the largest pre-owned network.
3. Vehicle-related financial services
Imperial provides motor-related, value-added insurance products via its Regent brand. Around a third of the insurance business originates through Imperial dealerships, with the rest through other partnerships and call centres. Given that a large, fast-growing portion of Regent’s revenue and profits are no longer related to Imperial’s core business, Imperial is in the process of selling Regent to the Hollard Insurance Group.
Latest Results
Imperial recently released its results for the financial year ended 30 June 2015, and despite the weak rand and pressure on SA consumers the Group managed to recover somewhat from a very poor first half of the year.
Revenue grew by 7% to R 110.5bn, while operating profit increased by only 1%. Headline EPS remained stable, while core EPS dropped by 3%. However, cash flow from operating activities increased by 68% and the final dividend also grew 6% to 445 CPS.[/vc_column_text][vc_column_text]The graph below illustrates the financial performance across all three major divisions of the group, and although revenue increased across the board, operating profit in the Vehicles division fell dramatically, with import costs increasing significantly and sales numbers staying stable. Operating margins have been squeezed down to 5.4% from 7.3% last year.
Outlook
Management does not expect the current headwinds facing SA consumers and SA businesses to change markedly in the short term, and single digit growth in revenue and operating profit is expected for the 2016 financial year. A faster recovery in the German economy would improve matters for Imperial, as would an oil price recovery for its operations in Nigeria, while further rand weakness can add further pressure to its margins.
The share has a good dividend yield and is trading at levels that make it attractive to long term value investors.
Kind Regards,
Cor van Deventer
Seed Investments Portfolio Manager